TKH Group N.V.

Untitled TKH GROUP ANNUAL REPORT 2021 ANNUAL REPORT 2021 TKH GROUP | TKH GROUP ANNUAL REPORT 20212 CONTENT PROFILE 3 MESSAGE FROM THE CEO 4 HIGHLIGHTS 2021 * 6 TECHNOLOGY COMPANY TKH 8 WHO WE ARE AND WHAT WE DO 9 Strategic model * 9 Mission & vision 10 Core values * 11 Smart technologies * 12 Group synergies 13 THE WORLD AROUND US 14 External environment * 14 Megatrends 15 Market drivers and position within technology segments 16 Competitive landscape 17 Stakeholder analysis 18 CORPORATE STRATEGY 20 Confrontation matrix 20 Accelerate 2025 21 Strategic pillars and targets * 22 LONG-TERM VALUE CREATION * 24 MANAGEMENT REPORT * 26 BUSINESS DEVELOPMENTS 27 SUSTAINABILITY PERFORMANCE 28 Being responsible and sustainability impact 29 Talented people and empowerment 37 Sustainable development goals 42 FINANCIAL PERFORMANCE 45 Group financial performance 45 Developments per business segment 47 Acquisitions, divestments and investments 50 OUTLOOK 51 GOVERNANCE 52 Members of the Executive Board * 53 Members of the Supervisory Board 54 Report of the Supervisory Board 55 Remuneration Report 62 Corporate Governance * 70 Risk Management * 72 Management Statement * 81 TKH Shares * 82 SUSTAINABLE PORTFOLIO 83 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 95 Consolidated statement of profit and loss 96 Consolidated statement of comprehensive income 97 Consolidated balance sheet 98 Consolidated statement of changes in group equity 99 Consolidated cash ﬂow statement 100 Notes to the consolidated financial statements 101 COMPANY FINANCIAL STATEMENTS 138 Company statement of profit and loss 139 Company balance sheet 140 Notes to the company financial statements 141 OTHER INFORMATION 148 Profit appropriation 149 Proposal for profit appropriation 149 Independent auditor’s report 150 Assurance report of the independent auditor on non-financial KPIs 156 Stichting Administratiekantoor TKH Group 158 Stichting Continuïteit TKH 159 Consolidated entities 160 Non-financial reporting process and methods 164 Ten years overview 168 Alternative performance measures 170 The paragraphs marked with a * belong to the Management Report as defined in Title 9, Dutch Civil Code 2. Our mission is to create best-in-class technologies in the field of Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. TKH aims to create sustainable value for all its stakeholders and provides disruptive technologies that improve efficiency, sustainability, safety, and security. The technologies are combined with internally developed software to create Smart Technologies and one-stop-shop solutions with plug-and-play integrated PROFILE TKH Group N.V. (TKH) is a leading technology company focused on advanced innovative technology systems in high-growth markets. SMART CONNECTIVITY SYSTEMS SMART MANUFACTURING SYSTEMSSMART VISION SYSTEMS systems. TKH operates globally, with its growth concentrated in Europe, North America, and Asia. Employing 6,160 FTE, TKH achieved a turnover of € 1.5 billion in 2021. TKH is listed on Euronext Amsterdam with the ticker symbol TWEKA. TKH reports in three segments: Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. 3 TKH GROUP ANNUAL REPORT 2021 | | TKH GROUP ANNUAL REPORT 20214 MESSAGE FROM THE CEO OUR EMPLOYEES’ COMMITMENT AND PASSION IS THE KEY TO OUR SUCCESS Our strong recovery in 2021, during the continued challenges of COVID-19, shows the strength of TKH. It has enabled us to organize sufficient capacity to cope with an exceptional increase in demand in a very short period of time. But the strong recovery in market demand for our technologies and innovations has also confirmed the strength of our portfolio. Despite the ongoing impact of COVID-19 in 2021, our organization adapted well to new working standards and challenges related to the pandemic. Traveling to and connecting with our customers was difficult, since in-person meetings were still largely prohibited. This made it difficult to commission equipment at our customer’s sites. Supply chain problems required close cooperation with our suppliers, as well as the creativity of our procurement teams to find solutions for shortages of materials and components. The right entrepreneurial spirit within our organization to cope with these challenges was again an important success factor for the results we achieved during 2021. We are proud to publish our Annual Report to show the strong growth and developments of the TKH Group in 2021. At the same time though, our thoughts go out to all people in Ukraine, and in particular our 128 employees and their families in the area of Kiev. We are deeply concerned about the war and we are monitoring the situation carefully. We will support them across our organization as much as possible in this difficult and uncertain time. The Capital Markets Day (CMD) on November 17 was a key highlight in 2021. The new targets for 2025 based on our Accelerate 2025 program give us a strong foundation for future growth. Moreover, our new focus on segmentation, based on our three core technologies, as well as the megatrends we presented, should make our business more transparent and give us a better idea of the potential to create value in the coming years. The importance of Environmental, Social, and Governance (ESG) issues, and the United Nations Sustainable Development Goals (SDGs) to which they are aligned, is driving aware- ness for sustainable business. We have set ourselves challenging new goals, which we communicated at the CMD. One of our key goals is to achieve net-zero emissions across our operations by 2030. We took an important step this year in that respect by obtaining limited assurance on selected non-financial KPIs as disclosed on page 28 of this report. Although it is already embedded in our strategy, sustainability is also becoming an increasingly important element in our portfolio. Approximately 70% of our turnover is linked to SDGs that TKH has identified as highly relevant to our business, thus demonstrating how future-oriented our company is in this area. We would like to thank our stakeholders for their trust and cooperation, which has helped make this challenging year positive nonetheless. A special thank you goes to our employees for their incredible dedication, passion, and commitment, and for achieving the best possible results in sometimes challenging situations! On behalf of the Executive Board, Alexander van der Lof, Chairman 5 TKH GROUP ANNUAL REPORT 2021 | HIGHLIGHTS 2021 KEY MESSAGES TKH WORLDWIDE THE NETHERLANDS € 340 mln turnover ASIA € 293 mln turnover NORTH AMERICA € 169 mln turnover EUROPE (OTHER) € 686 mln turnover OTHER € 36 mln turnover STRONG RECOVERY DESPITE CONTINUING COVID-19 DISTURBANCES • Sharp increase in market demand met with well-organized adaption of increased production capacity to support this demand • Strength of our innovative technology portfolio confirmed by strong market demand • Execution of R&D road map well on track to support growth plan, with good development market traction of innovations within all three technology segments • Well-structured and strong organization dealt with supply chain challenges • Strong position and focus to take advantage of megatrends and support organic growth in the coming years LAUNCH OF ACCELERATE 2025 New targets with a focus on • Turnover: > € 2 billion turnover by 2025 • ROS: > 17% by 2025 • Sustainability: own operations 100% carbon neutral by 2030 (scopes 1 & 2) New segmentation based on Smart Technologies to enhance transparency in reporting and valuation • Smart Vision systems • Smart Manufacturing systems • Smart Connectivity systems INNOVATIONS • Remained high, with a 19.8% turnover share • Increased focus in R&D programs to maximize value creation | TKH GROUP ANNUAL REPORT 20216 KEY FINANCIAL FIGURES KEY NON-FINANCIAL FIGURES DIVIDEND PROPOSAL per (depositary receipt of an) ordinairy share 1.50 € 2020 1.00 E EBITA 189.6 € MLN 2020 135.5 E MLN TURNOVER 1,523.8 € MLN 2020 1,289.4 E MLN ROS 12.4% 2020 10.5% ROCE 20.5% 2020 14.0% ORGANIC GROWTH 15.9% 2020 -9.9% +18% +40% +50% NET CO 2 FOOTPRINT REDUCTION compared to reference year 2019 29.8% 2020 17.8% DIVERSITY Female Executive and Senior Management 17.7% 2020 16.8% +67% +18% ACCIDENT RATE (LTIFR) 0.7 2020 0.8 TURNOVER LINKED TO SDGs 68% 2020 70% -2% -13% ESG ASSURANCE First year of assurance on non-financial KPIs (number of KPIs) 11 2020 0 SATISFACTION GRADE EMPLOYEE 7.4 2020 7.4 +2% +11 CUSTOMER 8.4 2020 8.1 7 TKH GROUP ANNUAL REPORT 2021 | TECHNOLOGY COMPANY TKH WHO WE ARE AND WHAT WE DO 11 Strategic model 11 Mission & vision 12 Core values 13 Smart technologies 14 Group synergies 15 THE WORLD AROUND US 16 External environment 16 Megatrends 17 Market drivers and position within technology segments 18 Competitive landscape 19 Stakeholder analysis 20 CORPORATE STRATEGY 22 Confrontation matrix 22 Accelerate 2025 23 Strategic pillars and targets 24 LONG-TERM VALUE CREATION 26 Positioned as technology leader, TKH aims to create advanced best-in-class Smart Technologies to improve its customers’ efficiency, sustainability, safety and security VISION SMART TECHNOLOGIES STRATEGIC PILLARS ENTREPRENEUR- SHIP ENVIRONMENTAL AWARENESS TRANSPARENCY ACCOUNTABILITY INTEGRITY MISSION Create Smart Technologies for sustainable value creation CORE VALUES INNOVATION AND TECHNOLOGICAL LEADERSHIP BEING RESPONSIBLE AND SUSTAINABILITY IMPACT TALENTED PEOPLE AND EMPOWERMENT SUSTAINABLE FINANCIAL PERFORMANCE TKH is a leading innovative technology company. We create best-in-class technologies for Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. These technologies are combined with in-house developed software to provide one-stop-shop solutions and integrated plug-and-play technology systems. TECHNOLOGY COMPANY TKH SMART CONNECTIVITY SYSTEMS WHO WE ARE AND WHAT WE DO KEY TARGETS TURNOVER > € 2 billion by 2025 RETURN ON SALES (ROS) > 17% by 2025 RETURN ON CAPITAL EMPLOYED (ROCE) 22-25% by 2025 CARBON FOOTPRINT (CO 2 EMISSIONS) 100% carbon neutrality in own operations by 2030 (scopes 1 & 2) - reduction of CO 2 footprint compared to reference year 2019 % OF FEMALE EXECUTIVE AND SENIOR MANAGEMENT > 25% by 2030 ACCIDENT RATE (LTIFR) < 1.0 STRATEGIC MODEL SMART VISION SYSTEMS SMART MANUFACTURING SYSTEMS 9 TKH GROUP ANNUAL REPORT 2021 | | TKH GROUP ANNUAL REPORT 202110 Innovation is key to the success of TKH. Investing in disrup- tive technologies is vital to maintaining our position as a leading technology company and maximizing sustainable value creation for our stakeholders and the world around us. Our innovations are focused on the creation of advanced Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. TECHNOLOGY COMPANY TKH MISSION & VISION INNOVATIVE TECHNOLOGY PLAYER TKH IS AN INNOVATIVE TECHNOLOGY COMPANY MORE THAN 15% TURNOVER REALIZED BY NEW INNOVATIONS CREATION OF ADVANCED TECHNOLOGY SYSTEMS 30% OF OUR TECHNOLOGY PROPOSITION IS SOFTWARE DRIVEN 750 FTE IN R&D AND SOFTWARE DEVELOPMENT 3,500+ PATENTS TO SECURE VALUE PROPOSITION More than 15% of our turnover is realized by innovations that have been introduced in the last two years. About 30% of our technology proposition is software-driven, developed by in-house engineers. In total, there are 750 employees active within R&D and software development, and we have regis- tered more than 3,500 patents to secure our value proposi- tion. The continuous acceleration and scaling of our innova- tions is essential to maintaining our leading position and fostering growth. Positioned as a technology leader, TKH strives to create advanced best-in-class technologies in the areas of Smart Vision, Smart Manufacturing, and Smart Connectivity, both to maximize sustainable value creation and to improve our customers’ efficiency, sustainability, safety, and security. TKH is well positioned in high-growth markets, where we focus on megatrends related to industrial automation, the energy transition, digitalization and safety & security. TKH aims to be an attractive employer and a solid investment for its shareholders by keeping socially responsible business practices at the center of its activities. CONTINUOUS ACCELERATION & SCALING OF INNOVATIONS 11 TKH GROUP ANNUAL REPORT 2021 | CORE VALUES TKH creates its technologies in a sustainable and socially responsible manner, using the expertise of our talented people. Our employ - ees stay true to our key corporate values of entrepreneurship, environmental awareness, transparency, accountability, and integrity. ENTREPRENEURSHIP – we take ownership of observing new opportunities and we are driven to excel in our roles and responsibilities. ENVIRONMENTAL AWARENESS – we foster a focus on sustainability and we are keen to contribute positively to the environment and society. TRANSPARENCY – we strive for an open culture and we act transparently. ACCOUNTABILITY – we make the appropriate choices after careful consideration and we take responsibility for our decisions. INTEGRITY – we value honesty and we act respect- f ully to colleagues, customers, and other stakeholders. STRONG SUSTAINABLE PORTFOLIO TKH has chosen six Sustainable Development Goals (SDGs) to guide our approach to sustainability. Two of these focus on our internal operations and business practices, with the remaining four focusing on our innovative product portfolio. TKH’s innovative products make a significant contribution to the SDGs: approximately 70% of our portfolio’s total TECHNOLOGY COMPANY TKH turnover is linked to one of the SDGs that we have defined as relevant. In this way, we support our customers in achieving their sustainability goals and simultaneously provide a clear direction for our own company’s sustainable development. SELECTED SUSTAINABLE PORTFOLIO EXAMPLES SMART VISION SYSTEMS SMART MANUFACTURING SYSTEMS • Tire Building Technology focus on environment and e-mobility leads to different tire requirements • Advanced technology to lower waste and energy consumption levels in production • Medication distibution/inspection system • 2D and 3D Vision technology which results in increase in productivity and improvement of quality • Cyber security solutions for mission critical communication • Parking guidance systems increase efficiency, safety and security INDUSTRY, INNOVATION AND INFRASTRUCTURE SUSTAINABLE CITIES AND COMMUNITIES INDUSTRY, INNOVATION AND INFRASTRUCTURE GOOD HEALTH AND WELL-BEING INDUSTRY, INNOVATION AND INFRASTRUCTURE AFFORDABLE AND CLEAN ENERGY SMART TECHNOLOGIES ± 70% OF OUR TURNOVER IS LINKED TO ONE OR MORE OF THESE FOUR SDGs SMART CONNECTIVITY SYSTEMS • Fibre optic cable systems • Energy cable systems for the energy transition • Subsea cable systems for offshore wind farms • CEDD/Airfield ground lighting system; energy saving and increase of efficiency | TKH GROUP ANNUAL REPORT 202112 SMART TECHNOLOGIES TECHNOLOGY COMPANY TKH TKH creates Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. Our technologies are combined with in-house developed smart software to provide one-stop-shop solutions and integrated plug-and-play technologies. TKH leverages its unique expertise to create superior manufacturing systems, capitalizing on our deep under- standing of automating production processes in different industries. Our systems and machines contribute to highly efficient manufacturing and processing. There are four building blocks at the foundation of our unique Smart Manufacturing systems: • High-level system and assembly engineering skills and know-how. • Advanced in-house software development and engineering. • Integration of TKH Smart Vision and Smart Connectivity technologies. • Development of advanced control and analytical functions. TKH aims to create value for its customers with its Smart Manufacturing systems by optimizing and further automating customers’ processes, reducing inventories, increasing ﬂexibility, and fostering highly efficient manufacturing. Our Smart Manufacturing systems serve industries from tire production for cars and trucks to factory automation and medicine distribution. Our Tire Building systems represent a share of around 68% of turnover within the Smart Manufacturing systems segment. TKH creates state-of-the-art Vision technology, which represents about 86% of the turnover of the Smart Vision systems segment. This technology encompasses 2D and 3D Machine Vision and Security Vision systems. Combining these technologies with in-house software development leads to unique, Smart, and integrated plug-and-p lay systems and one-stop-shop solutions. We aim to create value for our customers by optimizing and further automating their processes using Vision technology. TKH’s Machine Vision technology systems are used to improve quality inspections, operations, and object monitoring in numerous industries, such as consumer electronics, factory automation, logistics, wood industry, intelligent transport systems (ITS), and medical and life sciences. Meanwhile, our Security Vision systems, combined with advanced communication technologies, enable customers to efficiently manage and control the urban environment. They also improve sustainability, safety & security in various markets, such as infrastructure, parking and building security. SMART VISION SYSTEMS TURNOVER PER SEGMENT in % Smart Vision systems Smart Manufacturing systems Smart Connectivity systems 2021 28 27 45 SMART MANUFACTURING SYSTEMS 13 TKH GROUP ANNUAL REPORT 2021 | GROUP SYNERGIES TECHNOLOGY COMPANY TKH With our decentralized operating model, we strive for a high level of entrepreneurship and a winning culture. We stimulate and incentivize group synergies, which are important for our value creation strategy, allowing us to support our companies in offering distinctive solutions to our customers at attractive cost levels. Our group synergies are realized mainly in the following areas: • Integrated and combined technology systems across our three technology segments. • Large-scale in-house software development through a centralized competence center, which serves SMART CONNECTIVITY SYSTEMS TKH creates advanced Smart Connectivity systems, engineering complete, unique solutions that bring together our integrated system approach with our sustainability proposition. Our solutions are developed for on-shore and off-shore energy distribution. At TKH, we aim to add value for our customers thanks to our increased focus on sustainability, our combination of hardware technology with intelligent software (creating Smart Technolo - gies), and our integrated system approach. Energy and Digitalization represent, respectively, around 33% and 38% turnover share of the Smart Connectivity systems segment. Another important area is Fibre Optic connectivity systems for data and communication networks. In addition, TKH produces specialized cable systems for industrial automation applications in high-tech environments. TKH also provides a unique connectivity technology for airfield ground lighting systems: contactless energy and data distribution (CEDD). This connectivity system consists of hard - ware components and intelligent software, to improve the efficiency and safety of specific airfield applications. operating entities in each segment with building blocks that can be applied to multiple entities and segments. • Cooperation between operating companies, to utilize synergies for example related to supply chain. • Centralized software development leadership. • A unique pool of talent that enables the transfer of skills and knowledge. • Group functions that foster cooperation, innovation, and growth. • Group management, resources, and competencies to scale up initiatives to sizable business units. • Strong TKH branding and reputation, market access, and global footprint. SMART MANUFACTURING SYSTEMS SMART CONNECTIVITY SYSTEMS CUSTOMERS OPERATING COMPANIES GOVERNANCE & SUPPORT FUNCTIONS SMART VISION SYSTEMS OPERATING MODEL ENTREPRENEURIAL CULTURE • Strategy based on innovation and business opportunities. • Clear business plan with SMART goals and road map. • Compensation aligned with performance. • Key employees participate in share-based compensation plans. • Decentralized operating model. • Organizations close to customers – high level of customer intimacy. • Delegated P&L responsibility and authority. • SMART targets and strong monitoring system to control output. PLAN AND REWARDS • Drive to win. • Strong capitalization on new business opportunities. • High-performance execution. • Short lines of communication. • Management development program and meetings. • Inspiring environment. • Diverse workforce. GOVERNANCE MODEL OPERATING MODEL | TKH GROUP ANNUAL REPORT 202114 THE WORLD AROUND US EXTERNAL ENVIRONMENT TECHNOLOGY COMPANY TKH TKH operates in a dynamic environment. Trends and developments are key indicators for defining our corporate-level strategy, while national and international situations can impact our day-to-day operations. In a review of our current environment, we identified a number of external factors and grouped them into relevant trends. TALENT Scarcity of human resources AUTOMATION Industry 4.0 and Smart Manufacturing DIGITALIZATION Higher-speed bandwidth networks MATERIALS Scarcity of natural resources ESG Increased focus on ESG drivers & targets IT & DATA SECURITY Preventing cyber attacks SMART CITIES Safe & secure living environment PANDEMIC COVID-19 GOVERNANCE Transparency and law & regulations LIFE SPAN Aging TRANSPARENCY Requirements for openness CLIMATE The climate is rapidly changing LAW & REGULATIONS Increase in regulation HEALTHY & SAFE LIVING ENVIRONMENT Promoting health 15 TKH GROUP ANNUAL REPORT 2021 | MEGATRENDS TECHNOLOGY COMPANY TKH Based on the external environment and trends and developments we have selected certain megatrends that are relevant as important growth drivers and shape the future of our strategy and Smart Technologies. SUSTAINABILITY • Increased focus on environment, social, and governance (ESG) drivers and targets drive public and private ESG ambitions and investments. • Strong governmental ambitions and focus on existing policies (e.g. the United Nations Sustainable Development Goals (SDGs), the Paris Agreement, the EU Green Deal). • Global attention on the reduction of greenhouse gas emissions is accelerating the energy transition. SAFETY & SECURITY • Boom in data acquisition applications with integrated smart technologies brings high demand for cyber security aligned with privacy regulations. • Greater security focus owing to geopolitics and globalization, coupled with a lack of surveillance officers. • Smart Cities and infrastructure play a growing role in safe and secure environments. AUTOMATION & DIGITALIZATION • Industry 4.0 is driving “hands-off, eyes-off” manufacturing – shortage of personnel. • Technology systems are increasingly complex, which drives demand for larger-scale technology partners. • Cloud computing, big data, artificial intelligence, machine learning, and Internet of Things (IoT) demand the continuous development of higher-speed bandwidth networks. | TKH GROUP ANNUAL REPORT 202116 MARKET DRIVERS AND POSITION WITHIN TECHNOLOGY SEGMENTS TECHNOLOGY COMPANY TKH • High demand for automation due to movement toward Industry 4.0 and “hands-off, eyes-off” manufacturing. • Continued increase in demand for more productivity and improved quality. • Lack of human resources and rising labor costs drive demand for automation. • Progression of cloud computing, big data, artificial intelli- gence, and machine learning leads to demand for new technology systems. • Greater complexity of technology systems drives demand for trusted technology partners. • Increased need for safe and secure buildings and infrastruc- ture. • Rise in advanced IoT-based products leads to automation becoming a high priority. • Trend toward advanced mobility technologies that support the increased need for enforcement and monitoring. • Trend toward more local manufacturing to reduce invento- ries ask for integrated tire manufacturing systems and enable highly efficient production of small batch sizes. • Support manufacturing through automation closer to end-customers, reducing carbon footprints, inventories, and delivery times. • Scarcity of human resources and rising labor costs drive demand for automation. • Increased volume and types of tires requires more ﬂexibility in production. • Greater focus on road safety and security drives demand for high-quality tires. • Demand for reduced waste and energy consumption in production fuels the need for advanced technologies. • Energy transition requires more power generation from renewable sources. • Public and private ESG ambitions, budgets, and targets drive investments. • Scarcity of natural resources drives the energy transition. • Growth in demand for electricity, both in general and as an alternative energy source to fossil fuels. • Global need for high-speed bandwidth and data traffic. • Increased demand for connected assets (IoT). • Need for advanced mobility – such as autonomous driving and ITS – leads to an increased need for data connections. • Greater demand for monitoring of essential network elements. • Growth and increased speed of automation technology require reliable connectivity systems. SMART VISION SYSTEMS SMART MANUFACTURING SYSTEMS SMART CONNECTIVITY SYSTEMS MARKET POSITION WITHIN TECHNOLOGY SEGMENTS • Unique positioning thanks to our full range of Vision Technology for customized, one-stop-shop solutions and integrated systems based on Smart Technologies. • A global market and technology leader within 3D Machine Vision technology. • Strong global position in high-growth markets with superior 2D Vision and Security Vision technologies. • Unique positioning thanks to our integrated manufacturing systems, including advanced control and analytical functions. • Global market leader in the Tire Building industry with > 70% market share. • Differentiation, innovation and technological leadership in Tire Building are all higher than the competition. • Integrated proprietary Vision Technology is a key driver for success in Smart Manufacturing systems. • Unique positioning thanks to our integrated system approach and one-stop-shop offering combined with 24-hour deliveries. • Market leader in Benelux and strong position in North and Western Europe in Fibre Optics technologies. • Advanced robotics and software engineering in fiber-to-the- home (FttH) solutions differentiate TKH from competitors. • Market-leading position in the Netherlands in energy connectivity technology. • Strong ESG focus leads to unique positioning within energy segments. • Market leader in the high-end industrial automation market and high-end medical market. SMART VISION SYSTEMS SMART MANUFACTURING SYSTEMS SMART CONNECTIVITY SYSTEMS MARKET DRIVERS WITHIN TECHNOLOGY SEGMENTS COMPETITIVE LANDSCAPE Developments in the industry in general and our competitive landscape in particular are important for TKH’s positioning in the market. Customer patterns are changing, technological developments are accelerating, and there is an increased demand for sustainable solutions, as well as the consolidation of (industrial) sectors. Our geographical spread, high-quality proprietary technologies, and distinctive technological capabilities determine our competitive strength. GENERAL MARKET POSITION • TKH’s market is spread geographically, with our growth primarily focused in Europe, North America, and Asia. This allows us to make targeted investment choices and to work more actively in specific niche markets. • We are differentiated by our combination of core technologies into unique, comprehensive, and one-stop- shop solutions. • Because of the distinctive character of our proprietary technologies, we operate mainly in niche markets. In most of these markets, competition is fragmented to a range of competitors who do not offer the same integrated solutions or high-quality, one-stop-shop, logistics services. • The barriers for entry into the market are high because of the advanced technology levels and expertise needed in combination with significant capital requirements. Our strategic transformation program has integrated several of TKH’s operating companies, which leads to economies of scale and a more efficient organization with short commu- nication lines. We can respond quickly to geopolitical and social developments, for example when they lead to a reluctance to invest or to a shift in focus. 17 TKH GROUP ANNUAL REPORT 2021 | AUTOMATED TEMPERATURE AND MASK DETECTION SOLUTION TECHNOLOGY COMPANY TKH | TKH GROUP ANNUAL REPORT 202118 STAKEHOLDER ANALYSIS Our stakeholders are those groups and individuals who directly or indirectly inﬂuence the activities of TKH and its operating com- panies. To further sharpen our strategy and objectives, we maintain regular dialogs with our stakeholders. We often work together with our operating companies when conducting stakeholder dialogs. We conducted a survey to determine material topics, from stakeholders’ perspective as well from TKH’s perspective. The results of the survey are integrated in the materiality matrix on the right. Based on our stakeholder dialogue and survey we identified which material topic is relevant for which stakeholder group. TECHNOLOGY COMPANY TKH SHARE- HOLDERS ECONOMIC BANKS ANALYSTS CUSTOMERS SUPPLIERS EMPLOYEES SOCIETY 1 Financial stability, track record & performance • • • • • • 2 Technological innovations • • • • • • 3 Sustainable capital allocation (in alignment with SDGs) • • • 4 Customer satisfaction • • • • • ENVIRONMENT 5 Responsible production • • • • • 6 Resource efficiency (incl. waste management) • 7 Climate change • 8 CO 2 neutral • • • 9 Responsible procurement • 10 Circularity • • SOCIAL 11 Good & responsible employment • • 12 Health & safe work environment • • • 13 Employee satisfaction • • 14 Personal development opportunities • 15 Diversity & inclusiveness • • GOVERNANCE 16 Integrity & compliance • • • • • • • 17 Risk management • • • • • • • 18 Privacy & IT Security • • • • • • • 19 Ethical tax • • • • • • • 11 16 17 8 3 18 1 4 16 7 IMPACT OF TKH ON ECONOMIC, ENIRONMENTAL, SOCIAL, AND GOVERNANCE THEMES MATERIALITY MATRIX MATERIAL TOPICS RELEVANCE FOR STAKEHOLDERS HIGH 2 5 16 12 16 13 16 9 16 6 16 15 16 19 16 10 16 14 HIGH 19 TKH GROUP ANNUAL REPORT 2021 | RELEVANCE FOR TKH RELEVANCE FOR THE STAKEHOLDER / MOST IMPORTANT EXPECTATIONS MEANS OF COMMUNICATION KEY TOPICS IN 2021 SUPPORTIVE TO OUR STRATEGY EMPLOYEES • Crucially important for the success of TKH. • The company’s ambassadors. • Most important ‘authorized capital’. • Good employment practices. • Development opportunities and a good package of primary and secondary employment benefits. • A safe and healthy working environment. • Internet and intranet. • Staff magazine. • Employee satisfaction survey. • Staff meetings. • Conferences and seminars. • Webinars. • Performance reviews. • Health and safety. • Diversity. • Sustainable employability. • SDGs. • IT & Security / Privacy. • Strategic program. • Commitment to the diversity of the workforce. • Learning organization. • Boost innovative capacity. • Leadership and entrepreneurship. • Integrity & zero tolerance. SHAREHOLDERS • Investment through a shareholding in TKH, thereby strengthening our capital position. • Good return on investment with good dividend policy and long-term value creation. • Internet. • Financial reporting and annual reports. • General meeting of shareholders. • Investor days. • Capital Markets Day. • ESG. • SDGs. • Diversity. • Strategic program. • Long-term shareholdings. CUSTOMERS • Buy products and services. • Develop sustainable package of products and services through collaboration. • Offer innovative, high-tech technologies and comprehensive solutions. • Good ROI for customers. • Internet. • Events, symposia and trade fairs. • Customer satisfaction survey. • Sustainable product portfolio. • SDGs. • Customer satisfaction. • Technological developments. • Growth targets. SUPPLIERS • Supply of services and products for our business operations. • Fair business practices and doing good business at market rates. • Business associates. • Negotiations. • Code of supply and site visits. • Sustainable product portfolio. • SDGs. • Technological developments. • Sustainable procurement. ANALYSTS • With the aid of analysis and research, prepare profiles and ratings on the basis of which investors can make a selection for their investments. • Honest and transparent communication about developments. • Internet. • Financial reporting and annual reports. • IR meetings. • Capital Markets Day. • Reporting. • Financial ratios. • Sectoral developments. • Strategic program. • Long-term value creation and transparency. BANKS • Financial service providers with the aid of which TKH is able to achieve its growth targets. • Creditworthy enterprise that is appropriately balancing risks against returns and complies with contractual agreements. • Internet. • Financial reporting and annual reports. • Half-yearly discussions. • Financial ratios. • Risk analysis. • Sustainable funding policy. PUBLIC BODIES • Act as initiator, facilitator of supply chain and other projects, and driver of sustainable initiatives. • Boost the economic appeal in the region with respect to business office location and employment. • Supply cha in initiatives with a significant contribution to sustainability. • Internet. • Network and thematic meetings. • Sustainable and other developments in the region. • Strategic investment decisions. EDUCATION AND KNOWLEDGE INSTITUTIONS • Influx of new talent in order to compensate for such things as a shortage of technical personnel. • Providing a challenging work environment with ample development opportunities. • P roviding traineeships – work experience. • Internet. • Trade fairs and seminars. • Social media. • Relevance of education (in relation to the relevant discipline). • Profiling TKH as an interesting employer. • Sustainable workforce. • Learning organization. COMMUNITY AND SECTORAL ORGANIZATIONS (INCLUDING NGOS) • Possess an extensive network and knowledge of the positions in the supply chain. • Expertise in specific sectors. • Contribute ideas to and start up joint ventures. • Internet. • Reporting and reports. • Annual reports. • SDGs. • Climate change. • Sustainable business operations. • Consolidate social initiatives. STAKEHOLDERS’ DIALOG TECHNOLOGY COMPANY TKH | TKH GROUP ANNUAL REPORT 202120 CORPORATE STRATEGY TKH’s strategy focuses on technology leadership with our cohesive core technologies in three business segments. As part of the strategy process, four strategic pillars have been identified: Innovation and technical leadership, Being responsible and sustainability impact, Talented people and empowerment, and Sustainable financial performance. Based on these pillars, the megatrends, and the confrontation matrix, we have determined our strategic direction and have defined specific objectives incorporated in our new strategy program Accelerate 2025. STRENGTHS Creation of advanced proprietary technologies and innovative systems. Leading positions in many markets where we operate. High pricing power due to smart technologies, system integration, and services. Risk spread across various product/market combinations. Organizations close to customers giving a high level of customer intimacy. Entrepreneurship is one of our core values. Sustainability proposition. Strong brand and reputation in active markets. Financial strength and high-quality capital. Optimal use of R&D resources and investments in markets with largest potential. WEAKNESSES Execution of market share growth opportunities in relation to innovations. Time-to-market for innovations. Brand awareness in conservative markets where TKH is looking to expand its position with disruptive, innovative technologies. Conversion ratio of added value to EBITA. OPPORTUNITIES High demand for automation due to movement toward Industry 4.0. Development and integration of technologies that contribute to the improvement of sustainability. Lack of human resources and rising labor cost drive demand for automation. Demand for reduced waste and energy consumption in production fuels need for advanced technologies. Energy transition requires a boost in power generation from renewable sources. Global need for high-speed bandwidth and data traffic infrastructure, escalated by COVID-19. Greater focus on intelligent security owing to geopolitics and globalization. Technological developments enabling improved customer services and technologies. THREATS Shorter product life cycles due to higher level of innovation. Disruption by new entrants and technologies. The risk of COVID-19 or a future pandemic developing or emerging. Protectionism of internal markets by governments. Shortage of qualified staff. Supply chain challenges, with shortages in the availability of raw materials and components. Cost inﬂation. Cyber-attacks. CONFRONTATION MATRIX TECHNOLOGY COMPANY TKH 21 TKH GROUP ANNUAL REPORT 2021 | ACCELERATE 2025 PRIORITIES ACCELERATE 2025 TECHNOLOGY COMPANY TKH TKH has made significant steps to transform its organization and increase its focus on value creation, following the successful imple- mentation of its Simplify & Accelerate program introduced in 2019. On Capital Markets Day in November 2021, TKH launched a new program: Accelerate 2025. This program underlines the strong foundation and value potential of TKH by introducing new and higher targets for 2025. In addition, TKH unveiled a new technology- focused segmentation, centered around Smart Technologies. Accelerate 2025 includes actions to boost turnover and ROS by unlocking the full potential of our innovations and disruptive technologies. Benefiting from current market positions and megatrends, such as automation and digitalization, sustainability, and safety and security, we will take full advantage of the expected market growth. In addition, TKH will increase its focus on sustainability within its strategy, with strong ambitions and new non-financial targets. ACCELERATE ORGANIC GROWTH Increase our market share by unlocking the full potential of our innovations and disruptive technologies, taking advantage of market growth driven by relevant megatrends. ACQUISITIONS Accelerate growth by acquiring € 100 – € 150 million turnover. SUSTAINABILITY Deliver a strong performance with regard to our ESG targets, especially CO 2 neutrality by 2030 (scopes 1 & 2), and further develop a sustainable portfolio based on SDG principles. PORTFOLIO MANAGEMENT Exit activities that offer limited potential for value creation, such as those with limited strategic fit or low ROS and organic growth potential. COST EFFICIENCY Focus on leveraging organic growth into an added value conversion ratio of > 35%. Translate the increase in gross margin into a further increase in results with more focus on return and cost ratio as a percentage of added value. TKH BRANDING Strengthen and expand TKH branding and transition to an efficient external communication structure. INNOVATIONS Exploit our technological leadership by leveraging and accelerating growth from innovations and using the R&D pipeline. Bring key innovations to maturity with targeted profitability and limit the number of new “start-up” projects. TALENT EMPOWERMENT Ensure our workforce is an accurate reﬂection of our society with respect to diversity and inclusiveness. Continue to ensure the health and safety of our employees. Engage and retain employees. Promote transparency and openness. Areas Bandwidth expected turnover Bandwidth ROS improvement Target > 17% 1 ORGANIC GROWTH COST EFFICIENCY INNOVATIONS ACQUISITIONS PORTFOLIO MANAGEMENT > E 300 mln > E 200 mln + E 100-150 mln - E 150-200 mln > 2.5% > 2.0% > 0.5% Scale effect -due to organic growth- on opex and cost of good sold, productivity & yield improvement programs Acceleration of our innovations in terms of turnover, benefit from learning curve and economies of scale, capital light future innovations Acquisitions that strengthen our portfolio of proprietary technologies in the area of software, and/or strengthen our sales network Divestments that do not contribute towards achieving our long-term strategy & targets Commentary 1 ROS improvement is based on Latest Estimate 2021: ROS >12% | TKH GROUP ANNUAL REPORT 202122 STRATEGIC PILLARS AND TARGETS TECHNOLOGY COMPANY TKH INNOVATION AND TECHNOLOGICAL LEADERSHIP TKH aims to position itself as a technological leader in various niche growth markets. Innovation is essential to this, enabling us to stay at the forefront of the creation of best-in-class and innovative technologies. In addition, TKH is an established technology player with a proven track record of developing advanced and disruptive Smart Technologies that respond to market trends. TKH combines its Smart Technologies to create innovative and comprehensive technology systems. Investments in R&D and the acceleration and scaling of innova- tions are vital for future growth, and to remain a technology leader. Our target is for at least 15% of our turnover to be generated through innovations introduced in the previous two years. As a result, a major part of TKH’s technology portfolio is always in the early stages of the product life cycle, which is an essential strategic foundation for securing future growth. Alongside investments in our techno- logical development, we also invest in partnerships for specific specialisms and speed up the time-to-market for selected technology systems. TKH generated € 301 million turnover in 2021 from innovations across its three core technology segments. BEING RESPONSIBLE AND SUSTAINABILITY IMPACT TKH does business in a socially responsible manner with great awareness of our environment. We continuously seek to strengthen our contribution to a sustainable society by creating a sustainable product portfolio and business proposition; for example, around 70% of our turnover is related to one of the SDGs. In addition, our focus on sustainability also improves TKH’s commercial position, as it supports customers in achieving their set sustainability criteria. Furthermore, TKH continues to increase the importance of sustainability in its business decision-making processes. We attach a great deal of importance to the principles of good governance, including integrity, transparency, accountability, and adequate oversight. In addition, we follow a zero-tolerance policy concerning matters such as fraud, bribery, and corruption. Risk awareness is a constant and integral part of our culture at TKH, and we apply different systems to deeply embed risk awareness in our organization and avoid and manage risks. KPIs OBJECTIVES REALIZATION 2021 Portfolio at an early stage of the life cycle At least 15% of turnover generated by portfolio introduced in the previous two years 19.8% Technical innovations with impact on sustainability (SDGs) At least 70% of turnover linked to SDGs 68% KPIs OBJECTIVES REALIZATION 2021 Carbon footprint (CO 2 emissions) 100% carbon neutrality in own operations by 2030 (scopes 1 & 2) – reduction of CO 2 f ootprint compared to reference year (2019) 29.8% % waste of most relevant raw materials, compared to total relevant material consumption < 5% waste 5.2% Recycling most relevant raw materials > 80% recycling (copper, aluminum, and plastics) 83.2% Customer satisfaction Average score above benchmark (7.8) 8.4 Code of Supply signed by suppliers > 90% strategic suppliers signed up 92.4% 23 TKH GROUP ANNUAL REPORT 2021 | TECHNOLOGY COMPANY TKH TALENTED PEOPLE AND EMPOWERMENT TKH aims to be an attractive and responsible employer. An important pillar of our corporate level strategy is investing in human capital and building a strong, diverse workforce of talented people. Working together with talented and qualified people is vital to achieving our mission of creating best-in-class Smart Technologies. Being an attractive and responsible employer is an important duty and one we take seriously. TKH offers an inspiring, safe, and healthy working environment for all its employees, while always seeking to make further improvements. TKH has an open business culture with a high level of entrepreneurship and short lines of communication. Our organization is also characterized by delegated authority, trust, and transparency. TKH strongly believes that the diversity of its workforce will further bolster the success of its defined strategy. One of our priorities is therefore to boost and safeguard diversity within our organization. In addition, TKH continues to build on its strong employer brand in order to keep attracting the right talents and fill vacancies rapidly, especially in times of scarcity in human resources. SUSTAINABLE FINANCIAL PERFORMANCE Creating added value for all key stakeholders while, at the same time, being a solid investment for shareholders is a key pillar of TKH’s strategy. We do this with healthy balance sheet ratios and a strong cash ﬂow from our operating activities, with a focus on the development of the company. We aim to achieve an annual increase in earnings per share, and a net debt/EBITDA ratio of no more than 2.0. Cash generated will be reinvested in businesses with above-average growth potential and/or distributed to shareholders. Structural excess cash can be used for share buyback programs, dividends, and/or strategic investments with an attractive return on investment. TKH will expand through organic growth and acquisitions, with a geographical focus on Europe, North America, and Asia. In the case of acquisitions, the emphasis is on structurally healthy companies that strengthen our portfolio of proprietary technologies or enhance our sales network. We aim to acquire a turnover of € 100 million to € 150 million in the medium term, while continuing to manage our portfolio to decrease activities with lower margin and growth potential. Due to our focus on activities with higher margin potential, organic growth combined with cost efficiency, acquisitions, and divestments, the medium-term target for our ROS exceeds 17%. The range for the medium-term ROCE target is 22–25%. KPIs OBJECTIVES REALIZATION 2021 % of female members in Executive and Senior Management teams > 25% by 2030 17.7% Accident rate (LTIFR) < 1.0 0.7 Illness rate < 4.0% 3.56% Employee satisfaction grade > 7.5 7.4 Employees act in accordance with Code of Conduct No breaches of the Code of Conduct 0 Number of employees with disabilities and/or disadvantages on the labor market Maintain at least current number 107 KPIs OBJECTIVES REALIZATION 2021 Turnover > 2 billion by 2025 € 1.5 billion Return On Sales (ROS) > 17% by 2025 12.4% Return On Capital Employed (ROCE) 22-25% by 2025 20.5% Net debt / EBITDA < 2.0 annual target 0.9 | TKH GROUP ANNUAL REPORT 202124 TECHNOLOGY COMPANY TKH LONG-TERM VALUE CREATION TKH’s value creation process is dynamic and ongoing. It aims to use our business processes to respond to the needs of our stakeholders, and to identify at an early stage any opportunities or risks driven by economic, geopolitical, environmental, sustainability, social, and technological trends. Using detailed R&D road maps, we focus on development within core technologies and, by effectively integrating these technologies, we create unique, innovative, and comprehensive solutions suitable for multiple markets. Entrepreneurship and talent development are also key areas of focus within our group to ensure that we continually improve our value creation (long-term or otherwise). RESEARCH & DEVELOPMENT During the product development we use methods and processes which make allowances for environmental aspects, such as energy savings and recycling. We also expect our suppliers to act in a sustainable way. CUSTOMERS Thanks to our technology platforms and contribution of specific product and market knowledge, we are able to provide our customers with the best possible solutions offering a favorable return on investment (ROI) and sustainable product portfolio. LOGISTICS We have steadily centralized our logistical distribution operations. In the case of transport its impact on the environment in the distribution chain counts a great deal in addition to costs and duration. ENGINEERING & OPERATIONS We employ operational management models that have been incorporated in an operational excellence program. By doing so, we seek to achieve the optimal performance of our operational processes. TECHNOLOGIES & COMPREHENSIVE SOLUTIONS The TKH core technologies are combined to produce innovative, comprehensive systems, so as to be able to satisfy customer demand and to boost our oppor- tunities in the market. Sustainability of our innovative product portfolio is of decisive importance. CIRCULAR ECONOMY & RECYCLING The composition of products constitutes the basis for optimal recycling. The return of materials, components and products to the appropriate value chain gives rise to a sustainable business model. R E S E A R C H & D E V E L O P M E N T E N G I N E E R I N G & O P E R A T I O N S K L A N T E N L O G I S T I C S T E C H N O L O G I E S & INNOVATIONS TECHNOLOGIES HIGH-GROWTH MARKETS C O M P R E H E N S I V E S O L U T I O N S R E C Y C L I N G C I R C U L A R E C O N O M Y & TKH IN THE VALUE CHAIN C U S T O M E R S CORE TECHNOLOGIES KNOWLEDGE SHARING & DEVELOPMENT • New technologies and innovations. • Protected technologies and IP rights through patents. • Solid R&D road map. SAFE & SUSTAINABLE PRODUCT PORTFOLIO • Innovative, reliable and sustainable solutions. • Contributing to a safe environment and efficient processes for our customers. • Broad geographical distribution. BUSINESS AND OPERATIONS • Sustainable use of energy and raw materials. • Operation in accordance with LEAN and Six Sigma principles, and ISO 14001 and 45001. • Implementation of energy-saving and waste reduction programs. FINANCIAL VALUE • A healthy balance sheet ratio and strong operational cash ﬂow. • An annual increase in earnings per share. ATTRACTIVE & RELIABLE EMPLOYER • Investment in health and safety. • Investment in training and development opportunities. • Attention to diversity and inclusion. • Ensuring honesty and openness. SOCIAL & RELATIONS • Good relationships with stakeholders. • Social engagement. INNOVATION AND TECHNOLOGICAL LEADERSHIP • Turnover: € 1.5 billion • Innovations: 19.8% • R&D expenditure: € 64.4 million SUSTAINABLE FINANCIAL PERFORMANCE • ROS: 12.4% • ROCE: 20.5% • Net earnings per share: € 2.31 • Debt-leverage ratio: 0.9 • Dividend pay-out ratio: 64.9% TALENTED PEOPLE AND EMPOWERMENT • Number of training hours/FTE: 21 • Employee satisfaction: 7.4 • LTIFR: 0.7 • Illness rate: 3.56% • Diversity: 17.7% BEING RESPONSIBLE AND SUSTAINABILITY IMPACT • CO 2 footprint reduction: 29.8% (compared to 2019) • Recycling: 83.2% • Customer satisfaction: 8.4 • Breaches of the code of conduct: 0 CORE VALUES AS A GUIDELINE FOR OUR ACTIONS INDUSTRY, INNOVATION AND INFRASTRUCTURE SUSTAINABLE CITIES AND COMMUNITIES AFFORDABLE AND CLEAN ENERGY GOOD HEALTH AND WELL-BEING DECENT WORK AND ECONOMIC GR OWTH RESPONSIBLE CONSUMPTION AND PRODUCTION DECENT WORK AND ECONOMIC GR OWTH INTELLECTUAL R&D road map and technology and software development for a high-quality, innovative product portfolio. PRODUCTS Integrated technologies and software that create innovative, sustainable, and com - prehensive solutions, both capitalizing on market trends and ensuring efficiency, safety, security, and sustainability for customers. ENVIRONMENT For each decision we take in our business, we consider its potential environment impact. TKH enters into active dialog with its strategic suppliers in order to improve the sustainability of their products and processes. FINANCIAL Equity and loans to invest in proprietary technologies, our employees, and the growth of our business. HUMAN Talented and skilled employees who reﬂect a diverse society. Providing a safe and inspiring workplace with opportunities for professional development. SOCIAL & RELATIONS Close cooperation with stakeholders based on honesty, integrity, and openness. Making a contribution to, and investing in, the society around us. BUSINESS OPERATIONS • Service • Assembly • Outsourced & in-house manufacturing • R&D and system engineering BEING RESPONSIBLE AND SUSTAINABILITY IMPACT Doing business in a socially responsible manner. SMART VISION SYSTEMS SMART MANUFACTURING SYSTEMS SMART CONNECTIVITY SYSTEMS STRATEGIC PILLARS INNOVATION AND TECHNOLOGICAL LEADERSHIP A leading innovative technology player (operating in niche markets) that creates comprehensive best-in-class solutions. TECHNOLOGY COMPANY TKH TALENTED PEOPLE AND EMPOWERMENT An attractive and responsible employer. SUSTAINABLE FINANCIAL PERFORMANCE Creating added value for all stakeholders while also being a solid investment for shareholders. ENTREPRENEURSHIP ENVIRONMENTAL AWARENESS INTEGRITY TRANSPARENCY ACCOUNTABILITY 25 TKH GROUP ANNUAL REPORT 2021 | INPUT BUSINESS OPERATIONS OUTPUT OUTCOME MANAGEMENT REPORT BUSINESS DEVELOPMENTS 27 SUSTAINABILITY PERFORMANCE 28 Being responsible and sustainability impact 29 Talented people and empowerment 37 Sustainable development goals 42 FINANCIAL PERFORMANCE 45 Group financial performance 45 Developments per business segment 47 Acquisitions, divestments and investments 50 OUTLOOK 51 27 TKH GROUP ANNUAL REPORT 2021 | IMPACT OF COVID-19 COVID-19 continued to have an impact on operations and financial performance in 2021. Following a slow start in the first quarter of 2021, due to the ongoing COVID-19 restrictions in several countries, we saw a strong recovery in most markets. The airport and parking industries investments were still post - poned. During the year, COVID-19 restrictions caused opera- tional challenges in commissioning equipment at customer sites. Also, our absence rate was higher than usual due to quarantine regulations and other precautions. However, despite these chal - lenges and limitations, the organization was able to adapt very well. It is difficult to accurately quantify the impact of COVID-19 on our 2021 performance. However, when it comes to the finan - cial impact, the following elements affected our results: • TKH hardly made any use of the available COVID-19 government support. • TKH eliminated most cost-saving measures from 2020 due to a higher activity level, but travel and exhibition expenses remained low. • TKH evaluated additional scenarios in its impairment assessment, which resulted in the recognition of an impair- ment loss of € 1.6 million, mainly due to COVID-19. • Deferred tax payments of € 22 million in 2020 were paid in 2021. SIMPLIFICATION After the successful implementation of the Simplify & Accelerate program (introduced in 2019), strongly focused on activities with higher ROS and organic growth, TKH has made significant steps to transform the organization and increase its focus on value creation during 2021. With several divestments, integrations, innovations, and acquisitions financial performance was further increased. The ROS of 13.2% in the second half year of 2021 (H2 2020: 10.9%) showed that TKH made good progress towards the ROS target. As part of its simplification, TKH has changed to new reporting segments: Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. The new segmentation reporting will provide more trans- parency and perspective on the potential of our value creation in the coming years. To enable comparison, the previous segmentation is disclosed in the notes to financial statements. ACCELERATE 2025 On the Capital Markets Day in November 2021, we launched our new program Accelerate 2025, which aims to increase our turnover to more than € 2 billion and a ROS of >17% by 2025. This will be realized by unlocking the full potential of our inno - vations and disruptive technologies. Benefitting from mega- MANAGEMENT REPORT trends, such as energy transition, digitalization, industrial automation, and safety and security, we will be able to take full advantage of the expected market growth. INVESTMENTS & DIVESTMENTS To respond to the high market demand related to the mega- trends, we have decided to prepare for an expansion of our production capacity and additional capital investments in 2022 and 2023. As part of Accelerate 2025, we expect to acquire around € 100 - € 150 million in turnover during the coming years. Around € 150 - € 200 million of turnover will be divested, as we continue to reduce activities with lower margin and growth potential. Preparations have started in 2021. TKH closed the financial year in a strong financial position, backed by a low working capital ratio of 10.1%, which was well below the target bandwidth of 12–15%. The net debt/ EBITDA ratio was 0.9 and provides sufficient room for the execution of our strategy, and the payment of the proposed dividend of € 1.50. BUSINESS DEVELOPMENTS Demand for all our technologies and innovations has strongly recovered with a record high order intake of € 1,842 million. Thanks to the capabilities and entrepreneurship within our organization we managed to cope with the exceptional increase in demand in a very short period, despite the supply-chain challenges, COVID-19 restrictions during the year, and availability of workforce. | TKH GROUP ANNUAL REPORT 202128 SUSTAINABILITY PERFORMANCE On Capital Markets Day, on November 17, 2021, TKH announced that it would continue to focus on sustainability in its strategy, with strong ambitions and new non-financial targets for the years ahead. Among other measures, we defined a new diversity target to increase the share of female members in the Executive and Senior Management teams to at least 25% by 2030. We also set ourselves the target to be CO 2 -neutral by 2030 in our own operations (scopes 1 and 2). In 2021, we also decided to reassure TKH’s stakeholders about TKH’s non-financial informa- tion . Therefore, we appointed Ernst & Young Accountants LLP (EY) to provide independent limited assurance on our 2021 key KPIs, included in the table on the right. MANAGEMENT REPORT Strategic pillar KPI Target 2021 2020 BEING RESPONSIBLE AND SUSTAINABILITY IMPACT Carbon footprint (CO 2 emissions) 100% carbon neutrality in own operations by 2030 (scopes 1 & 2) –reduction of CO 2 footprint compared to reference year (2019) 29.8% 17.8% % waste of most relevant raw materials, compared to total relevant material consumption < 5% waste 5.2% 6.6% Recycling most relevant raw materials > 80% recycling 83.2% 84.2% Customer satisfaction Average score above benchmark (7.8) 8.4 8.1 Code of Supply signed by suppliers > 90% strategic suppliers signed up 92.4% 90.7 TALENTED PEOPLE AND EMPOWERMENT % of female members in Executive and Senior Management teams > 25% by 2030 17.7% 16.8% Accident rate (LTIFR) < 1.0 0.7 0.8 Illness rate < 4.0% 3.56% 3.51% Employee satisfaction grade > 7.5 7.4 7.4 Employees acting in accordance with Code of Conduct No breaches of the Code of Conduct 0 0 Number of employees with disabilities and/or disadvantages on the labor market Maintain at least current number 107 100 29 TKH GROUP ANNUAL REPORT 2021 | BEING RESPONSIBLE AND SUSTAINABILITY IMPACT As a matter of strategic priority, sustainability is firmly embedded in our day-to-day operations, and sustainability initiatives are being integrated into our organization. Our environmental, social, and governance (ESG) policy provides a framework for both our short- and medium-term plans without losing sight of company interests. This means that business decisions are made not only from the perspective of its effect on profitability, but also by taking into account its possible consequences for the people involved in and around our organization, and its impact on the environment and our reputation. In achieving our financial and non-financial targets, we consider our social responsibilities in relation to all relevant stakeholders. TKH conducts its activities according to the principles of honesty, integrity, and transparency. We notify our stake- holders of our operations and developments in the company. We defined our ESG policy based on internationally recog- nized quality standards, certification programs, and accredi- tation marks. Within our operating companies, the ISO standards that share common ground with sustainability goals have been implemented, including the environmental management system, ISO 14001, and the EN-16247 energy audit system, which is related to the European Energy Efficiency Directive. In 2021, all production locations of TKH were certified for the occupational health and safety (OH&S) management system, ISO 45001. There is an increasing focus from TKH’s stakeholders – including customers, employees, regulators, and investors – on ESG matters. These stakeholders may also have ESG-related expectations concerning TKH’s business and operations. In addition, there are an increasing number of regulatory and legislative initiatives to address ESG issues, such as the EU Taxonomy Regulation. To comply with these – and to be responsible – we have bolstered our ESG commitments toward 2025 and 2030 and have adopted a comprehensive ESG framework, which we will further enhance in the years ahead. In 2022, we will also strengthen our governance structure by expanding and improving sustainability functions on a group level and throughout the organization. CO 2 FOOTPRINT Efficient energy consumption and reduction of CO 2 emissions are important performance indicators for all our locations. Under the terms of the EU Energy Efficiency Directive (2012/27/EU), member states must ensure that large-scale organizations undergo an energy audit to gather information on real-time energy consumption and gain an insight into the potential for energy savings. At a country level, where applicable, TKH has drawn up an integrated plan for energy efficiency to comply with the terms of this Directive. Among other areas, we use these reports for our energy reduction plan. We regularly monitor the identified potential for energy savings so we can safeguard our progress and adherence to improvement plans. Energy-saving measures that have already been implemented include replacing conventional lighting with LED lighting, replacing central-heating boilers with energy-efficient models, replacing LPG lift trucks with electric lift trucks, monitoring and reducing energy peaks, and investing in energy from sustainable sources, such as solar panels. By constantly improving our production processes and procedures, and continuing to investigate new, energy-efficient solutions, we are endeavoring to consider the energy factor wherever possible. By doing so, we are attempting to keep both CO 2 emissions and energy costs to a minimum. The focus of TKH’s CO 2 footprint reduction remains primarily on scopes 1 and 2, because most of our direct emissions occur within these areas. We have expanded our internal dashboard with components from scope 3, but have not yet implemented a scope extension for CO 2 emissions in our calculation model. TKH calculates the energy consumption and CO 2 emissions associated with our energy consumption using conversion factors from reputable and authoritative sources. TKH uses tank-to-wheel emission factors. All conversion factors are reviewed annually and updated if necessary. The energy consumed by forklifts is considered negligible and is therefore not included in TKH’s overall energy consumption and related CO 2 emissions reporting. The basis for consolidated energy consumption and CO 2 emissions is activity data, which in turn are based mostly on meter readings, invoices, and data provided by suppliers. Where reliable data is not available, TKH uses calculations or estimations obtained through reliable methods and input data. TKH is satisfied that the estimates are reliable in all material respects. MANAGEMENT REPORT | TKH GROUP ANNUAL REPORT 202130 In 2021, we set ourselves the target of 100% carbon neutrality by 2030 for our own operations (scopes 1 and 2). To report on progress, we compare the CO 2 footprint and relative reduction with a reference year, which is adjusted every 5 years. 2015 was used as the reference year until 2020. For 2021 and onward toward 2030, the reference year will be 2019, representing TKH’s pre-COVID activities. In 2021, our net carbon footprint decreased by 29.8% compared with the reference year, 2019. The reported figures do not include any acquired carbon offsets. In our sites, we reduced our scope 1 (indirect) emissions. This was mainly driven by energy efficiency measures, our program to purchase renewable energy and green certificates, working from home, and mild winters. We increased our renewable energy share to 30% in 2021, from 4% in 2020. Combined with the energy reductions we achieved, this led to a 15.3% reduction in net emissions from our energy consumption (scope 1 and scope 2) in 2021 compared to 2020. Our business travel emissions, covering emissions from lease cars, decreased by 6.5% compared to 2020 . This is mainly due to COVID-19, as fewer employees are now using their lease cars again post-COVID. In addition, we continue to electrify our lease ﬂeet and promote online collaboration post-COVID, to limit travel. Energy consumption primarily focuses on electricity (kWh) and natural gas (m 3 ). At 73% of the total kWh consumed, electricity consumption is the largest in terms of absolute volume, owing to its use in the production process, lighting, ventilation, air-conditioning, and extraction systems. Energy consumption (in kWh) was with 5.7% lower compared with 2019. The COVID-19 situation had an important impact on this. In addition, the divestments also led to a reduction of 10% compared with 2019. Gas represents 27% of the total kWh consumption and is used for heating buildings and, to a lesser extent, for process heating. The consumption of diesel and fuel oil has declined in recent years and now makes up just 0.5% of total consumption. In 2022, we will continue to focus on our energy efficiency programs and increase the share of renewable energy to re duce our CO 2 footprint. In addition, we will set up a compen- sation program to offset residual CO 2 emissions, with the aim of working toward our carbon neutrality target by 2030. EU TAXONOMY FRAMEWORK TKH’s reporting on EU Taxonomy activities follows Regulation EU 2020/852 of the European Parliament and of the Council of June 18, 2020. The EU Taxonomy regulation is intended to serve as a standardized and mandatory classifi- cation system to determine which economic activities are considered environmentally sustainable. Reporting which activities are environmentally sustainable (aligned) starts as of next year; reporting year 2022. The first requirement for reporting start in 2021 by reporting on Taxonomy eligibility, which is done by determining whether an activity falls within one of the sectors covered by the first two defined environ- mental objectives (climate change mitigation and adaptation). As the current EU Taxonomy delegated act only applies to sectors with the highest CO 2 emissions, TKH’s activities are limited within the scope of this delegated act and, conse- quently, a negligible part of TKH’s turnover was eligible under this taxonomy during 2021. The Taxonomy Regulation provides a definition of environmen- tally sustainable economic activities. To qualify as environmen- tally sustainable, an economic activity should, among other requirements, contribute substantially to one or more of the six environmental objectives stated in article 9 of the Regulation. A delegated act (EU 2021/2139), specifying which technical screening criteria specific economic activities must comply with in order to fall under the first two environmental objectives – climate change mitigation, and climate change adaptation – was adopted on June 4, 2021. A delegated act specifying the final four environmental objectives: the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the MANAGEMENT REPORT CO 2 FOOTPRINT REDUCTION 29.8% 2020 17.8% NET CARBON FOOTPRINT IN KG TON CO 2 -EQUIVALENT 2021 2020 2019 Scope 1 7,117 6,686 8,642 Scope 2 21,969 27,374 32,773 Total (scopes 1 and 2) 29,086 34,060 41,415 Reference year compared to reference year 2019 31 TKH GROUP ANNUAL REPORT 2021 | protection and restoration of biodiversity and ecosystems, has not yet been adopted. Therefore, TKH’s disclosure on EU Taxonomy activities in the year 2021 is only for the environ - mental objectives (climate change mitigation, and climate change adaptation). Article 16 of the Taxonomy Regulation define “enabling” economic activities. However, an economic activity is only “enabling” under EU Taxonomy provided it meets the technical screening criteria in the respective section of Annex I and II to the Climate Delegated Act. Therefore, for the eligibility reporting in accordance with Article 10 of the Disclosures Delegated Act, those eligible-to-be-enabling activities are not in the scope of the eligibility reporting in 2021. We used the delegated act EU 2021/2139 to identify which of our activities were eligible, and we concluded that only a very limited share of our turnover-generating activities should be included, since this delegated act only applies to sectors with very high CO 2 emissions. Taxonomy-eligible turnover is 0.3% in 2021 and is related to data processing, hosting and related activities (non-eligible turnover: 99.7%). We used the delegated act (EU) 2021/2178 for the definition and calculation of the Taxonomy-eligible percentages. Turnover is calculated based on “total turnover” as per the Consolidated statement of profit and loss. We also assessed our capital expenditure. Reportable taxonomy-eligible capital expenditures in 2021 were 0.6% of the total capital expenditure in 2021 and is related to data processing, hosting and related activities (non-eligible capital expenditures: 99.4%). The capital expenditure was determined based on the 2021 additions to property, plant and equipment, intangible assets, and additions to right-of-use assets, excluding any re-assessments and excluding goodwill (refer to note 3 intangible assets and goodwill, note 4 property, plant and equipment, and note 5 right-of-use assets of the financial statements). In a similar way to capital expenditures, we assessed for relevant operational expenditures activities. In 2021, we did not record any reportable Taxonomy-eligible operational expenditures (0%). Non-eligible operational expenditures were 100%. Operating expenses per the EU Taxonomy definition covers direct non-capitalized costs that relate to research and development, building renovation measures, short-term leases, maintenance and repair, and any other direct expenditures relating to the day-to-day servicing of assets of property, plants, and equipment. This differs from the definition of operating expenses in our financial statements. We used the following general ledger accounts in the opera - tional expenditures assessment: R&D expenditure, mainte- nance of buildings, repair/maintenance, lease for short periods, lease for low value items, cost of machinery, cost of warehouse and furniture, and cost of manufacture and accommodation. These costs are included in the other operating expenses (refer to note 26 of the financial statements). The accounting policy includes references to the related line items in the consolidated financial statements, making sure to avoid double counting between the various reporting categories and between the objectives climate change mitigation and adaptation. The Taxonomy Regulation is relatively new and there are still significant uncertainties around its phased implementation. We will continue to assess our eligibility and the extent of our EU Taxonomy alignment in 2022. It is expected that the Taxonomy will be developed into a comprehensive and detailed framework over the coming years. Future guidance could result in more accurate definitions and other decision-making in meeting reporting obligations that may come into force. This could impact future EU Taxonomy reporting. As of 2022, TKH will report on activities that can be examined as Taxonomy-aligned. RESPONSIBLE PRODUCTION & RESOURCE EFFICIENCY Sustainable business practice also includes the sustainable management of resources. We focus on production efficiency with the operational excellence program, so we never lose sight of issues such as the reduction of energy consumption and the use of raw materials. At all our production compa- nies, from the design stage, we choose raw materials and other materials that have little or no harmful impact on the environment. Efficient management of materials and raw materials is relevant because of the consumption of valuable metals such as copper and aluminum, which form an essential part of the cable production process, and because of the waste that is inevitably generated. The main raw materials used by TKH are copper, aluminum, and plastics. All waste produced is in the non-hazardous waste category. Our policy is aimed at eliminating waste to such an extent that it has as little impact on the environment as possible. This also helps us avoid unnecessary costs. The two approaches we have adopted to this are the following: • Quantitative: we aim to reduce the quantity of waste at source, structurally, by increasing material productivity. We also reduce waste by improving processes and making innovations. • Qualitative: we aim to minimize the damaging effect of the waste; this means making as much use of recycled materials as possible, and optimizing waste treatment via greater cooperation throughout the value chain. Total waste from the most relevant raw materials, compared to total relevant material consumption, was 5.2% in the year under review, compared with 6.6% in the previous year, and close to the target set for a maximum of 5% waste compared with total consumption of materials. Although the total consumption of materials increased in 2021 compared to 2020 – mainly due to recovery from the COVID-19 pandemic – we were able to reduce the percentage of material waste. This was driven by waste reduction and operational excel- lence programs focused on right-first-time production. In addition, for part of our portfolio, we replaced the raw material copper with aluminum, resulting in increases in the efficiency of our production process and, as a result, less waste. The decrease in waste, expressed as a percentage of the consumption of materials, shows that measures to reduce waste have been implemented effectively, and that we are well on the way to further reducing our waste ﬂows. MANAGEMENT REPORT | TKH GROUP ANNUAL REPORT 202132 From the most relevant raw materials, 83.2% of our total waste was recycled in 2021 (2020: 84.2%), while our target is to recycle at least 80%. Our copper supplier reprocesses pure copper waste into fully usable copper – so the figure for copper was almost 100% recycled waste. Plastics that have become unusable during the cable production process, but are suitable for recycling, are offered to waste processing companies with a view to turning them into new raw materials. Cables (particu- larly odd lengths of cable) are sorted as much as possible, and we are looking into the possibility of completely recycling these cables – and the same applies to the plastics used as insulation and sheathing material. The improvement in recycled waste is also due to investments in production equipment for the in-house recycling of cable waste. In selecting raw and other materials, we take sustainability criteria into account, alongside price and quality. Partnerships in the value chain also play a part in successfully introducing sustainable product innovations. We will achieve the innova - tions that are needed to fulfill this ambition by working closely with partners in the value chain. Sustainable cable composition is given high priority in cable manufacturing companies, and we continue to look for innovative manufacturing techniques and opportunities to improve efficiency in the value chain. We conduct discussions throughout the value chain on how processes and products can be made more sustainable, so that we can make more effective use of resources. In addition, we use product life-cycle assessments as input for sustainable product innovations, including circularity. We are trying to reduce the impact our activities have on the environment as much as possible by continuously meas uring and improving our environmental performance. As our activities may cause nuisance in the surrounding area, we make every effort to prevent this or to reduce it to a minimum. To this end, we have drawn up several internal guidelines and implemented noise-reduction and odor-reduction measures. We register and manage environmental complaints, and inform those involved in good time about corrective or preventive measures. Opportunity category Opportunities Efficient use of production processes Further implementation of more effective production processes via our “operational excellence” program Use of energy sources with lower emissions Further implementation of CO 2 -neutral operations Development of new products and services by means of R&D and innovation Access to markets with our innovations Focus on zero-emissions products and services Rise in turnover due to demand for those of our innovations that result in lower emissions Distinctiveness compared with the competition Participation in value chain (and other) programs for generation of sustainable energy Contribution to hitting internationally agreed targets in relation to climate mitigation Circular economy Continuation of waste-reduction targets and recycling ambitions, so that we can make a sustainable and demonstrable contribution to the circular economy Participation in initiatives for renewable energy Obtainment and deployment of our knowledge MANAGEMENT REPORT Risk area Risks Laws and regulations Future implementation of CO 2 taxation/pricing will mean a rise in operational and compliance costs Technology High investment costs involved in bringing technology up to the standard at which it can meet the demand for products and services that can offer reduced emissions Market demand and market change Failure to match up to the expectations of key stakeholders, including customers and investors, in relation to information on how we are meeting the challenges of climate change Scarcity of resources Increasing volatility in prices and availability of raw materials/resources and materials RISK AREAS OPPORTUNITY CATEGORIES 33 TKH GROUP ANNUAL REPORT 2021 | CLIMATE CHANGE The potential impact of climate change on our strategy and our business model has received plenty of attention in the year under review. Based on recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), in 2021, we extensively analyzed the potential risks to our operations posed by climate change, and how any such climate-related risks could be converted into opportunities, for instance through innovations relating to climate adapta- tion or climate-change mitigation. Our analysis identified four possible risk areas that could have an impact on TKH’s strategy and operations, which are presented in the table on the previous page. In addition, we specifically assessed physical (acute) climate change risks, including rising temperatures, resulting in ﬂooding or extreme weather, and their impact on TKH’s operations. Due to the locations of our (production) facilities, the risk is considered less relevant for TKH. However, physical (acute) climate change risks are part of the assess- ment in business decisions, for example in the case of a change in location, or the expansion of our facilities or activities. We also assessed the exposure of our strategic suppliers to any material first-order and second-order physical climate change impacts. This assessment includes impacts indirectly caused by the physical effects of climate change, such as significant economic crisis due to physical damage to business, or human migration due to ﬂooding. The analysis also highlighted seven possible opportunity categories that we could use to increase our positive contri- bution in relation to climate change and climate-change mitigation, which we have presented here. In this way, we can gain insight into the acceptance and mitigation of threats, and we can take further steps to bring opportunities to fruition. This will ultimately result in a climate threat profile: a blueprint of how we aim to face up to climate change. The climate threats we have identified will also be embedded in the risk-management system, so that such topics are safeguarded at an organizational level. SUSTAINABLE CAPITAL ALLOCATION TKH plays a role in an increasing number of value chains as a purchaser, producer, supplier, or partner. In all of these roles, TKH tries to guarantee uniformity in its sustainability principles. We allocate capital to our sustainable portfolio and innovations to increase our positive contribution to Sustainable Development Goals (SDGs), as well as enhance our positive impact on society and the environment through our customers. Satisfying sustainability criteria plays an increasingly decisive role in the way that our customers’ award contracts. We are making a significant contribution to the SDGs through our innovative product portfolio. Approximately 70% of our total turnover is now linked to one of the SDGs that we have defined as relevant. In this way, we support our customers in achieving their sustainability criteria and simultaneously provide clear direction on how forward- looking our company is in terms of sustainable development. TKH strives for a balanced product portfolio with innovative solutions tailored to each of our customer’s specifications. In this respect, sustainability criteria are becoming increasingly relevant. We are also devoting attention to sustainable innovation based on our innovation objectives. We have set ourselves the target that at least 15% of our turnover should derive from innovations introduced in the two preceding years. In the year under review, the proportion of innovations in turnover figures was 19.8% (2020: 21.1%). Our products and systems have the relevant accreditation marks and certificates and are supplied with clear manuals 35 30 25 20 15 10 5 350 300 250 200 150 100 50 TURNOVER FROM INNOVATIONS in million E Turnover from innovations Innovations in % of turnover 2018 2019 2020 20212017 MANAGEMENT REPORT TURNOVER LINKED TO SDGs 68% 2020 70% Follow-up action includes discussing the results of the analysis with our strategic stakeholders to obtain a validated overview of the most significant threats and opportunities. in % | TKH GROUP ANNUAL REPORT 202134 and specifications. If desired, we can supply measurement and test reports to demonstrate the quality of our products and systems. Products are tested for a continuous improve- ment process based on the specifications. The potential impact on health and safety is also taken into account. TKH’s technologies and solutions support the sustainability ambitions of our customers. Our subsea-cable systems contribute to a sustainable energy supply for the future. The TKH Tire Building systems increase the efficiency of the production process, which – in addition to high-quality tires – results in energy and waste reduction at the customer’s site. The CEDD®/AGL solution for airports/airfields provides energy savings due to the use of sustainable LED lighting as well as the use of low voltage with induction. The parking guidance systems ensure efficient traffic ﬂow in car parks, leading to a significant reduction in CO 2 emissions. TKH Vision technology has become an indispensable application in the optimization of manufacturing processes, automating and perfecting quality control, as well as inspections in production processes. This leads to significant efficiency improvements in the industry with positive results regarding sustainability criteria. We are continuing to tailor our portfolio to our customers’ wishes con- cerning efficiency and sustainability requirements, taking strong customer relationships as our starting point. In this annual report, several business cases are presented to further substan- tiate our sustainable, innovative portfolio, linked to the SDGs. CUSTOMER SATISFACTION High-quality technologies, solutions, and corresponding services are essential to our commercial impact. Customer interests play a central role when we undertake and imple- ment operational activities and developments. We measure, monitor, and evaluate customer loyalty and appreciation via customer satisfaction surveys, in a three-year cycle. Based on the outcomes, we can take specific action to serve our customers even better. The average score of our customer satisfaction survey is 8.4, which is above the benchmark score of 7.8. With training and skills management, standardization of processes, and further improvement of our availability, information systems, and 24-hour service, we aim to provide an even better customer experience. INTEGRITY, COMPLIANCE & RESPONSIBLE PROCUREMENT TKH highly values the integrity of its employees’ conduct. Clear guidelines, operational control, and a zero-tolerance policy regarding matters of principle, such as fraud, bribery, and corruption, ensure that work is carried out in accordance with the appropriate principles and agreements. We have a Code of Conduct in force to ensure that every employee acts in accordance with TKH’s guidelines. The Code of Conduct uses the OECD guidelines as a reference framework. Each employee confirms in writing that they will act in accordance with the Code of Conduct, which is linked to a sanctions policy in case of any unacceptable behavior. The managers of our operating companies are responsible for implementing the Code of Conduct within their organizations. The Code of Conduct has been signed by 96.2% (2020: 93.7%) of the total number of employees. The desired 100% has not been achieved due, among other things, to a longer lead time than intended for signing the Code in the case of new employees. We are maintaining close contact with the operating compa- nies and establishing clear rules to eliminate such delays as quickly as possible. The Internal Audit team ensures that every part of our organization complies with our Code of Conduct. There is close co-operation with TKH’s Compliance Officer and Legal Advisor. Among other aspects, the Internal Control Framework is used to effectively monitor and assess possible bribery and corruption risks. The Code of Conduct can be downloaded from the TKH website. Employees are expected to be aware of the core values underlying our actions and our risk profile, and to be respon- sible for any potential risks they take. They are also expected to adhere to the principle of TKH’s culture and to act in accor- dance with TKH’s Code of Conduct. This Code of Conduct is fundamental to everything we do and describes how we act as a company, as well as how we make decisions and deal with different dilemmas within our company. TKH Group is committed to an open culture in which employees can openly discuss any concerns, problems, or abuses of the Code of Co nduct. The Whistleblower Procedure provides for a clear course of action for employees who wish to raise such topics or concerns as, for example, a possible criminal offense or violation of the law, a violation of TKH's internal policies and/ or procedures, giving or receiving a bribe, disclosure of confidential information, dishonesty or unethical behavior (such as discrimination, (sexual) harassment, bullying, etc.), and tax-related items. Reports are reviewed and investigated by the local Confidential Officer and/or the Group Compliance Officer. If deemed necessary, disciplinary and mitigating measures are taken. External parties can also report to the Group Co mpliance Officer. A report will not affect the position of the whistleblower if the report is made in accordance with the procedure established for that purpose. In the past year, two reports were received through the Whistleblower Procedure. After a thorough investigation, it was concluded that the two reports were HR-related and therefore not a report in accordance with the Whistleblower Procedure. It is difficult to draw clear conclusions about the level of aware - ness of acting with integrity, and the possibility of reporting abuses. We believe it is important to promote an open and transparent culture and we measure such issues in employee satisfaction surveys. Regarding issues that are material to us, we expect a zero-tolerance policy from our suppliers too. Our principles are recorded in a Code of Supply, which targets such issues as human rights, the environment, occupational h ealth and safety, and ethical behavior. Our requirements are laid down in the Code of Supply and focus on human rights, the environ - ment, health, safety, and ethical conduct. Every supplier with a purchase volume above € 1 million must sign the Code of Supply. The Code of Supply has been signed by 92.4% (2020: MANAGEMENT REPORT 35 TKH GROUP ANNUAL REPORT 2021 | 90.7%) of the total number of suppliers in scope. The desired 100% has not been achieved due, among other things, to a longer lead time than intended for signing the Code in the case of a new supplier. Within a maximum of two years after a Code of Supply has been signed, there must be an assessment of the supplier in question to review the items stipulated in the Code. In the year under review, site visits to suppliers were severely restricted due to COVID-19. However, where possible, aspects from the Code of Supply and the associated assess - ment were discussed and/or implemented in virtual sessions. Internal Audit has included auditing the processes to be carried out in relation to the Code of Supply in its work program. We have included provisions regarding the respect and safeguarding of human rights in both our Code of Conduct and the Code of Supply. Our policy is not to tolerate violation of any human rights. We use the OESO guidelines as a reference framework to enable us to quickly identify potential risks. These OESO guidelines refer to the Universal Declaration of Human Rights, which state that all parties in society, including companies, are obliged to respect and safeguard human rights. In the assessment that we carry out with suppliers in the context of our Code of Supply, we question a supplier on their observance of human rights and discuss possible areas in which discrimination, the right to social security, and the risk of child labor in the chain may be an issue. The assessments carried out with suppliers have revealed no violations of human rights. Privacy is an important principle of human rights. People must be able to live in freedom, without everyone knowing everything about them. The Privacy Act gives people more rights – and organizations more obligations – to handle personal data carefully. Internal Audit covers this theme of human rights as part of its auditing activities and questions our managers about their observance of human rights and whether any potential human rights conﬂicts could arise, chieﬂy in the value chain in which we operate. ANTI-COMPETITIVE BEHAVIOR AND SANCTIONS TKH is fully committed to anti-competitive behavior, providing all parties with the same information, setting realistic require- ments, and establishing clear contract conditions. We also avoid any activities that conﬂict with legislation. To ensure this, internal guidelines drawn up for strategic management within the TKH Group must be followed. The guidelines contain rules relating to decision-making procedures and internal authorizations. The TKH Code of Conduct also applies in this respect. Naturally, we abide by the applicable competition legislation. Internal Audit has an important auditing function regarding our compliance with laws and regulations. If sanctions are imposed on our company by authorities, we will explain the cause and the corrective actions that have been taken. In 2021, we did not incur any sanctions. PRIVACY & IT SECURITY Due to increasing alertness to potential cyber risks, IT & Security has been high on the strategic agenda and a clear IT Security policy has been drawn up at TKH. In addition, IT audits have been carried out at operating companies, based on which action plans have been developed to address vulnerabilities in IT systems. As a result of the IT audits, the issues of cybersecurity and cyber risks have been given high priority within the organization, and awareness of potential risks has been raised. Communication on cybersecurity takes place via regular newsletters, for example. Penetration tests have also been carried out at some operating companies to determine whether the organization is sufficiently resilient to possible digital attacks. These tests have provided insights into potential vulnerabilities of our IT infrastructure and their possible consequences. The ultimate goal is to implement safe processes and effective controls and to create a safe and honest culture. The subject is a recurring item on the agenda in meetings of the Executive Board as well as in Audit Committee meetings. This ensures attention is consistently paid to this topic. IT & Security is part of the immediate focus area of the Internal Audit team. Further information about IT & Security is included in the risk management chapter. European legislation on the protection of private information, the General Data Protection Regulation (GDPR), lays down strict rules on the use of personal data and the storage of such information. One of the conditions is the establishment of a processing register that shows what personal data is used or stored, where, and for what purposes. The establish- ment of this register gives insight into and control over data processing in the organization and the related privacy controls. A privacy regulation has also been drawn up and implemented in the organization. Internal Audit, in collabora- tion with the internal Legal Advisor (who is also the Data Privacy Officer), ensures the proper application of GDPR legislation within the organization. TAXES Tax is an integral part of our sustainability strategy which, in turn, is part of our business strategy. Tax is included in the materiality assessment for sustainability purposes and is an element of our ESG policy. The tax strategy is aligned with TKH’s organizational values and forms an important part of TKH’s ESG policy. The tax strategy is regularly discussed with the Executive Board. Bodies such as the OECD provide guidelines on international tax matters, which are followed by TKH. This is reﬂected, for example, in TKH’s tax position, which shows that tax is paid where economic activity and value creation occur to a significant extent. For TKH, this is one of the elements that are relevant in the context of a fair-share tax contribution. TKH focuses on compliance with applicable tax laws, regulations, and ethical standards in the countries in which we operate, and we pay our taxes in accordance with the letter and the spirit of tax laws and regulations. TKH’s tax department is guided by TKH’s core values, does not aim at aggressive tax planning (including so-called tax havens), and MANAGEMENT REPORT | TKH GROUP ANNUAL REPORT 202136 strives to limit tax risks. The tax department has global responsibility for the tax position of TKH Group, particularly in relation to corporate income tax, restructuring, and transfer pricing. In carrying out this task, the long-term considerations and interests of TKH’s various stakeholders are taken into account. Tax systems around the world and their application are becoming increasingly complex. To keep abreast of these developments and comply with them, permanent education is provided for the tax department, and internal training modules are regularly organized for the selected departments of the various TKH operating companies, with attention paid to technical and other tax issues, including tax dilemmas. We continuously seek to invest in technologies to improve data management, and thus the overall quality of direct and indirect tax compliance, control, and reporting. We strongly believe in the benefits technology can offer to enable earlier access to tax-relevant data, particularly as the legal and regulatory environment is rapidly evolving and tax authorities are increasingly embracing digitalization. In recent years, the Tax Function has evolved from being a manually-oriented function to a more data-driven, digitally-enabled one. In our relationship with the tax authorities, we strive to build strong, mutually respectful relationships based on trans- parency and trust. We therefore believe in an open and constructive dialog, both with the Dutch tax authorities and those in other countries. In the Netherlands, this is explicitly laid down in the “horizontal monitoring” covenant. Consultations with the fiscal authorities are progressing on how this can be taken further once this covenant has been fully developed. In this respect, we actively co-operate with the Dutch Tax and Customs Administration to share the potential tax impact of new initiatives with them and to embed this in a ruling, if necessary. This ensures that the tax classification of new initiatives is in line with TKH’s tax policy, as well as meeting t he expectations of the Dutch Tax and Customs Administration. In addition, it aims to ensure that activities are only taxed once at a generally accepted tax rate where the business is conducted. CORPORATE INCOME TAX 2021 Amounts in thousands of euros The Netherlands Europe (other) Asia North America Other countries Amortization PPA 1) Total General information Aggregated revenues realized by the companies in the region without elimination of intercompany transactions 812,105 720,596 241,226 158,985 14,016 1,946,928 Result before tax 40,493 75,788 15,182 13,617 2,246 -18,412 128,914 Property, plant and equipment 130,011 54,058 32,459 5,566 393 222,487 Number of own FTE 1,963 2,444 867 414 96 5,784 Income taxes (paid)/received Income tax to be (paid)/received at 1 January 2021 -862 -7,828 237 -857 79 -9,231 Income taxes paid -7,212 -20,750 -2,810 -1,859 -420 -33,051 Income tax to be (paid)/received at 31 December 2021 -938 -1,800 -251 -3,393 -153 -6,535 1 Amortization of intangible non-current assets from acquisitions MANAGEMENT REPORT TKH submits an annual Count ry-by-Country (CbC) report to the Dutch Tax and Customs Admi nistration. This report is made available to the tax authorities of the countries in which TKH operates through the appropriate channels. In addition, TKH is subject to the so-called Mandatory Disclosure Rules (DAC6), which obligate TKH and the advisors involved to report selected cross-border tax arrangements. During the period under review, three notifications were made, all resulting from reorganizations of activities primarily driven by business motives. The following table shows the tax paid in 2021, by region. The tax paid is often different from the calculated tax burden, due to prepayments that differ from the final tax burden. This may be caused by temporary differences, deferred taxation, and uncertain tax positions. 37 TKH GROUP ANNUAL REPORT 2021 | TALENTED PEOPLE AND EMPOWERMENT The quality of both the organization and its employees are both decisive factors in the success of TKH Group. We demand a lot from our employees, who have a clear idea about what is expected of them and how they can make an active contribution. It is our duty to be a good employer and to motivate and help our employees as best possible so that they can carry out their work efficiently and with enthusiasm. We provide our employees with a healthy working environment where safety comes first, and we give them opportunities to develop. ORGANIZATIONAL STRUCTURE TKH has a decentralized organization structure, assigning responsibilities as far down the organization as possible. An Executive Board – the body bearing ultimate responsibility – is supported by the Management Board in the operational implementation of the strategy. In addition to the three members of the Executive Board, the Management Board consists of the Director of Finance & Control, Director of Corporate Development, and the Company Secretary. The Executive Board is responsible for the decisions taken by the Management Board and bears ultimate responsibility as provided for in the company’s articles of association. In addition, TKH has a Strategic Sounding Board, consisting of the managing directors of several operating companies. This board assesses TKH’s strategy and discusses its implemen- tation. The members of the Strategic Sounding Board provide input on topics like technological, portfolio, and business developments within the TKH Group. This platform also provides an opportunity to involve young talent in the development and execution of strategy at an early stage, thus promoting management development. During the year under review, further steps were made toward the simplification of the organizational structure, allowing a concentration on activities with a greater value-creation potential. Integration of operating companies, with the focus on the benefits of economies of scale, make it possible to capitalize on operational synergies and better deploy the available expertise. As a result, it is possible to clearly address activities such as product development, procure- ment, marketing, communications, and sales – an approach that leads to consistency in both branding and customer service. The number of operating companies has been further reduced due to divestment of activities that, given their nature, have narrow profit margins or limited value creation potential. CULTURE AND RISK MANAGEMENT TKH has a culture in which entrepreneurship is encouraged. Organizational risks associated with entrepreneurship are easily identifiable through a clear framework of responsibili- ties and authorizations. An open and transparent culture in the organization, coupled with the capacity to be self-critical, enables it to deal with responsibilities and authorizations correctly, and identify risks timely. Risk management is firmly embedded in our management model. This is characterized by short lines of communication with the Executive Board, and backed up by close monitoring of agreed objectives using a comprehensive KPI dashboard that is divided into weekly, monthly, and quarterly information. It also provides a clear overview of developments over a longer time frame. A sound reference framework, such as budgetary and historical information, helps us to quickly and effectively detect deviations from the agreements and, where necessary, adjust operations. This method is encouraged from the top down, to ensure that it permeates all levels of the company. Every quarter, or on a monthly or weekly basis if required, the management teams of the operating companies discuss a strategic scorecard based on highlights and lowlights for each business segment, as well as any related short- and medium-term action points. In this way, it is possible to get an insight into market, financial, commercial, and sus- tainability developments. The reports give both quantitative and qualitative information and are structured along the lines determined by TKH. This encourages transparent reporting on both positive and negative issues. TKH aims to have an open business culture in which employees are acknowledged and heard and, in this respect, highly values the integrity of its employees’ conduct. We encourage an open, transparent professional attitude, in which our managers lead by example. The Executive Board and the management of the operating companies lead by example and set the right values and standards in the organization. An important principle is achieving a balanced MANAGEMENT REPORT | TKH GROUP ANNUAL REPORT 202138 relationship in the company’s senior ranks and ensuring that there is harmony in terms of personalities, expertise, and skills. Mutual respect is the basis for making properly considered decisions. A clear-cut Code of Conduct, opera- tional control, and a zero-tolerance policy regarding matters of principle such as fraud, bribery, and corruption are also important means of ensuring that work is carried out in accordance with the right principles and agreements. Because of our open corporate culture, our people feel involved in the company and call each other to account for any undesirable or unacceptable behavior according to the standards and values that we aspire to. Cultural aspects are assessed using an employee satisfaction survey, which makes clear any areas where there is still room for improve- ment. The Executive Board maintains direct contact with employees within all parts of the organization by, for instance, attending presentations given by employees, participating in project meetings, or taking part in informal gatherings. EMPLOYEE REPRESENTATION The interests of the employees are promoted at the operating company level by the local Works Councils, and at the TKH group level by the Central Works Council. These councils ensure ongoing employee representation under the terms of the Works Councils Act (Wet op de Ondernemingsraden). During the year under review, the Executive Board and the Central Works Council held frequent, close consultations with each other. The topics discussed were the results and organizational developments, progress in the strategic program, the budget, investments, and the TKH annual report. The special topics dealt with during the year under review were the (re)appointments to the Supervisory Board. Due to the COVID-19 measures, which included restrictions on gatherings, it was not possible to hold the annual Works Council Day. This was due to be a Works Council Day that would strengthen the bond between the various Works Councils of the Dutch operating companies, as well as promote the sharing of knowledge and experiences. TKH believes that consultations with the Central Works Council and other Works Councils are important and attaches great value to an open dialog. We believe that adopting an active approach to employee representation helps us to stay alert. EMPLOYEE SATISFACTION In times of uncertainty, it is all the more important to be able to measure good employment practices. We have been carrying out employee satisfaction surveys (ESS) for a long time, in a three-year cycle. The surveys provide important information regarding the motivation, satisfaction, and expectations of our employees. Follow-up surveys also measure the effects of improvements made in response to the findings. We carry out these surveys in collaboration with a specialized third-party research agency. To get an insight into the impact of the COVID-19 restrictions and measures on our employees, certain operating companies carried out a satisfaction survey that focused on the impact of COVID-19 on employees, such as the requirement to work from home, working together virtually, the balance between work and private life, and internal communication. Open questions were among the tools used in the survey to give employees the opportunity of making their experiences during the COVID-19 pandemic and needs for the future known. We evaluate where to amend our HR policy based on the results of the study and create a robust plan of action. HEALTHY & SAFE WORK ENVIRONMENT Safety awareness and safety performance are important focus areas within the TKH Group, and preventing accidents and encouraging a professional safety culture form an important basis to this. We achieve this by being transparent about accidents and near-misses so that employees are more alert to potentially risky situations and are able to react quickly. The manufacturing companies provide information on safety within the organization and clear work instructions regarding machinery safety are available. Strict measures are MANAGEMENT REPORT MANAGEMENT BOARD Alexander van der Lof MBA (Executive Board, chairman & CEO) Elling de Lange MBA (Executive Board, CFO) Harm Voortman MSc (Executive Board) Erik Velderman MBA Gertjan Sleeking Derk Postma 39 TKH GROUP ANNUAL REPORT 2021 | MANAGEMENT REPORT taken to ensure that employees comply with requirements such as wearing safety shoes and protective clothing. We also encourage employees to draw each other’s attention to situations that could lead to dangerous incidents. S afety is a crucially important factor for many of our operating companies, due to the nature of the work they do, so in 2021, their aim was to obtain ISO 45001 certification. This ISO standard covers requirements for a management system relating to occupational health and safety (OH&S) which means that OH&S risks can be managed, and performance improves. 100% of TKH operating companies in scope are certified under the ISO 45001 standard. Regrettably, in 2021 a fatal accident occured at one of our premises involving an employee of a third party supplier. This proves the need for continious education and focus on safety matters in our own organization as well as that of our suppliers. To make safety demonstrable, we place emphasis on specific, measurable performance targets for safety measures, including LTIFR (Lost Time Injury Frequency Rate) and illness rate. We devoted further attention to health & safety programs at our production facilities. This resulted in increased attention and awareness for important health & safety topics. As a result, the LTIFR figure for 2021 decreased slightly to 0.7 in comparison with last year (2020: 0.8). The illness rate was 3.56%, which is slightly above last year’s level (2020: 3.51%), but below the target of a maximum of 4.0%. COVID-19 has had the greatest impact on the rise in illness rate, due to lockdowns, among other factors. By acting quickly and responding with appropriate measures to address the COVID-19 situation to guarantee the health of our employees, we were able to keep absence to an acceptable level. In addition to the physical condition of our employees, we paid extra attention to the potential psycho- logical impact of COVID-19 on individuals’ lives and work situations, to ensure our people remained healthy and well. DIVERSITY & INCLUSIVENESS TKH is an international group of companies with a workforce that includes many nationalities. In such an international environment, we take a broad view of diversity. The diversity policy at TKH focuses on a variety of abilities, skills, and nationalities, and we employ a mix of men and women, as well as a balanced distribution of ages. There is good job occupancy at junior, mid and senior levels. The current age structure also leads to manageable staff turnover due to retirement. Thanks to the diversity of our workforce, we have at our disposal a wide range of skills in our business, which leads to greater objectivity and dynamism. We continue to believe that skills and experience should be the main criteria for selecting the right candidate. To bring diversity to people’s attention, specific programs have been set up with different approaches to better embed this in the organization. There are, for example, programs for middle and senior manage- ment on bringing gender balance to jobs and consultation structures. Moreover, this is also important in the context of succession planning. Operating companies are responsible for improving the gender balance within their own organiza- tions; progress in this respect is closely monitored by the Executive Board. Likewise, inclusivity is part of our diversity policy. In our appointments policy, we are committed to providing a suitable working environment for people with a disability and/or disadvantage in the labor market. Disability is an umbrella term, covering illnesses/disorders, activity limita- tions, and participation restrictions. An illness/disorder is a problem in body function or structure. An activity limitation is a difficulty encountered by an individual in executing a task or action. A participation restriction is a problem experienced by an individual in a range of everyday situations resulting in a disadvantage on the labor market. TKH creates work experience opportunities for the long-term unemployed or ACCIDENT RATE (LOST TIME INJURY FREQUENCY RATE) 0.7 2020 0.8 CENTRAL WORKS COUNCIL Olaf Karsten (VMI), chairman Gerard Roolvink (TKF), secretary Ad Boerma (EKB) Jan Jaap Derksen (VMI) Maurice Fliescher (Intronics) Michel van Scherpenzeel (TKH Security) Louis Scholten (TKF) | TKH GROUP ANNUAL REPORT 202140 MANAGEMENT REPORT people returning to the labor market. Workers from sheltered employment are deployed to perform repetitive work. In the year under review, the number of employees with a disadvantage in the labor market increased to 107 FTEs, particularly because of an increase in the level of activity in segments in which these employees are largely active. TKH pursues a strict policy of equal treatment for all employees regardless of race, nationality, ethnic background, age, religion, gender, sexual orientation, or handicap. We do not differentiate between male and female employees’ basic salaries and apply market-based remuneration. There may be differences between countries depending on local market practices and the tax and social security structure. We have a remuneration policy based on the requirements of the job, and the experience and skills of the individual. For Dutch employees, we adhere to the social conditions of employment as stated in a collective labor agreement applicable to the sector (CAO). Agreement-related rules are implemented in those operating companies where there is no collective labor agreement. We apply a similar policy for foreign operating companies, in line with local laws and regulations. TKH ensures that such schemes are correctly drafted and observed, particularly in relation to periods of notice, restraint-of-trade and non-compete clauses, and profit-sharing arrangements, and that the statutory notice periods and other provisions are complied with. In the case of acquisition opportunities, the salary structure of the company to be acquired is one of the subjects examined during the due diligence process. At year-end 2021, the number of employees (in FTEs) was 6,160 (2020: 5,704 FTEs), with 376 of those as temporary employees (2020: 121 FTEs). As a result of increase d activity levels, the number of employees increased by 456 FTEs. At the end of 2021, 23% of the workforce consisted of women, which is almost the same level as last year. The main reason for the present distribution of male and female employees is the technical nature of our work coupled with labor market supply. However, we do see women increasingly choosing technical professions, so we can start to more specifically select and recruit women for technical positions within our organization. TKH has strong ambitions and new, defined non-financial targets for the years ahead. Among other things, we set a new diversity target, to increase the share of female employees in Executive and Senior Management roles to at least 25% by 2030. At the end of 2021, 17.7% of Executive and Senior Management personnel were female (2020: 16.8%). In 2022, we will further expand our diversity and inclusiveness program. PERSONAL DEVELOPMENT OPPORTUNITIES Talent and management development are of great strategic value. Employee skills and backgrounds are matched as closely as possible to the strategic developments at TKH and, where necessary, we provide education and training to help employees grow in their jobs or guide them to their next career step. At the same time, we are alert to the need to retain critical skills to pursue our strategic agenda in techno- logical developments and innovations. Our employees are encouraged to develop in the direction of their choosing. Education and training are an indispensable part of maintaining our knowledge level. We make training budgets available to further develop our employees’ skills and to broaden their employability. We organize internal training, with the help of external professionals, so that this matches normal practice at TKH as closely as possible. New employees follow introductory programs, including product training. In collaboration with Nyenrode Business University in Breukelen, in the Netherlands, a Management Development (MD) program has been developed for those identified as having a high potential for accelerated career advancement. GEOGRAPHICAL SPREAD OF WORKFORCE in % male female total Netherlands 29 5 34 Europe (other) 31 13 44 Asia 11 3 14 North America 5 2 7 Other 1 0 1 2021 41 TKH GROUP ANNUAL REPORT 2021 | MANAGEMENT REPORT Candidates are put forward by the management teams of the operating companies based on predetermined selection criteria. The Executive Board has a proactive role in the MD program. Due to COVID-19, the 2021 MD program has been postponed to 2022. In 2021, more hours were spent on training and other courses than in 2020. The COVID-19 restrictions meant that most training courses could be followed virtually. Some internal training courses were suspended, as key aspects of the success of these opportunities are the group dynamics, and the insights gained into day-to-day practices through company visits. On average, FTEs spent 21 hours on training in 2021 (2020: 18 hours per FTE). In 2022, we will further scale up awareness and training programs on ESG material themes, relating to health & safety, IT Security, and our Code of Conduct, among other topics. To recruit new talent, TKH maintains close contact with business schools and universities. We are in contact with educational institutes that provide job-specific or manage- ment training courses. We offer work placements, graduation projects, and short courses to attract potential talent at an early stage. In addition, we use targeted programs to attract more students with limited or lower educational attainment – such as those in vocational training – to give them an opportunity to improve their skills in practice, and to interest them in a possible job with our organization. Recruitment of this kind is a high-priority area. We are seeing an increasing scarcity of qualified personnel, especially in technical positions. It will become more challenging to fill such positions in the coming years. We have, however seen that positioning our operating companies under the TKH brand has had a positive effect in attracting new employees. Employer branding is increasingly being used to reach and interest future talent. When recruiting external candidates, we increasingly use referral recruitment, which means we ask our current employees to propose new colleagues. By recruiting in this way, we have a higher chance of finding a match, since our employees can make a good assessment of whether a potential candidate is suitable for the position and fits the organization. The COVID-19 situation has led many talented workers, who may previously have been difficult to attract, to be more readily available on the labor market. Where capacity became available due to a reduction in demand or other restrictions, employees were (in some cases temporarily) deployed to fill other positions, where possible. RATIO MEN/WOMEN Workforce as of December 31 77% 23% DIVERSITY Female Executive and Senior Management 17.7% 2020 16.8% | TKH GROUP ANNUAL REPORT 202142 SUSTAINABLE DEVELOPMENT GOALS The Sustainable Development Goals (SDGs), developed by the United Nations, are a blueprint for achieving a better and more sustainable future. TKH recognizes their importance and aims to contribute to the SDGs through its business operations and innovative product portfolio in alignment with the process of long- term value creation. TKH has selected six SDGs to guide its approach to sustainability; four of these focus on our innovative product portfolio and the other two focus on internal operations and business practices. THE RELEVANCE OF OUR BUSINESS OPERATIONS AND INNOVATIVE SOLUTIONS TO THE SDGs To make an effective and targeted contribution through the SDGs, we focus on areas where we feel we can have the most impact and make the most direct contribution. In this context, we decided to focus on six SDGs. First, we measured these SDGs against our business operations and core activities, and then we examined our entire value creation process. Existing KPIs are now aligned with the SDGs to provide insight into our current contribution, and to see where additional actions will be most effective. Furthermore, we analyzed the opportunities in our value chain, and as a result, we are making a significant contribution to the SDGs through our innovative product portfolio. Approximately 70% of our total turnover is linked to at least one of the SDGs that we have defined as relevant to our business. In this way, we support our customers to achieve their sustainability criteria and simultaneously provide clear evidence of the forward- thinking approach of our business. RESPONSIBLE CONSUMPTION AND PRODUCTION INDUSTRY, INNOVATION AND INFRASTRUCTURE SUSTAINABLE CITIES AND COMMUNITIES AFFORDABLE AND CLEAN ENERGY GOOD HEALTH AND WELL-BEING DECENT WORK AND ECONOMIC G ROWTH GOOD HEALTH AND WELL-BEING EXAMPLES OF OUR INNOVATIVE SDG PORTFOLIO Care technology platform Medication distribution and inspection system Special cable systems for medical equipment 2D-vision systems for medical equipment Blood pressure sensors Thermal camera systems MANAGEMENT REPORT GOOD HEALTH AND WELL-BEING TKH’s technologies and solutions support the care process, resulting in greater efficiency and reliability in the healthcare sector, for home care, professional care, and pharmaceutical companies. Impact When it comes to the continuously evolving technolog- ical support of the care process, TKH believes that care can become more efficient and reliable if technology is tailored more closely to each client. In fact, “tailor- made” is at the heart of TKH’s care solutions for both extramural and intramural care. Our care technology platform, which includes individual alarm scenarios and smart sensors, facilitates the rapid and ﬂexible connec- tion of care systems to a comprehensive range of functions and applications for care needs. It also helps make the provision of care more user-friendly and accessible. Our Smart Manufacturing technology responds to increasingly stringent quality measures imposed by the pharmaceutical industry to package different medicines with the highest accuracy. 43 TKH GROUP ANNUAL REPORT 2021 | DECENT WORK AND ECONOMIC G ROWTH AFFORDABLE AND CLEAN ENERGY MANAGEMENT REPORT AFFORDABLE AND CLEAN ENERGY With its Connectivity technologies, TKH is developing innovative cable systems that contribute to the energy transition and the deployment of sustainable energy sources, including offshore wind farms. In this way, we contribute to the European energy reduction targets. Impact TKH’s Connectivity technology plays a fundamental role in distributing green electricity, such as wind energy. Our innovative subsea cable concept, for example, connects wind turbines in offshore wind farms, and stands out in terms of high performance, risk reduction, installation efficiency, and sustainable composition. Due to the electrification trend, there is considerable demand for upgrading and expanding power grids; TKH’s power cable systems offer a solution to relieve this enormous demand. Furthermore, the innovative usage of recycled materials is stimulated. INDUSTRY, INNOVATION, AND INFRASTRUCTURE TKH has a strong reputation as an in novator in the tire building, robotics, and mechanical engineering industries. We pioneer technologies and innovations to capitalize on the pillars of “Industry 4.0”, and the demand for increased productivity, and improved product quality and production processes. Our technology also makes infrastructure safer and increases its availability. Impact TKH’s Connectivity, Vision, and Security technologies make it possible to build sustainable infrastructure com- pliant with strict safety and efficiency standards. Our innovative vision and manufacturing systems also enable our customers to make products more efficiently, and with a higher degree of reliability and ﬂexibility. Our Vision technology is used for inspection, quality, product, and process control in, for example, industrial automation and consumer electronics, and for scientific research. TKH leverages its unique expertise and deep under- standing of the automation of production processes for controlling and monitoring industrial processes, as well as in comprehensive manufacturing systems for car and truck tire production. SUSTAINABLE CITIES AND COMMUNITIES SUSTAINABLE CITIES AND COMMUNITIES By combining communications and Security technology to form innovative, comprehensive solutions for the built environment, we help to increase the efficiency, safety, and security of the systems used in and around cities. Impact TKH’s technologies and resulting solutions help make cities safer. Our Security technology enables the built environment to be monitored and controlled with alarm systems, mission-critical communication systems, access and recording systems, and evacuation systems. Mobility security solutions focus on vehicle tracking, video analytics for public transport, and security solutions on toll roads. In addition, TKH technologies improve efficiency, safety, and security in multi-story car parks, football stadiums, schools, and financial institutions. EXAMPLES OF OUR INNOVATIVE SDG SOLUTIONS Fibre optic cable systems Access control and security systems CEDD/Airfield Ground Lighting system Industrial 2D and 3D vision systems Tire building systems Special cable systems for robotics and mechanical engineering Test & measurement systems for e-mobility EXAMPLES OF OUR INNOVATIVE SDG PORTFOLIO Mobility inspection systems and security solutions Mission critical communication systems Parking guidance and security systems Connectivity systems EXAMPLES OF OUR INNOVATIVE SDG PORTFOLIO Energy cable systems for the energy transition Subsea cable systems for offshore wind farms | TKH GROUP ANNUAL REPORT 202144 DECENT WORK AND ECONOMIC G ROWTH RESPONSIBLE CONSUMPTION AND PRODUCTION MANAGEMENT REPORT SDGs 8 AND 12 FOCUS ON OUR INTERNAL OPERATIONS AND BUSINESS PRACTICES DECENT WORK AND ECONOMIC GROWTH Through knowledge sharing and our strong R&D focus, we provide a distinct and innovative product portfolio with high added value. Healthy balance sheet ratios and a solid operational cash ﬂow also support TKH’s growth strategy. Through good employment practices, we offer our employees a vibrant and safe working environ- ment with ample development opportunities. At our subsidiaries where a safe working environment is an important area of attention, due to the nature of the activities carried out there, the ISO 45001 certification in health and safety has been set as standard. Impact TKH strives to provide its employees with a safe and inspiring work environment. We offer our employees the training and resources they need to perform their activities and develop their skills effectively. Through mutual knowledge sharing, TKH further develops its sustainable portfolio in response to the needs of the market. Through our operational excellence programs, which are both systematically focusing on customer value and on making the best possible use of our people’s knowledge and capacity, we excel in our business operations – which are the foundation of our organization and a platform for our future growth. RESPONSIBLE CONSUMPTION AND PRODUCTION Through its business operations, TKH focuses on responsible operations and production, and on reducing its negative impact on the environment as much as possible. All our operating companies are certified in accordance with the ISO 14001 environmental manage- ment system and work according to the LEAN principle to prevent wastage in the production process. Impact TKH’s ESG policy is designed to ensure we make continuous improvements in our environmental perfor- mance, and to reduce the negative impact of our operations on our surroundings as much as possible. At all TKH production companies, the raw materials used are – as much as possible – chosen so that they have little to no harmful effect on the environment from the initial design stage. TKH’s production environment is focused on preventing waste as much as possible, and sets targets on waste reduction and the recycling of raw materials. Sustainability issues and our Code of Supply are regularly discussed with our suppliers. 45 TKH GROUP ANNUAL REPORT 2021 | MANAGEMENT REPORT GROUP FINANCIAL PERFORMANCE The recovery of the order intake, which already started in the fourth quarter of 2020, continued during 2021. We realized a high order intake of € 1,842 million (2020: € 1,294 million) on the back of a strong increase in demand for almost all our activities, leading to an order book at year-end of € 746.6 million, an increase of 74.3% compared to last year. Particularly significant growth in order intake was realized in Machine Vision (Smart Vision systems), Tire Building (Smart Manufacturing systems), and energy and digitalization (Smart Connectivity systems). Turnover increased with € 234.4 million (18.2%) to € 1,523.8 million in 2021 (2020: € 1,289.4 million). Higher raw materials prices had an upward impact of 2.6% on turnover, while exchange rates had a negative impact of 0.1%. Divestments had a downward impact of 0.2%. On balance, TKH recorded a 15.9% organic growth in turnover. All segments contributed to the organic growth in turnover. The supply-chain chal- lenges in the availability and transportation of raw materials and components had a negative impact of about € 20 – € 30 million on our turnover in 2021, although our procurement teams managed to find solutions for the majority of issues. We responded to these challenges by increasing our stock levels and ensuring a larger supply of replacements for components, redesigning some of our products, and contracting alternative suppliers. Our pricing power enabled us to pass on most of the resulting price increases. The geographic distribution of turnover remained mostly in line with 2020. The turnover share in the Netherlands decreased to a level of 22% of total turnover, whereas the turnover share in Europe, excluding the Netherlands, increased to 45%. The turnover share in Asia remained unchanged at 19%, North America decreased to 11%. The turnover share of the other geographic areas was 3%. The gross margin decreased to 48.3% in 2021 (2020: 49.2%) due to a shift in product mix, with a larger share in Smart Connectivity systems combined with increased raw material and component prices. Operating expenses (excluding amortization and impair- ments) increased by 9.6% compared with last year. As a percentage of turnover, operating expenses decreased to 35.9% in 2021, from 38.7% in 2020. The implemented integrations and cost savings accounted for a significant share of the relative reduction of costs, in combination with higher productivity and capacity utilization in TKH’s FINANCIAL PERFORMANCE | TKH GROUP ANNUAL REPORT 202146 production companies. At the same time, selling expenses were still low due to the ongoing COVID-19 restrictions. Depreciation came in at € 45.2 million, € 0.3 million below the level of 2020, mainly due to a lower depreciation on the right-of-use assets. The operating result before amortization of intangible assets and one-off income and expenses (EBITA) increased by 39.9% to € 189.6 million in 2021, from € 135.5 million in 2020. All segments contributed to the increase in EBITA; Smart Vision systems contributed with +18.9%, Smart Manufacturing systems with +43.5%, and Smart Connectivity systems with +61.9%, respectively. The ROS improved to 12.4% (2020: 10.5%) due to the turnover growth and a lower relative cost level. ROS increased in all three segments. Amortization decreased as the amortization on certain pur- chase price allocations related to past acquisitions has ended. The financial result remained stable at € 8.0 million (in expense). In 2020, a profit of € 5.5 million on divestments was included. In 2021, foreign exchange results and results from associates improved, while interest expenses were lower. The normalized effective tax rate increased to 26.2% in 2021, from 25.4% in 2020, primarily due to increased profits at companies that are subject to higher tax rates. Net profit before amortization and one-off income and expenses attributable to shareholders increased by 62.0% to € 113.9 million (2020: € 70.3 million). Net profit rose by 100.4% to € 95.2 million (2020: € 47.5 million). Earnings per share before amortization and one-off income and expenses amounted to € 2.77 (2020: € 1.69). Ordinary earnings per share were € 2.31 (2020: € 1.14). The cash ﬂow from operating activities amounted to € 199.0 million in 2021 (2020: € 187.8 million). In 2020, the cash ﬂow was boosted by a decline in working capital, while there was little change in 2021. At year-end 2021, working capital fell as a percentage of turnover to 10.1% (2020: 12.1%) and therefore ended below the bandwidth target of 12–15%. The cash ﬂow from net investments in property, plant, and equipment amounted on balance to € 31.0 million in 2021. It was higher than in recent years (2020: € 25.3 million), partly due to the divestment of business premises held for sale in 2020. The investments in intangible assets related to devel- opment costs, patents, licenses, and software slightly increased to € 40.5 million in 2021 (2020: € 39.2 million). TKH spent € 0.5 million on acquisitions (2020: € 0.5 million). There were no divestments in 2021 (2020: € 21.2 million). Solvency was stable at 42.5% (2020: 42.3%). Net bank borrowings fell by € 56.3 million from the level at year-end 2020 to € 205.4 million at year-end 2021. The net debt/EBITDA ratio, calculated according to TKH’s bank covenant, stood at 0.9, well within the financial ratio agreed with our banks. At year-end 2021, TKH employed a total of 6,160 FTEs (2020: 5,704), with 376 of those as temporary employees (2020: 121 FTEs). DIVIDEND PROPOSAL It will be proposed to the General Meeting that it authorizes the payment of a dividend of € 1.50 per (depositary receipt for a) share (2020: € 1.00). Based on the number of shares outstanding held by third parties at year-end 2021, the pay out-ratio amounts to 54.2% of the net profit before amortiza- tion and one-off income and expenses attributable to shareholders and 64.9% of the net profit attributable to shareholders respectively. It is proposed that the dividend be paid out in cash and charged to the reserves. The dividend will be payable on May 3, 2022. DEVELOPMENTS PER MANAGEMENT REPORT GEOGRAPHICAL DISTRIBUTION OF TURNOVER in % 2021 2020 Netherlands 22 24 Europe (other) 45 43 Asia 19 19 North America 11 12 Other 3 2 EBITA AND ROS DEVELOPMENT in million E EBITA before one-off income and expenses (in € mln) ROS (in %) 16 14 12 10 8 6 4 2 200 175 150 125 100 75 50 25 in % 2021 2017 2018 2019 2020 2021 47 TKH GROUP ANNUAL REPORT 2021 | TKH creates state-of-the-art Vision systems, and Vision technology represents about 86% of the turnover of the Smart Vision systems segment. This technology encom- passes 2D and 3D Machine Vision and Security Vision systems. Combining these technologies with in-house software development allows us to create unique, smart, integrated plug-and-play systems, and one-stop-shop solutions. In 2021, turnover in Smart Vision systems increased by 9.4% to € 429.8 million. Divestments executed in 2020 reduced turnover by 0.5%, and currency exchange rates had a negative impact of 0.6%. The organic growth in turnover was 10.5%, despite limitations in the supply of electronic compo- nents. The supply constraints slightly impacted turnover, although in most cases we managed to either secure most of the required components, or redesigned our products to include components which were more widely available. The order book saw a growth of 91.1% to € 139.3 million compared to last year. SMART VISION SYSTEMS BUSINESS SEGMENT The added value decreased from 59.1% to 58.3%. Higher purchase prices on secured components had a negative impact on the added value as a percentage of turnover, but this was compensated by the volume growth. As a result, EBITA rose to € 73.8 million, resulting in a ROS of 17.2%. VISION TECHNOLOGY The strongest contributor to this segments’ growth in 2021 was Machine Vision, in all regions and end markets. We successfully maintained our leading market position in 3D Vision for the consumer electronics and wood industry, while we also significantly grew our business in the battery, logistics, and semiconductor markets. Within 2D Vision, the Alvium portfolio with embedded vision solutions is gaining traction and sales are growing. Turnover growth for Security Vision was at a lower rate compared to Machine Vision due to low investment levels at parking garages, shopping malls, and airports, which continued to be impacted by COVID-19 restrictions. This however, was more than compensated for by growth in other markets. By securing our supply chain, we were able to meet this higher market demand. This was particularly applicable for (video) communication and traffic monitoring systems. MANAGEMENT REPORT KEY FIGURES SMART VISION SYSTEMS (in mln. € unless otherwise stated) 2021 2020 Change in % Turnover 429.8 393.0 + 9.4% EBITA before one-off income and expenses 1 73.8 62.1 + 18.9% ROS 17.2% 15.8% 1 One-off expenses in 2020 of € 3.1 million due to reorganization costs. | TKH GROUP ANNUAL REPORT 202148 TKH leverages its unique expertise and deep understanding of automating production processes in specific industries to create superior manufacturing systems. TKH engineers complete manufacturing systems and machines that contribute to highly efficient processes. Tire Building systems represent about 68% of the Smart Manufacturing systems segment turnover share. Turnover in Smart Manufacturing systems increased by 19.9% organically. Turnover grew from quarter to quarter in 2021 with a strong recovery, especially in Tire Building systems. Order book increased by 62.7% compared to the previous year-end and reached a high level of € 369.7 million on 31 December 2021. The added value increased slightly from 48.7% to 49.0%. EBITA was up 43.5% at € 59.4 million. The ROS improved to 14.2% due to high order intake and production output. TIRE BUILDING While turnover in Q1 was significantly impacted by the low order intake in Q2 and Q3 2020, there was a strong recovery leading to a record order intake in 2021 – broadly supported by intake from Asian customers as well as the tier 1 tire manufacturers. Market demand for both passenger and truck tire systems was high. Production capacity was swiftly scaled up to cope with the high order intake, which contributed to the strong improvement in results. The site acceptance of the UNIXX was delayed due to COVID-19, but the industrializa- tion phase is progressing well. Several UNIXX modules have already been sold and successfully commissioned at customers sites. The commercial launch of the complete UNIXX platform is scheduled for 2022. Furthermore, we booked several orders for our new Revolute (combination of fully automated tire component preparation and bead assembly) and FLEXX belt maker. SMART MANUFACTURING SYSTEMS MANAGEMENT REPORT KEY FIGURES SMART MANUFACTURING SYSTEMS (in mln. € unless otherwise stated) 2021 2020 Change in % Turnover 419.1 349.5 + 19.9% EBITA before one-off income and expenses 1 59.4 41.4 + 43.5% ROS 14.2% 11.8% 1 One-off expenses in 2020 of € 0.3 million due to reorganization costs. OTHER Turnover in Care grew at a high rate, driven by the roll-out of our INDIVION technology in North America, and our service organization in North America is scaling up to support further growth in this region. Turnover and growth in our results were also realized in industrial automation. BUSINESS SEGMENT 49 TKH GROUP ANNUAL REPORT 2021 | cables (OFC) from China into the European Union. However, the impact of this on our 2021 results was very limited. Substantial growth was also realized in data network cable systems and broadband products for data centers and offices, especially in France and Germany. OTHER There was substantial growth in specialized connectivity systems for the machine-building and robotics industry. The building and construction market saw growth in the first half of the year, but stabilized in the second half due to limitations in supply and production capacity. MANAGEMENT REPORT SMART CONNECTIVITY SYSTEMS TKH manufactures advanced Connectivity systems, and engi- neers complete Smart Connectivity systems with a unique, integrated system approach and sustainability proposition. Energy and Digitalization represent about 33% and 38% of the Smart Connectivity systems segment turnover share. Turnover in Smart Connectivity systems increased across almost all market segments by 22.4% to € 692.3 million in 2021. Higher raw material prices had an upward impact of 6.0% on turnover. On balance, turnover increased organically by 16.4%. Order intake was even higher with a growth of the order book with 85.3% to € 237.6 million compared to December 31, 2020. Added value as a percentage of turnover decreased only slightly from 40.8% to 40.4% in 2021, although raw material prices went up during the year. EBITA increased by 61.9% to € 73.2 million, due to turnover growth and higher production utilization. This resulted in an increase in ROS to 10.6%. ENERGY The strong demand for renewable energy sources and the expansion of the current network infrastructure are the main drivers of growth in our turnover. The extended production capacity for medium voltage energy cables became opera - tional during the third quarter of 2021, and helped increase our production volumes. In subsea cable activities, production utilization increased significantly. The demand for Airfield Ground Lighting (CEDD/AGL) was significantly impacted by COVID-19, due to investment limitations at airports – however, the low order intake at airports was more than offset by growth in demand for energy connectivity systems. DIGITALIZATION Turnover increased due to high investment priority for fibre networks in Europe, and a reduced impact from lockdowns on clients’ installation capacities. We saw a particularly strong recovery in France and G ermany. The impact on price levels from the overcapacity of optical fibre in China started to reduce in the second half of the year. Its impact on added value was offset by a higher share of our connectivity system portfolio. In the last quarter of 2021, the European Commission imposed anti-dumping d uties on imports of optical fibre KEY FIGURES SMART CONNECTIVITY SYSTEMS (in mln. € unless otherwise stated) 2021 2020 Change in % Turnover 692.3 565.6 + 22.4% EBITA before one-off income and expenses 1 73.2 45.2 + 61.9% ROS 10.6% 8.0% 1 One-off income and expenses in 2020 of € 4.3 million due to reorganization and integration costs. BUSINESS SEGMENT | TKH GROUP ANNUAL REPORT 202150 ACQUISITIONS, DIVESTMENTS, AND INVESTMENTS Acquisition is an important part of TKH’s strategy and contributes to our value creation by strengthening our business proposition. We focus on acquiring structurally healthy companies that allow us to build our portfolio of proprietary technologies, or expand our geographic sales network within Europe, North America, and Asia. We aim to acquire a turnover of € 100 million to € 150 million within the medium term, at the same time as we manage our portfolio to reduce activities with lower margins and growth potential. In addition, we aim to divest € 150 to € 200 million in activities that do not contribute toward our long-term targets. ACQUISITIONS & DIVESTMENTS No material acquisitions and divestments took place in 2021. The expenditure related to acquisitions amounted to € 0.5 million (2020: € 0.5 million expenditure and € 0.6 million increase of purchase price allocations for the acquired brand names, customer databases, intellectual property, and good- will). At the balance sheet date, an active program is already in place to divest certain activities related to the distribution of our connectivity solutions; accordingly, the associated assets and liabilities have been reclassified to assets and liabilities held for sale. Barring unforeseen circumstances, a transaction is expected within the upcoming 12 months. INVESTMENTS IN PROPERTY, PLANT AND EQUIPMENT In 2021, the net investment in property, plant and equipment, excluding right-of-use assets, totaled € 29.7 million (2020: € 28.0 million). Part of these investments concerned replace- ment investments. An important part of the investments also related to the expansion of building and production capacity, including: • Expansion of production capacity for medium-voltage energy cable systems. • Integration of cable production capacity at Ittervoort in Haaksbergen. • Expansion of the R&D and engineering office within Smart Manufacturing systems. • Expansion of the production capacity for 2D and 3D Smart Vision technology. Depreciation of property, plant and equipment totaled € 30.1 million in 2021 (2020: € 29.8 million). INVESTMENTS IN INTANGIBLE ASSETS AND GOODWILL I n 2021, € 40.5 million was invested in intangible assets and goodwill (2020: € 39.6 million). The most important invest - ments related to the ongoing development of our technologies: • 2D and 3D Machine Vision portfolio. • Security video and communication systems. • New generation of Tire Building systems, like the UNIXX, FLEXX, and Revolute. • Portfolio and production technology for connectivity systems focused on energy transition. • Airfield ground lighting portfolio based on contactless energy and data distribution (CEDD). • Automated system for patching and connecting within fiber-optic networks. The investments above do not only relate to hardware development, but also the development of smart software based on artificial intelligence. In addition, there are invest- ments in ERP software of € 4.2 million and patents and licenses of € 1.8 million. MANAGEMENT REPORT R&D EXPENDITURE in million E 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 70 60 50 40 30 20 10 R&D expenditure (in € mln) R&D expenditure in % of turnover in % 2017 2018 2019 2020 2021 51 TKH GROUP ANNUAL REPORT 2021 | SMART VISION SYSTEMS • Strong demand for our 2D and 3D Machine Vision technologies is expected to continue into 2022, thanks to a combination of targeted programs in key markets and improved market conditions. • For Security Vision, we expect the parking industry to recover gradually. • We will increase investments in research & development and capacity expansion. SMART MANUFACTURING SYSTEMS • Order intake for Tire Building technologies is expected to continue at a high level, driven by products such as the MAXX, MILEXX and Revolute. Additional investments in operational capacity will be executed to fulfill the antici- pated demand. • The turnover in care will grow further, driven by the successful launch and ramp-up of the INDIVION tech- nology. • In our other markets, mainly through our industrial automa- tion systems, we expect growth to continue in 2022, facilitated by a production capacity expansion. SMART CONNECTIVITY SYSTEMS • The demand in the energy infrastructure market continues to grow rapidly and as such we expanded our capacity for energy cables in the third quarter of 2021. On top of this, the order book is well filled, which will help to support a turnover increase in 2022. • The turnover in digitalization is expected to increase, driven by rising fibre prices and the growing need for bandwidth in Europe. • To respond to the high market demand, we have decided to prepare for an expansion of our production capacity and additional capital investments in 2022 and 2023. As usual, TKH will provide a more specific profit forecast for the full year of 2022 at the presentation of its interim results in August 2022. OUTLOOK The improved market circumstances for our technologies, combined with our capability to increase manufacturing capacity and utilization leads to a positive outlook for our business. Based on these developments, we anticipate further organic growth of turnover and result in 2022 in all segments. Barring any unforeseen circumstances, such as a worsening of the current supply chain challenges, sustained disruption from COVID-19, or the geopolitical situation and conﬂict surrounding Ukraine and Russia, TKH expects the following developments per business segment in 2022. MANAGEMENT REPORT GOVERNANCE Members of the Executive Board 53 Members of the Supervisory Board 54 Report of the Supervisory Board 55 Remuneration Report 62 Corporate Governance 70 Risk Management 72 Management Statement 81 TKH Shares 82 53 TKH GROUP ANNUAL REPORT 2021 | MEMBERS OF THE EXECUTIVE BOARD J.M.A. (ALEXANDER) VAN DER LOF MBA CHAIRMAN OF THE EXECUTIVE BOARD, CEO Dutch nationality, male, 1958 Term 2001-present Alexander van der Lof started his career in 1985 at TKH subsidiary B.V. Twentsche Kabelfabriek (TKF) and held various management positions, including Commercial Director. In addition to his career at TKF, Mr. Van der Lof was Company Secretary of TKH Group for a number of years. In 1998, Mr. Van der Lof became a member of the Executive Board of TKH Group and Chief Financial Officer (CFO). Since 2001, he has been chairman of the Executive Board and Chief Executive Officer (CEO) of TKH Group. E.D.H. (ELLING) DE LANGE MBA MEMBER OF THE EXECUTIVE BOARD, CFO Dutch nationality, male, 1965 Term 2008-present Elling de Lange joined TKH in 1998, having started out as a member of the Board of C&C Partners in Poland. In 2002, he became Financial Director of the Chinese cable production companies TFO and ZTC, and in 2003 he took the position of CEO. Since 2006, Mr. De Lange has also been responsible for the Dutch-Chinese cable production companies. Mr. De Lange has been a member of the Executive Board and Chief Financial Officer (CFO) of TKH Group since 2008. Before he joined TKH Group, he served in several interna- tional management positions at Ballast Nedam. H.J. (HARM) VOORTMAN MSC MEMBER OF THE EXECUTIVE BOARD Dutch nationality, male, 1966 Term 2018-2022 Harm Voortman joined TKH’s subsidiary, VMI Holland B.V. in 2004, where he held various management positions, including Commercial Director. In 2010, Mr. Voortman was appointed CEO for VMI Group, and in 2015 he also joined the Management Board of TKH. In 2018, Mr. Voortman was appointed member of the Executive Board of TKH Group. Before his career at TKH Group, Mr. Voortman worked in various R&D and management positions at, among others, Shell and Stork. GOVERNANCE | TKH GROUP ANNUAL REPORT 202154 MEMBERS OF THE SUPERVISORY BOARD GOVERNANCE C.W. (CARIN) GORTER MEMBER Dutch nationality, female, 1963 2017 first appointment 2025 end of term Chairman of the Audit Committee Member of the Remuneration Committee Current other non-Executive Board positions • Vice-Chairman of the Supervisory Board, Basic-Fit N.V., Chairman of the Audit and Risk Committee (2016) • Supervisory Board member, Coöperatie TVM U.A., Chairman of the Audit and Risk Committee (2013) • Supervisory Board member, DAS, Chairman of the Audit and Risk Committee (2019) • External Audit Committee member, Ministry of Justice and Security (2017) • Supervisory Board Member, NTS (Nederlandse Transplantatie Stichting) (2020) • Supervisory Board member, Ebusco Holding N.V., Chairman of the Audit Committee (2021) Current other positions • Owner, Carin Gorter Advies & Toezicht Previous positions: • Senior Executive Vice President & Head of Group Compliance, Security & Legal, ABN AMRO J.M. (MEL) KROON VICE-CHAIRMAN Dutch nationality, male, 1957 2017 first appointment 2025 end of term Member of the Selection and Appointments Committee Member of the Audit Committee Current other non-Executive Board positions • Chairman of the Supervisory Board, Attero B.V. • Chairman of the Supervisory Board, Eneco Groep N.V. Current other positions • Non-Executive Board Member, Urenco Ltd & UCN B.V. • Chairman of the Supervisory Board, Energyworx B.V. • Member of the Advisory Board, LVNL • Member of the Supervisory Board, KVSA B.V. • Chairman of the Advisory Board, De Rijke Noordzee • Advisor, Mitsubishi Corporation • Board Member, German-Dutch Chamber of Commerce DNHK • Advisor, Improved • Member of the Market Advisory Committee, Depsys SA Previous positions • Chairman of the Executive Board, TenneT Holding B.V. A.J.P. (ANTOON) DE PROFT CHAIRMAN Belgian nationality, male, 1960 2014 first appointment 2022 end of term Chairman of the Selection and Appointments Committee Current positions • CEO & President Septentrio Satellite Navigation Current other non-Executive Board positions • Chairman of the Supervisory Board, IMEC • Chairman of the Supervisory Board, Quest For Growth Current other positions • Managing Director, ADP Vision R.L. (ROKUS) VAN IPEREN MEMBER Dutch nationality, male, 1953 2011 first appointment 2022 end of term Chairman of the Remuneration Committee Current other non-Executive Board positions • Chairman of the Supervisory Board, Princess Máxima Center for Pediatric Oncology Previous positions • President & CEO, Canon Europe Ltd. • Senior Managing Executive Officer, Canon Inc. • Chairman of the Executive Board, OCÉ N.V. A.M.H. (MARIEKE) SCHÖNINGH MEMBER Dutch nationality, female, 1963 2020 first appointment 2024 end of term Member of the Remuneration Committee Current positions: • Member of the Management Board & COO, SHV Energy 55 TKH GROUP ANNUAL REPORT 2021 | The Supervisory Board provides the Executive Board with advice, as well as oversees the Executive Board's relationship with stakeholders, including shareholders. The Supervisory Board is governed by by-laws, which include rules covering such matters as its working method, tasks, decision-making, and competencies. MEETINGS DURING THE YEAR UNDER REVIEW In 2021, five regul ar meetings and one additional meeting were held, which were all attended by the Executive Board. In addi - tion, three closed meetings took place attended by the Super- visory Board members only. Due to the COVID-19 restrictions, some of the meetings were held virtually or using a hybrid approach. During the year under review, there were no subjects on the agenda that could have potentially given rise to conﬂicts of interest. The discussion of the financial statements took place in the presence of the external auditor. In preparation for these meetings, as well as to discuss other relevant matters during the year, the chairman of the Supervisory Board maintained regular contact with the chairman of the Executive Board. The Supervisory Board supervises and advises the Executive Board based on both agenda items that recur at every meeting, and on specific subjects relevant for discussion at certain moments. STRATEGY UPDATE: CAPITAL MARKETS DAY 2021 Following the launch of the Simplify & Accelerate program in 2019, TKH has taken significant steps toward transforming the organization and increasing its focus on long-term value creation. As part of this program, TKH has divested € 255 million in activities that, due to their nature, had margins below TKH Group’s average, and had limited organic growth potential. In addition, group companies with a close coherence of activities have been integrated, simplifying the organizational structure, making better use of economies of scale, and further strengthening key areas, such as R&D, sales, and marketing. The successful Simplify & Accelerate program has transformed and streamlined the organization, and has brought the >15% ROS target within reach, positioning TKH well for its next phase of value creation. At the Capital Markets Day on November 17, 2021, the Executive Board presented a strategy update. It set out targets for the period 2022–2025, as well as sharing informa- tion on the business’s position and opportunities within TKH’s operating segments. Additionally, the new strategy program, Accelerate 2025, was launched to increase turnover and results by unlocking the full potential of innovations and disruptive technologies. Benefitting from megatrends, such as automation and digitalization, sustainability, and safety and security, TKH is taking full advantage of the expected market growth. The new program includes actions to boost the increase of ROS and organic growth, based on the strong foundation of current market positions. On top of this, TKH will also increase focus on acquisitions, and expects to acquire around € 100 - € 150 million in turnover during the coming years, while also continuing portfolio management to decrease activities with lower margins and growth potential. TKH also announced that its new business structure would be made up of three units: Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. This will better match the company’s long-term strategy. Going forward, the segment reporting will follow this struc- ture. In addition, TKH prioritized sustainability within its strategy, with strong ambitions and new non-financial targets. The Supervisory Board was intensively involved in the preparation of the new strategy program, for example using business analyses and portfolio reviews. The effects of the implemented transformation program have been discussed at GOVERNANCE REPORT OF THE SUPERVISORY BOARD The Supervisory Board supervises the way the Executive Board defines and implements TKH’s strategy to achieve the defined objectives of the company and its affiliated companies. In doing so, the Supervisory Board is guided by financial, commercial, operational, and governance information, focusing on the interests of all the company’s stakeholders. GOVERNANCE | TKH GROUP ANNUAL REPORT 202156 length, resulting in a solid target-setting and implementation plan. Each meeting was used to discuss key elements of the new program. The most important topics for consultation and decision-making were: • target-setting on financial KPIs; • the new segment reporting based on technologies; • increased focus on sustainability and related target-setting on non-financial KPIs. The progress of the new strategy program, Accelerate 2025, is a high priority for the Supervisory Board and is being closely monitored. Regular evaluation of its implementation will continue to be high on the agenda in the coming year. COVID-19 The outbreak of the COVID-19 pandemic in 2020 significantly impacted the global economy, and this impact continued to be felt in 2021. However, the strong market position and successful strategy of TKH led to a rapid post-COVID-19 recovery during 2021. Due to the global distribution of TKH’s operations, COVID-19 was still high on the agenda throughout the year. Attention was focused on the effects on staff and their health, the organization, activities, and TKH’s results, for example, due to supply chain problems. The Board was frequently informed about the status of employees’ health and performance at operating companies. B ecause of th e ongoing COVID-19 restrictions limiting in-person meetings, the arrangements for the General Meeting 2021 were discussed on several occasions. Due to the emer- gency legislation introduced by the Dutch government, the General Meeting 2021 took place on the original date, but in modified, virtual form. In addition, in the preparation of the General Meeting, the dividend proposal was once again re-ex- amined. The Board concluded, partly based on scenario anal- yses, that given the information then available concerning the impact of COVID-19 and TKH’s solid financial foundation, there was no reason to adjust or withdraw the dividend proposal. COMPANY VISIT At least one regular meeting is held annually at the location of a TKH operating company. These company visits allow the Supervisory Board to meet with local management and employees, and to strengthen the Board’s insight into TKH’s activities, technological developments, and organizational capacity. The Board is updated on local developments, as well as possible challenges faced by local management. Company visits, presentations, demonstrations, and guided tours are always part of the program. Particular attention is also paid to the local company culture. In 2021, the Supervisory Board visited the TKH operating company Commend International in Salzburg, Austria, which belongs to the segment Smart Vision systems. The Supervisory Board was informed about technological and project developments. Special attention was paid to the opportunities related to the application of artificial intelligence within security and communication technologies. In the subsequent guided tour, Commend highlighted their various phases of development and production and demonstrated their applications. Market opportunities were also explained. Other relevant topics were discussed with local management, including the challenges related to the availability of staff due to COVID-19, and the availability of important components. The Supervisory Board greatly values these company visits and, in particular, the meetings with local management and employees, since they offer a deeper understanding of local activities and the company culture. The Supervisory Board also appreciates the openness and transparency of the presentations and discussions. REGULAR MEETINGS Recurring agenda items, concerning issues such as financial developments, the progress of the Simplify & Accelerate and the Accelerate 2025 strategy program, technological, organizational, and market developments, as well as Investor Relations, are discussed at each regular meeting. Where GOVERNANCE TOPICS OF SUPERVISORY BOARD MEETINGS IN 2021 Q1 • COVID-19 situation • Business review • Financial results and press release • Progress of strategic program • Investments and disposals • Supervisory Board committees • Explanation of audit report • Deep Dive on Artificial Intelligence • Cancellation of ordinary shares • AGM preparation/dividend proposal Q2 • COVID-19 situation • Business review • Financial results and press release • Progress of strategic program • Capital Markets Day • Investments and disposals • Supervisory Board committees • Preparation for AGM Q3 • COVID-19 situation • Business review • Financial results and press release • Progress of strategic program • Capital Markets Day • Investments and disposals • Supervisory Board committees Q4 • COVID-19 situation • Business review • Financial results and press release • Progress of strategic program • Capital Markets Day • Investments and disposals • Supervisory Board committees • Budget & Investment Plan 2022 • HR update • Sustainability update, including EU Taxonomy • Company visit to Commend International 57 TKH GROUP ANNUAL REPORT 2021 | applicable, the chairman of the relevant committee of the Board explains the most important findings of each meeting. The content of all press releases is discussed with the full Supervisory Board before their publication. Using the “strategic scorecard” at each meeting, the progress of strategic initiatives and business developments was discussed, including the order book, the competitive field in which TKH operates, possible business risks, and how these risks are managed. In this context, the Board was also frequently informed of the progress of innovation projects. The fact that TKH’s investments in innovation delivered results in 2021 and enabled TKH to grow in several markets is, for the Supervisory Board, a strong validation of the chosen strategic growth path. Following input from the Executive Board, the Supervisory Board has discussed and approved the proposal for the cancellation of ordinary shares which were purchased under the buy-back program initiated mid-November 2020. A “deep dive” presentation was delivered by the Executive Board concerning artificial intelligence (AI). More insight was gained into the application of artificial intelligence in the wider economy and the specific applications of AI within the TKH technology portfolio. The Supervisory Board has gained a clear picture of the progress made within the TKH Group in the field of AI. It has received confirmation that the topic is being given the necessary attention and that it has been taken to a higher level within the organization. This is partly reﬂected in the increase in the number of applications of AI within the tech- nologies developed by TKH operating companies. The Supervisory Board is informed of the progress of sustainability initiatives and developments at least once a year. Last year, specific attention was paid to the increasing relevance of non-financial information focused on ESG (Environmental, Social, and Governance) themes and its alignment with existing sustainability themes – including climate change – and defining new sustainability targets around CO 2 neutrality by 2030 and diversity, among other areas. Special attention was also paid to the implementation of the EU Taxonomy and the validation process by the external auditor of the most relevant non-financial KPIs. For the Supervisory Board, this is confirmation that sustainability is one of the top priorities within the organization and an inte- gral part of (strategic) business decisions. CLOSED MEETINGS The Supervisory Board met three times in the absence of the Executive Board. The most important consultation topics were: • Explanation by the Remuneration Committee of the remu- neration policy for the Executive Board and Supervisory Board and of the remuneration proposal for the Executive Board. • Evaluation of the performance of the Supervisory Board, its committees, and its individual members. • Composition of the Supervisory Board and its committees – formal nominations for appointments to the Supervisory Board to the AGM 2021 and 2022. CULTURE AND ORGANIZATION TKH has an entrepreneurial culture with a focus on techno- logical development and a proactive approach to the market. Given its decentralized organizational structure, res ponsibili- ties are assigned far down in the organization. The Executive Board sets the example and provides guidance on norms and values. To supervise the cultural aspect, the Supervisory Board makes company visits to, for example, obtain insights into the situation in the organization and the management of risks through discussions with and presentations by local manage - ment. Consultation with the Central Works Council also represents an important assessment element in the field of company culture. TKH applies different methods and systems to identify and manage risks. Possible risks, as well as the risk management systems, are discussed regularly with the Executive Board, and openness about risks is encouraged. GOVERNANCE HR AND SAFETY HR developments are discussed at least once a year with the Executive Board, with particular attention given to Management Development, employee satisfaction, employer branding, and current HR topics. In 2021, the relevance of health and safety to TKH and its employees was reaffirmed, partly due to the COVID-19 situation. The Supervisory Board pays considerable attention to safety within the organization. Accidents and near-miss accidents are reported using safety indicators, for example. In 2021, the Executive Board also finalized the implementation of ISO 45001 for production companies. For the Supervisory Board, this is confirmation that safety has been defined as one of the top priorities within the organization, increasing safety awareness in the organiza - tion and allowing employees to take responsibility for this. COMPOSITION AND DIVERSITY The Supervisory Board is composed in such a way that the knowledge, experience, and insights relating to current topics at TKH, as well as the markets an d activities relevant to the company, are well represented. Each member of the Super- visory Board possesses the specific expertise necessary to fulfill their supervisory role. The effectiveness of the Board is determined by the team’s composition in terms of knowledge and competencies as well as cooperation between its members. Continuity in its composition is also valuable, given the Board’s integral accountability for the consideration of various strategic interests, which are directed toward long-term value creation. The Supervisory Board therefore, in principle, applies a maximum term of office of 12 years, in accordance with the Dutch Corporate Governance Code (the “Code”). An evaluation also takes place annually during the (self-)evaluation, as well as before each reappointment, to determine whether the profile for the composition of the Supervisory Board is “up-to-date”, and whether the expertise, competencies, and performance of the candidate in question are suitable. The Supervisory Board aims for diversity in its composition in terms of age, gender, background, expertise, occupational | TKH GROUP ANNUAL REPORT 202158 experience, and nationality, taking account of the statutory requirements. These elements are also included in the profile drawn up by the Supervisory Board. In terms of composition, the Supervisory Board complies with the quota in accordance with Dutch company law concerning a balanced distribution of at least 1/3 female members and at least 1/3 male members, insofar as these seats are distributed to natural persons. The Board supports the view that diversity contributes to objective and sound decision-making. However, diversity is not only considered important when it comes to gender – it also relates to the expertise, competencies, and background. The compo - sition of the Supervisory Board is such that the members can operate critically and independently of one another, the Executive Board, and any individual interests. In the opinion of the Supervisory Board, all Supervisory Board members meet the requirements for independence as referred to in best-practice provisions 2.1.7 up to 2.1.9 of the Code. At the AGM of May 6, 202 1, Mr. J.M. Kroon and Mrs. C.W. Gorter were reappointed for a further period of four years. At the end of the AGM of April 26, 2022, Mr. R.L. van Iperen will step down according to the applicable schedule of retirement. Under the regulations of the Supervisory Board and the articles of association of TKH, Mr. Van Iperen may be reappointed for a further period of two years. Mr. Van Iperen has indicated that he is available for reappointment. The Supervisory Board has discussed the reappointment of Mr. Van Iperen, and its members are of the unanimous opinion that his knowledge, experience, and added value match the desired expertise as set out in the profile drawn up by the Supervisory Board. The members of the Supervisory Board consider the reappointment of Mr. Van Iperen to be in the best interests of TKH, given his extensive knowledge of the company and his excellent perfor - mance as a Board member. His broad experience as a director with ultimate responsibility and as an entrepreneur, as well as his expertise in the field of technology, together with his expe - rience in international listed companies, fit in well with the required expertise and competencies. In addition, Mr. A.J.P. De Proft will resign at the end of the AGM on April 26, 2022, as per the schedule of retirement. Mr. De Proft is not available for reappointment due to increasing time constraints with his other duties. In the context of safeguarding knowledge and continuity within the Board, a selection procedure for the succession of Mr. De Proft was launched during 2021. In filling the vacancy for a member of the Supervisory Board, we sought a candidate with broad international experience within an international company and an affinity for TKH’s technology and activities. After extensive and thorough selection procedures, Mr. P. Oosterveer (CEO and chairman of the Executive Board of Arcadis N.V.) agreed to fill the vacancy and to join the Supervisory Board. The Supervisory Board will nominate Mr. Van Iperen and Mr. Oosterveer as candidates for reappointment and appoint- ment respectively to the Supervisory Board at the AGM 2022, on the condition that the shareholders at that meeting do not invoke their right of recommendation. The Central Works Council was notified of the reappointment and the vacancy, and profiles of prospective candidates. The Central Works Council has stated that it does not wish to invoke its right of recommendation for the reappointment o f Mr. Van Iperen and the appointment of Mr. Oosterveer. Due to the resignation of Mr. De Proft, the function of chairman has become available. The Supervisory Board has carefully considered the selection of a new chairman and is delighted to announce that Mr. R.L. van Iperen has accepted to take on the role of chairman, starting at the close of the AGM 2022, on the condition R.L. van Iperen will be reappointed as a member of the Supervisory Board at the AGM 2022. INTRODUCTION PROGRAM An introduction program is in place for new members of the Supervisory Board, which takes into consideration the exper- tise and knowledge that the member brings to the Board. The introduction program partly focuses on the general strategy, financial and non-financial reporting, and the organizational structure of TKH. Based on company visits, among other activities, TKH’s Smart Technologies and commercial interests are explained. This is vital for the continuing education of the Supervisory Board’s members. CONTACT WITH THE CENTRAL WORKS COUNCIL The Supervisory Board maintains annual contact with the Central Works Council about the TKH strategy and topics that are of interest within the individual Works Councils. These topics include sustainable staff employability, safety, and cooperation between operating companies. In the context of the Central Works Council’s (strengthened) right of recom- mendation, when there are vacancies on the Supervisory Board, a dialog is entered into regarding the reappointment or appointment, accordingly. The members of the Supervisory Board have great respect for the professionalism with which the Central Works Council deals with important issues and offers sound advice. The Board regards consultation with the Central Works Council as being open, constructive, and valuable. For the Supervisory Board, consultation with the Central Works Council is also an important element in assessing the culture within TKH organizations. COMMITTEES The Supervisory Board of TKH has three committees: the Selection and Nomination Committee, the Remuneration Committee, and the Audit Committee. The committees all have their own set of rules defining their conduct. SELECTION AND NOMINATION COMMITTEE The Selection and Nomination Committee comprises Mr. A.J.P. De Proft (chairman) and Mr. J.M. Kroon. The Selection and Nomination Committee held two formal meetings in the past year. The committee also had frequent (virtual) contact on current topics, in particular regarding the preparation and selection of the new member of the Supervisory Board, including ensuring that the knowledge and expertise within the Supervisory Board remains appropriate. GOVERNANCE 59 TKH GROUP ANNUAL REPORT 2021 | The committee conducted interviews with external advisors as well as with potential candidates. The committee prepared an evaluation of the Supervisory Board’s performance. Succession planning is also an important topic of discussion within the TKH organization. The Selection and Nomination Committee reported the most important results of each of its meetings or each consultation to the Supervisory Board. REMUNERATION COMMITTEE With the appointment of Mrs. A.M.H. Schöningh as a member of the Supervisory Board at the AGM 202 0, the Central Works Council exercised its enhanced right of recommendation, so that, as per the revised EU Shareholders’ Directive, Mrs. Schöningh automatically becomes a member of the Remuneration Committee. The Remuneration Committee consists of Mr. R.L. van Iperen (chairman), Mrs. A.M.H. Schöningh, and Mrs. C.W. Gorter. The Remuneration Committee met once during the year at a formal meeting. The Remuneration Committee also had frequent (virtual) contact during the past year. One meeting was held in the presence of the chairman of the Executive Board. The chairman also had telephone consultations with the commit - tee’s external advisor as part of the Committee’s preparatory work. The remuneration policy of the Supervisory Board and Executive Board was discussed in the meetings. The committee concluded that the remuneration policy supports long-term value creation for TKH and offers effective remuneration to the Executive Board. Therefore, no changes have been made to the content of the policy. The realization of the targets of the Executive Board was assessed, based on which, in a closed meeting of the Supervisory Board, the committee presented a proposal for a decision on the remuneration of the Executive Board. The targets for the Executive Board for the current financial year were also discussed and established. The Remuneration Committee identified possible improve - ments to the remuneration report based on the recommenda- tions made by shareholders, and in consultation with the committee’s external advisor. These proposals were discussed with the Executive Board of the company. The Remuneration Committee reported the most important findings of each of its meetings or each consultation to the Supervisory Board. AUDIT COMMITTEE The Audit Committee comprises Mrs. C.W. Gorter (chairman) and Mr. J.M. Kroon. Mrs. Gorter also sits on the committee as an expert in the preparation and audit of the financial statements. The Audit Commit tee met five times (virtually) during the past year. The meetings of the Audit Committee were held in the presence of the external auditor, as well as the CFO, the Director Internal Audit, and the Director of Finance & Control of TKH. In two meetings, TKH’s Tax Director was present to explain national and international tax developments and specific tax matters that are important for TKH, such as the application of the Dutch innovation box regime, tax compliance including the Tax Control Framework, and risk management issues. The Audit Committee discussed the audit plan, based on which the audit activities have been carried out, with the external auditor. The scope and materiality, as included in the audit plan, are also discussed, as well as the key risks in the annual reporting that the external auditor has identified in the audit plan. During the year under review, due to the COVID-19 situation, the audit approach by the external auditor was re-evaluated in consultation with the Audit Committee, with specific attention given to inventory valuation, impairment testing, provisions, and revenue recognition. Further attention was additionally devoted to European Single Electronic Format (ESEF) reporting, which is the electronic reporting format in which issuers on EU regulated markets must prepare and file their annual financial reports. In addition, at each meeting, the Director Internal Audit provides an explanation of his findings concerning the internal audit activities carried out. An ongoing consideration for the Audit Committee is the company's internal risk management and control system. Other topics included within the commit- tee’s remit that were discussed were impairment analyses and the impact of changes in the International Financial Reporting Standards (IFRS) on the income statement and balance sheet including disclosures (financial statements). Because of the relevance of IT & Security for both day-to-day operations and TKH’s business model in the context of software development and R&D, high priority is given to this topic at every Audit Committee meeting. In 2021, there was a discussion of the key audit matters that were identified by the external auditor as having the greatest impact on the audit approach and activities during the audit. Specific focal points in the audit include revenue recognition, profit recognition on projects by estimating costs still to be incurred, valuation of capitalized development costs and assets related to innovation projects and/or business activities, non-compliance with laws and regulations, valuation of deferred tax assets, and valuation of goodwill. In 2021, specific attention was paid to a reclassification from other operating expenses to raw materials, consumables, trade products, and subcontracted work. The assets and directly asso- ciated liabilities held for sale were also discussed. As part of the Simplify & Accelerate program, TKH decided in the first half of 2021 to start an active program to divest certain activities in the distribution of connectivity solutions. Accordingly, the associated assets and liabilities have been reclassified to assets and liabili - ties held for sale. Furthermore, the change in segment reporting, from solution reporting to technology reporting, has been discussed, including in relation to the requirements in IFRS. In the year under review, increased attention was devoted to developments in the field of non-financial information, including the EU Taxonomy requirements. Internal Audit devel oped and conducted re view activities focusing on the non-financial KPIs included in the 2020 Annual Report of TKH. This was also in GOVERNANCE | TKH GROUP ANNUAL REPORT 202160 preparation for the audit on non-financial KPIs by the external auditor. TKH appointed Ernst & Young Accountants LLP (EY) to provide independent assurance of the report to reassure TKH’s stakeholders about TKH’s non-financial information. TKH has obtained limited assurance for the KPIs included in the sustainability performance section on page 28 of the Annual Report 2021. During the reporting year, further attention was also paid to supply chain management, cost inﬂation, and the inﬂuence of global economic and geopolitical developments on the execution of TKH’s strategy, financial position, and results. Forensic expertise is used when drawing up the audit plan and when performing audit activities to gain a clearer picture of the possible risks of fraud and inspect internal control measures, also given the increasing attention paid to fraud and corruption in society. The external auditor explained the management letter with findings in the field of administrative organization and internal control insofar as it is relevant for the audit of the financial statements. The main topics discussed were IT control measures and cybersecurity, fraud and non-compliance management, the financial closing process related to ESEF reporting, and findings at operating companies that needed to be followed up. The external auditor also updated his audit plan to reﬂect recent developments, including the reassess- ment of materiality levels and scoping. In addition, an expert from Climate Change and Sustainability Services at EY explained relevan t developments in the EU concerning non- financial information and reporting. The European Commission announced its action plan on financing sustainable growth as an important enabler of the EU Green Deal in 2018. As part of this action plan, the European Commission introduced several initiatives including the EU Taxonomy Regulation and the proposal for a Corporate Sustainability Reporting Directive (CSRD). In this context, the impact on TKH’s reporting has been discussed, alongside the defined action plans. The Audit Committee evaluates the performance of the external auditor annually regarding the quality of the audit activities, the adequacy and implementation of the audit engagement, and the quality and depth of the reports, as well as any additional contributions. The committee discusses its findings with the external auditor, as well as with the Supervisory and Executive Boards. The Audit Committee also evaluates the Director of Internal Audit. Input for the evalua- tions includes the follow-up of the points for attention and improvement of the audit activities as formulated by the external auditor and TKH regarding the previous financial year. The Audit Committee also advises the Supervisory Board about the nomination for the (re)appointment of the external auditor and prepares the selection of the external auditor. The observations of the Executive Board are considered within this. The Audit Committee then submits a proposal to the Supervisory Board for commissioning the external auditor to audit the financial statements. In 2021, the Audit Committee held a meeting with the external auditor without the Executive Board being present, as per best practice provision 1.7.4. of the Code. It was established that the external auditor was independent of TKH. The Audit Committee reported the most important findings from its meetings to the Supervisory Board. EVALUATION The Supervisory Board also convened a closed meeting to discuss its own performance and that of its committees and individual members. A self-assessment form, which served as a guide during the discussions, was used in preparation for this meeting. The evaluation covered the Board's composi- tion, independence, expertise, and team effectiveness, as well as the quality of information provision, the role of the chairman, and relations with the Executive Board. Based on the evaluation, it was concluded that the Supervisory Board as a whole, as well as the individual members, functioned properly. This honest and open relationship is marked by mutual respect. The members complement one another suffi- ciently within the framework of the advisory and supervisory role toward the company, while covering a wide range of focus areas and expertise. Also discussed was the available and desired expertise and knowledge within the Board. It was established that there is a good working relationship between the Supervisory Board and the Executive Board, and that they are also sufficiently critical of one another. The commu- nication from the Executive Board to the Supervisory Board takes place in an open, professional, and constructive manner so that Supervisory Board members have a strong understanding of strategic and operational issues. During the year under review, this was once again confirmed by the way the Executive Board informed and involved the Supervisory Board at an early stage regarding the Capital Markets Day. It was also established that none of the members of the Executive Board have more than two “demanding” supervi- sory positions as referred to in the Dutch Management and Supervision Act. The Supervisory Board has no indications of any kind of conﬂict of interest between the company and members of the Executive Board. The chairman of the Supervisory Board discussed the findings with the chairman of the Executive Board. During the closed meetings, the items for attention as stated in the best-practice provision of the Code regarding the inde- pendence of the Supervisory Board (2.1.7.), as well as its individual members (2.1.8.) and the chairman (2.1.9.), were also assessed. It was established that all members of the Supervisory Board were independent. FINANCIAL STATEMENTS 2021 The Report of the Executive Board and the 2021 financial statements were submitted to the Supervisory Board in accordance with the provisions in Article 31 of the articles of incorporation. The financial statements were submitted for audit to Ernst & Young Accountants LLP, which subsequently issued an unqualified auditor’s report on the financial state- ments based on the audit. GOVERNANCE 61 TKH GROUP ANNUAL REPORT 2021 | The Supervisory Board discussed the financial statements with the Executive Board in the presence of the external auditor, and subsequently approved the financial statements on March 7, 2022. The Supervisory Board submits the finan- cial statements for the 2021 financial year to the AGM and recommends adopting the financial statements. The Supervisory Board believes that the financial statements constitute a sound basis for the account given by the Executive Board of its management and by the Supervisory Board of its supervision of the management. The Supervisory Board also proposes to approve the proposed profit appro- priation and to discharge the Executive Board in respect of the policy pursued and the Supervisory Board in respect of the supervision conducted. CONCLUSION The new strategic program Accelerate 2025, which includes an update of TKH’s strategy and targets for the period 2022– 2025, as well as the business position and opportunities within the new operating segments of TKH introduced in 2021, has created a new dynamic in the TKH organization. Increased focus on Smart Technologies and software has led to a new structure comprising three segments. Under the leadership of the Executive Board, TKH has demonstrated an enormous drive to make the strategy program a success. The strong market position and successful strategy of TKH resulted in a rapid post-COVID-19 recovery during 2021. The Executive Board’s management of the organization, together with the management of the subsidiaries, despite all the COVID-19 obstacles (including supply chain problems), is evidence of its strong leadership. Among employees, the solidarity and drive to perform day-to-day activities to the highest standard under challenging conditions was also evident. The Supervisory Board is convinced that this solid foundation, combined with the results from the new strategic program and increased focus on sustainable and responsible business with new Environmental, Social, and Governance (ESG) targets, will further strengthen TKH’s sustainable finan cial performance. GOVERNANCE ACKNOWLEDGEMENTS It has been a great pleasure to serve as member and as the Chairman of the Supervisory board. It has been a privilege to be part of this strong company and to help the Executive Board and the great team to reach for higher goals. I am also very happy that Mr. Oosterveer will join the Supervisory Board and Mr. Van Iperen will take its leadership as the Chairman. I am very confident about the future of TKH. A.J.P. De Proft For a period of eight years, Mr. De Proft has fulfilled his role as a member of the Supervisory Board with great commitment and dedication. For the majority of this period, he was also chairman of the TKH Supervisory Board, as well as chairman of the Selection and Nomination Committee. The Board and the com- pany have benefited from his extensive professional knowledge and his wide-ranging managerial and international experience. The Supervisory Board expresses its sincere thanks for this. R.L. van Iperen J.M. Kroon C.W. Gorter A.M.H. Schöningh The Supervisory Board would like to take this opportunity to thank TKH’s business partners for their long-term business relationship, and its shareholders and holders of depositary receipts for the confidence they have shown. We would like to express our sincere appreciation and gratitude to the Executive Board and all TKH employees for their valuable contribution in 2021, and look forward to the further successful implementation of the new strategic program. Haaksbergen, March 7, 2022 On behalf of the Supervisory Board, A.J.P. De Proft, chairman ATTENDANCE AT MEETINGS OF THE SUPERVISORY BOARD AND ITS COMMITTEES MEETING Supervisory Board Audit Committee Remuneration Committee Selection and Nomination Committee A.J.P. De Proft 9/9 2/2 J.M. Kroon 9/9 5/5 2/2 C.W. Gorter 9/9 5/5 1/1 P.P.F.C. Houben* 4/4 3/3 R.L. van Iperen 9/9 1/1 A.M.H.Schöningh 9/9 1/1 * Until AGM 2021 – May 6, 2021. | TKH GROUP ANNUAL REPORT 202162 The revised remuneration policy was proposed by the Supervisory Board for adoption by the 2020 General Meeting of Shareholders, on May 7, 2020, with effect from January 1, 2020. The remuneration policy for the members of the Executive Board and the Supervisory Board was adopted by the General Meeting with 96.99% and 99.92% respectively. At the 2021 General Meeting of Shareholders, the advisory vote was 92.9%, in favor of the remuneration report 2020. The company has reviewed the opinions expressed, to the extent known, by those shareholders who issued an advisory countervote or who abstained from voting. This feedback did not result in material modifications of the remuneration report 2021. The remuneration policy will be submitted to the General Meeting of Shareholders for adoption every time an amend- ment is made, and at least once every four years after it has been approved by (and on the proposal of) the Supervisory Board. The Remuneration Committee is responsible for developing the remuneration policy and submitting a proposal to the Supervisory Board. In doing so, the Remuneration Committee has taken into account and has followed the best practice provision 3.1.2 of the Corporate Governance Code. Our remuneration policy and corporate strategy are aligned with specific short-term and long-term targets that link the remuneration of each member of the Executive Board to the success of the company. The size of the LTI in relation to the total remuneration package, as well as the criterion that members of the Executive Board must invest at their own cost in the same number of shares awarded to them as an LTI, are important factors in creating long-term value and continuity for the company. For our full remuneration policy, please refer to the TKH website. APPLICATION OF THE POLICY IN 2021 The remuneration payable to the members of the Executive Board comprises a basic salary (TRI – Total Regular Income), a pension commitment, and a variable remuneration compo- nent consisting of an annual performance bonus (STI) and a long-term incentive (LTI) in the form of a share plan. The Supervisory Board sets the targets, along with their respective weighting and criteria, for any given year in REMUNERATION REPORT This remuneration report describes the implementation of the remuneration policy for the members of the Executive Board and the Supervisory Board. REMUNERATION POLICY OF THE EXECUTIVE BOARD GOVERNANCE This remuneration policy aims to provide a competitive remuneration package to attract, motivate, and retain qualified managers for a publicly listed company, while keeping in mind the company’s size and unique characteris- tics. The policy recognizes the internal and external context as well as TKH's business needs and long-term strategy. It is designed to stimulate long-term value creation for TKH and its affiliated companies, taking into account the provisions for good corporate governance. The policy also aims to improve the company’s performance, using financial and non-financial performance measures, combined with the careful assess- ment of risks and the right entrepreneurship. It is tested for market conformity at least once every three years, on the basis of information provided by external experts. In addition, internal remuneration ratios are taken into account by ensuring that the remuneration ratio in the second tier is appropriate and in line with the market standard. Based on the targets set, the Remuneration Committee performs scenario analyses in respect of the Short-Term Incentive (STI) and Long-Term Incentive (LTI) we aim to achieve. 63 TKH GROUP ANNUAL REPORT 2021 | alignment with the company’s strategy and general structure. In the process, the Board considers both financial and non-financial factors, along with personal targets, in addition to the following: • Targets must be derived from the company’s strategy; • Emphasis should be placed on targets that are essential for long-term value creation; • Past performance, business prospects, and conditions should be taken into account; • Stakeholder expectations should be considered. While financial and non-financial targets focus on the realization of overall strategic business objectives and sustainability ambitions, personal targets should relate to the specific role of the Executive Board as a collective, and to each individual member on the Executive Board. The factors considered for personal targets include the company’s mission and identity, its overall ESG (environmental, social, and governance) targets, and any important strategic issues for the coming year. Every effort is made to ensure that the remuneration contributes to the company’s strategy, long- term interests, and sustainability criteria. Among other things, the external assessment and the remuneration policy are used in formulating the proposal for the remuneration of the members of the Executive Board. In accordance with the Corporate Governance Code, the Remuneration Committee takes note of the views of the individual directors with regard to the level and structure of their own remuneration. The remuneration for the members of the Executive Board was externally reviewed in the previous reporting year and adjusted for market competitiveness, at which point it was concluded that the policy pursued with regard to the TRI, STI and LTI meets the objectives set. The Supervisory Board applied the remuneration policy in the reporting year in line with the strategy and financial and non-financial targets. The Board believes the total remunera- tion package strikes a good balance for reaching the strategic targets of TKH. The package encourages the members of the Executive Board to achieve solid results and execute the company's strategy in a realistic, but ambitious, manner. There has been no deviation from the decision-making process for the implementation of the remuneration policy. 1 LABOR MARKET REFERENCE GROUP To attract qualified managers for the Executive Board, and to retain the current members on the Executive Board on a long-term basis, the company takes external reference data into account when determining appropriate remuneration levels. A specific labor market reference group has been established for this purpose. With reference to the AMX- companies on Euronext Amsterdam, we primarily make comparison with companies that are more or less equivalent to TKH in terms of complexity, size and the international scope of their activity portfolio. The Remuneration Committee, supported by external experts, regularly evaluates this reference group to ensure that its composition remains appropriate. To enable an additional assessment of developments specific to the business sector, a reference group consisting of international sector peers is used. No changes occurred in the reporting year with regard to the reference group other than the adjustments implemented by Euronext in the compilation of AMX-companies. The reference group presented on the right was used for 2021. Although external market data provides useful context, it is ultimately the responsibility of the Remuneration Committee and the Supervisory Board to determine appropriate remu- neration packages that reﬂect the specific context and requirements of the company, as well as the skills and capabilities of the individual members of the Executive Board. The external market data is therefore used to inform, not to determine decision-making. The Remuneration Committee evaluates the external market data and, if necessary, makes recommendations to the Supervisory Board for approval. 2 TOTAL COMPENSATION The remuneration payable to the members of the Executive Board comprises a basic salary (TRI – Total Regular Income), a pension plan and a variable remuneration component consisting of an annual performance bonus (STI – Short-Term Incentive) and a long-term incentive (LTI) in the form of a share plan. At least once every three years – or more fre- quently if initiated by the Supervisory Board – the existing remuneration policy is tested and evaluated against available reference data from the labor market reference group and any relevant market developments. The table on the next page lists the various gross remuneration components and relative percentages of fixed and variable remuneration. GOVERNANCE AMX Aalberts Industries Air France-KLM Arcadis Basic-Fit Boskalis Corbion Fagron Fugro PostNL SBM Offshore Vopak INTERNATIONAL SECTOR PEERS Prysmian Basler Cognex Keyence | TKH GROUP ANNUAL REPORT 202164 Basic salary (TRI) Once a year, the Supervisory Board determines whether basic salary levels needs to be adjusted and, if so, by how much, with due consideration to market developments, the remuner- ation structures of similar companies in the labor market reference group, TKH’s results, and wage developments within the TKH Group. Basic salaries have been increased by 3% with effect from January 1, 2021 based in part on the external assessment. The basic salary for individual members of the Executive Board is below the median for the labor market reference group. 3 OTHER EMPLOYEE BENEFITS The members of the Executive Board are entitled to certain business allowances in accordance with what is generally accepted within the TKH organization, and limited to an expense allowance, car and (mobile) telephone. No loans, advances, or guarantees are provided to the members of the Executive Board. Additional governance-related activities are not subject to any extra conditions or compensation. STI performance of the Executive Board 2021 The STI for members of the Executive Board based on realization of the targets for 2021 is presented in the table on the next page. GOVERNANCE 4 PERFORMANCE BONUS (STI) Variable remuneration is an essential part of the compensa- tion package for Executive Board members in terms of rewarding short-term results in line with strategic targets. On the recommendation of the Remuneration Committee, the Supervisory Board establishes the targets and criteria for earning a performance bonus in advance of the reporting year. Once the reporting year has ended, the size of the performance bonus is determined by the Supervisory Board, based on the results achieved and the criteria set. Depending on the degree to which the targets have been met, the STI can range from 0% to (a maximum of) 60% of the TRI. Performance “at target” results in a performance bonus of 40% of the TRI. The Supervisory Board has the discretionary power to deviate from the targets set if special circumstances apply. Differentiation in the STI’s received by members of the Executive Board can occur due to the members’ final scores on their personal quantitative and qualitative targets. Payment of the variable remuneration to members of the Executive Board occurs on the condition that the targets upon which the performance bonus is predicated or the circum - stances under which the bonus was originally stipulated, are accurate. For 2021, there was no full or partial recovery of a bonus as referred to in article 135 subsection 8. 5 SHARE PLAN (LTI) The long-term variable remuneration is aimed at aligning the interests of the Executive Board members with the long-term interests of TKH’s shareholders. For that purpose, a share plan was enacted that arranges for a long-term incentive (LTI). Under the plan, members of the Executive Board are awarded shares based on the realization of targets, on the condition that they personally invest in the same number of shares as are awarded to them under the LTI plan at the market price of that time. The shares awarded under the share plan, along with those personally invested, are meant to be held as a long-term investment, and they may not be traded for three years after their allocation or purchase, as the case may be. The waiting period of three years was determined in light of the quid pro quo financial consideration required of members of the Executive Board. GOVERNANCE Basic salary (TRI) Variable income (STI) 1) Share plan (LTI) 1) Pension Pension compensation Total Variable share in the total 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 J.M.A. van der Lof MBA 702 682 410 74 1,126 146 40 39 193 187 2,471 1,128 62.2% 19.5% E.D.H. de Lange MBA 527 511 308 55 844 110 21 19 73 66 1,773 761 65.0% 21.7% H.J. Voortman MSc 478 464 279 50 766 100 21 21 60 50 1,604 685 65.2% 21.7% Total remuneration 1,707 1,657 997 179 2,736 355 82 79 326 303 5,848 2,574 63.8% 20.9% 1 Realized in the previous financial year and paid out in the financial year following Because amounts are expressed in thousands of euros, rounding differences may arise in the total figures TOTAL COMPENSATION EXECUTIVE BOARD 65 TKH GROUP ANNUAL REPORT 2021 | Achieved (as % of “at target”) Actual award Turnover EBITA Personal targets Weighted average pay-out level in € 1,000 J.M.A. van der Lof MBA 150% 150% 131% 58.4% 410 E.D.H. de Lange MBA 150% 150% 131% 58.4% 308 H.J. Voortman MSc 150% 150% 131% 58.4% 279 GOVERNANCE Relative weighting of the performance criteria Maximum payment level (“at target” – 100%) Turnover 30% 150% EBITA 50% 150% Personal targets (incl. ESG, innovations and strategy realization progress) 20% 150% The amount of remuneration depends on developments in the following KPI’s: Return on Capital Employed (ROCE) and Return on Sales (ROS) in relation to the targets formulated ahead of time, and the stock price developments for TKH shares compared to the AMX-index of Euronext Amsterdam (relative stock price developments). These three KPIs deter- mine whether it will be possible to proceed with awarding any shares, as well as how many shares will be awarded. The performance period pertaining to ROCE and ROS is one year, with the performance ranges determined at the beginning of the year, taking medium-term targets into consideration. The performance period for the relative stock price developments is three years. For the 2021 allocation, this entailed reviewing the period from January 1, 2019, to December 31, 2021. • The applicable performance range for the ROS is 0.50 to 1.50, with an “at target” level of 1.0. The score received on this KPI produces a “multiplier” that determines the ultimate score achieved. • The applicable performance range for the ROCE is also 0.50 to 1.50, with an “at target” level of 1.0. The score for this KPI is also equal to a “multiplier”. • The performance range for the relative stock price devel- opments runs from 0.75 to 1.5, with an “at target” of 1.0. This score is converted into a ‘multiplier’ ranging from 0.5 to 1.8, with 1.0 being the multiplier for “at target”. In setting the amount of the allocation for the total LTI, multipliers are calculated for each KPI. These multipliers are, in turn, multiplied by the standard allocation. The standard award is net and equivalent to 50% of the TRI. The gross value of the standard award is thus approximately equal to the TRI. The minimum pay-out of an LTI award in any given year is 0.25 x the standard award. In this way, even in years in which the KPIs are not realized, the interests of the Executive Board and the shareholders remain parallel. After all, the Executive Board must also personally invest 0.25 x the standard allocation in this situation. The maximum payout is 2.7 x the standard award. The following multipliers were reached for each KPI based on actual overall performance in relation to the performance ranges. The multipliers for both ROS and ROCE amounted to the maximum of 1.5. The multiplier for the relative stock price developments amounted to 0.83. These multipliers for each KPI resulted in a total multiplier for the LTI of 1.87, which meant that 1.87 x the standard award was granted. This resulted in award payouts in € 1,000 of the following net values for: J.M.A. van der Lof MBA: 1.87 x 50% x TRI = 656 E.D.H. de Lange MBA: 1.87 x 50% x TRI = 492 H.J. Voortman MSc: 1.87 x 50% x TRI = 447 The corresponding gross values are listed in the table showing “total compensation” in section 2 of this remunera- tion report. The number of certificates of shares associated with the net award will be calculated based on the average closing price for the three trading days following the time of publication of the annual figures. PERFORMANCE CRITERIA STI PERFORMANCE OF THE EXECUTIVE BOARD | TKH GROUP ANNUAL REPORT 202166 No option rights are awarded to the members of the Executive Board. Any option rights a member may own were obtained during the time in which he was already employed by TKH but had not yet become a member of the Executive Board. These option rights can be exercised according to the TKH share option scheme during the applicable execution periods. In that regard, H.J. Voortman has option rights that apply to the period before he became a member of the Executive Board. The movement and balance of the out- standing option rights awarded to him are shown in the table on the left. For more information on the share option scheme, we refer you to note 25 in the annual financial statements. GOVERNANCE 6 PENSION The Remuneration Committee is responsible for ensuring that the members of the Executive Board are provided with a pension that is in line with normal practice and consistent with the provisions made for similar positions. In addition, the pension arrangements include the right to benefits in the case of poor health or invalidity, and a widows’ and orphans’ pension in the event of death. This is all provided under terms and conditions comparable and applicable to participants in the collective pension fund – which is to say, company employees. The associated costs up to the maximum allowed under tax law are included under pension costs. Pension compensation refers to any portion above the maximum allowed under tax law. 7 PAY RATIO In formulating the remuneration policy for the Executive Board, one of the factors the Supervisory Board takes into account is the organization’s pay ratio. The internal pay ratio is calculated as the average total compensation for the members of the Executive Board (TRI, STI and LTI) divided by the average total compensation for employees (total salary costs divided by the average number of FTEs). The other elements of the terms of employment have a minor inﬂuence on the pay ratio and as such are not taken into account in its EXECUTIVE BOARD SHARE OWNERSHIP Balance 1/1 Awarded shares Individually purchased shares Disposal (at least 3 years in portfolio) Balance at 31/12 J.M.A. van der Lof MBA 2020 1 138,147 5,456 5,456 -15,912 133,147 2021 1 133,147 2,216 2,216 -15,432 122,147 E.D.H. de Lange MBA 2020 1 91,468 4,321 4,321 -4,321 95,789 2021 1 95,789 1,662 1,662 -3,324 95,789 H.J. Voortman MSc 2020 1 20,723 3,922 3,922 -3,922 24,645 2021 1 24,645 1,508 1,508 -1,508 26,153 1 Realized in the previous financial year and paid out in the financial year following OPTION RIGHTS H.J. VOORTMAN MSC Year of award Exercise price in € Number as at 01-01-2021 Awarded during the year Movement during the year Expired during the year Exercised during the year Number as at 31-12-2021 Exercise period 2016 33.92 12,000 -12,000 0 2019-2021 2017 41.19 7,350 7,350 2020-2022 2018 52.25 8,400 8,400 2021-2023 Total 27,750 0 0 0 -12,000 15,750 67 TKH GROUP ANNUAL REPORT 2021 | GOVERNANCEGOVERNANCEGOVERNANCE calculation. The Remuneration Committee follows changes in the internal pay ratio on a yearly basis and takes them into consideration when assessing and determining remuneration for the members of the Executive Board. The pay ratio calculated for 2021 was 33.8 (2020: 14.6). 8 COMPARATIVE INFORMATION ON REMUNERA- TION AND COMPANY PERFORMANCE The table on the right shows the comparative information for 5 years on the changes in remuneration of for the Executive Board and company performance. COMPARATIVE INFORMATION ON REMUNERATION AND COMPANY PERFORMANCE (in € 1,000 unless stated otherwise) 2021 2020 2019 2018 2017 Remuneration of the Executive Board 1 J.M.A. van der Lof MBA 2,237 902 1,134 1,419 1,656 E.D.H. de Lange MBA 1,678 676 850 1,064 1,116 H.J. Voortman MSc 2 1,523 614 772 574 A.E. Dehn 3 114 916 Company performance ROS 12.4% 10.5% 11.6% 11.3% 10.1% Organic growth 15.9% -9.9% -1.9% 9.4% 8.8% CO 2 reduction (vs. 2015, 2021 vs 2019) 29.8% 5.8% 5.4% 2.9% -0.9% Illness rate of employees 3.56% 3.51% 3.26% 3.47% 3.35% Average remuneration per FTE 54 50 49 48 47 Executive Board pay ratio 33.8 14.6 18.9 21.9 26.4 1 Based on TRI, STI, and LTI 2 Appointment to the Executive Board with effect from May 3, 2018 3 Member of the Executive Board until May 3, 2018 9 PERSONAL LOANS The company grants no personal loans or guarantees to Executive Board members. 10 CHANGE OF CONTROL There is no “change of control” clause in the employment contracts of the members of the Executive Board. 11 SEVERANCE PAY The remuneration in the event of dismissal amounts to a maximum of one year’s salary (TRI). No severance pay is awarded if the contract is terminated prematurely on the director’s account, or if the director has acted in a culpable or negligent manner. | TKH GROUP ANNUAL REPORT 202168 This policy aims to provide a competitive compensation package to attract, motivate, and retain qualified members of the Supervisory Board for a publicly listed company, while taking into account the size and unique characteristics of the company. TKH is a leading technology company, focused on advanced innovative technology systems in high-growth markets. The company endeavors to be an attractive employer and solid investment for its shareholders, with corporate social responsibility forming a central part of that. This policy was developed in the context of national and international market trends and in line with legal requirements, best practices in corporate governance, the social context of remuneration practices, and the interests of the company’s shareholders and other stakeholders. The remuneration package is tested for market conformity in 2019 and at least once every three years on the basis of informa tion provided by external experts. The guiding principles in the company’s remuneration policy are to ensure equity and transparency. The remuneration structure has been developed to promote the satisfactory fulfillment of their tasks by members of the Supervisory Board and is not dependent on the company’s financial results. The Supervisory Board acknowledges its responsibility to act in accordance with the identity, mission and core values of the company. In this context, the decision has been made to opt for fixed compensation without any variable remuneration components to ensure that members can remain independent and objective in fulfilling their role of enacting the company’s corporate strategy and objectives, and creating long-term value and sustainability for the business. For the full remuneration policy, please refer to the TKH website. APPLICATION OF THE POLICY IN 2021 1 REMUNERATION The remuneration policy aims to reward members of the Supervisory Board in line with the market on the basis of their activities, experience and the related allocation of roles within the Board and its committees. The remuneration is periodically assessed externally with the same reference group as for the Executive Board. The remuneration of a member of the Supervisory Board is not dependent on the company results. No shares and/or rights to shares are granted to the members of the Supervisory Board. Any shares held by a member of the Supervisory Board are for long-term investment purposes. The General Meeting of Shareholders adopted the remuneration of the Supervisory Board in 2019, with effect from January 1, 2019. REMUNERATION POLICY OF THE SUPERVISORY BOARD GOVERNANCE Regular remuneration Remuneration membership committees Total Total (in € 1,000) 2021 2020 A.J.P. De Proft, chairman 60 8 68 68 P.P.F.C. Houben 1 19 4 23 55 R.L. van Iperen 45 8 53 53 C.W. Gorter 45 15 60 58 J.M. Kroon 45 13 58 58 A.M.H. Schöningh 2 45 6 51 34 Total remuneration 259 54 313 326 TOTAL REMUNERATION SUPERVISORY BOARD 1 Up to and including May 2021 2 As from May 2020 69 TKH GROUP ANNUAL REPORT 2021 | The remuneration of the Supervisory Board is based on the following amounts: • Chairman of the Supervisory Board € 60,000 • Member of the Supervisory Board € 45,000 • Chairman of the Audit Committee € 10,000 • Member of the Audit Committee € 7,000 • Chairman of the Remuneration Committee / Selection and Appointment Committee € 8,000 • Member of the Remuneration Committee / Selection and Appointment Committee € 6,000 If circumstances require members of the Supervisory B oard to perform considerably more activities than normal, they will receive a fee of € 1,000 per half-day for these activities. The remuneration of the Supervisory Board has not been changed in 2021 compared to 2020. 3 SHARE OWNERSHIP OF THE SUPERVISORY BOARD Mr. A.J.P. De Proft owns 2,000 (depository receipts of) shares in TKH as from 2014. The other members of the Supervisory Board do not own any (depository receipts of) shares in TKH. 4 COMPARATIVE INFORMATION ON REMUNERATION The table below shows the comparative information for 5 years on the changes in remuneration of for the Supervisory Board. 1 Up to and including May 2021 2 3 As from May 2017 4 As from May 2020 5 Up to and including May 2017 6 Up to and including May 2018 GOVERNANCE COMPARATIVE INFORMATION ON REMUNERATION (in € 1,000) 2021 2020 2019 2018 2017 A.J.P. De Proft, chairman 68 68 68 47 43 P.P.F.C. Houben 1 23 55 55 44 44 R.L. van Iperen 53 53 53 43 42 C.W. Gorter 2 60 58 52 42 28 J.M. Kroon 3 58 58 57 40 24 A.M.H. Schöningh 4 51 34 H.J. Hazewinkel 5 27 M.E. van Lier Lels 6 18 44 Total remuneration 313 326 285 234 252 2 TOTAL REMUNERATION The table on the previous page lists the total remuneration paid to individual members of the Supervisory Board. | TKH GROUP ANNUAL REPORT 202170 CORPORATE GOVERNANCE TKH Group N.V., is a public limited liability company under Dutch law, voluntarily applies the limited two-tier entity regime. The management of the company is delegated to the Executive Board under the supervision of the Supervisory Board. The general powers of the Executive Board arise from legislation and regulations, and are laid down in TKH's articles of association. The Executive Board and the Supervisory Board are responsible for the Corporate Governance structure of TKH and compliance with the Dutch Corporate Governance Code (“Code”). In principle, TKH applies the principles and best practice provisions of the Code and attaches great value to the Code. In a few cases, TKH deviates from the Code; the reasons behind each of these deviations are described below. TERM OF APPOINTMENT OF THE EXECUTIVE BOARD The terms of appointment for the CEO and CFO are not limited to the four-year term prescribed in the Code. For both, TKH takes the position that contractual agreements made in the past cannot be modified, that existing employment contracts should be respected, and that the limitation of the appointment is not appropriate. However, it is worth noting that perfor - mance is assessed annually and the term of appointment is continually evaluated. The maximum four-year term of appoint - ment does, however, apply to the third member of the Executive Board. A maximum term of four years is also followed for newly appointed members of the Executive Board, and the best practice provision is applied in such cases. SHARE PLAN A share plan is in place for the Executive Board, but no share option scheme. The share plan involves a financial contribu- tion by the Executive Board since the individual members have to purchase the same number of shares as they are awarded within the framework of the plan. Because this involves a financial contribution from the Executive Board members, it has been determined that the shares must be held for at least three years. Additionally, since this scheme requires a private investment obligation of the individual members of the Executive Board, the Supervisory Board believes that it is reasonable and fair to adhere to a term of three years, and not a term of five years. INTERNAL AUDIT FUNCTION TKH has an Internal Audit function, but the position of this department has not been fulfilled completely independently in accordance with the Code. In 2021, the Internal Audit team was expanded, which will further strengthen its independent position. GENERAL MEETING Due to ongoing COVID-19 restrictions, TKH made the unprecedented decision to ask its shareholders and its holders of depositary receipts of shares not to attend the 2021 General Meeting in person. This request was in line with the Dutch Emergency Act on the organization of non-physical AGMs, which makes it possible to hold a General Meeting that can only be followed via live stream. Due to this excep- tional situation, we were forced to deviate from a number of provisions of the Code relating to the organization and imple- mentation of a General Meeting. With regard to invoking a response time concerning proposals for fundamental strategy changes, TKH applied the adopted law in September 2020 with regard to a 250-day reﬂection period, above the 180 days specified in the Code. The basic principle here is to ensure that the operation and effectiveness of the measures that companies can take to respond adequately to proposals for fundamental strategy changes are safeguarded. DEPOSITORY RECEIPTS OF SHARES Stichting Administratiekantoor TKH Group (“TKH Trust Office Foundation”) holds ordinary shares in the company. In exchange for these shares, TKH Trust Office Foundation issues depositary receipts for those shares. The voting rights to the shares are vested in TKH Trust Office Foundation. If requested to do so, TKH Trust Office Foundation gives the holders of the depositary receipts authorization to cast a vote, GOVERNANCE 71 TKH GROUP ANNUAL REPORT 2021 | to the exclusion of TKH Trust Office Foundation, on the shares for which the holder has depositary receipts at a General Meeting of Shareholders specified in the proxy. The authorization is unrestricted and is therefore not subject to any exchangeability limit. TKH Trust Office Foundation is not required by law (article 2:118a of the Netherlands Civil Code) to grant the proxy, and may withdraw a proxy that has been given if a) a hostile public offer is announced or made (or is expected to be made), b) one or more persons possess at least 25% of the depositary receipts and/or shares, or c) in the opinion of TKH Trust Office Foundation, the voting right of a holder of a depositary receipt is fundamentally in conﬂict with the interest of the company. In the event of one of these scenarios, TKH Trust Office Foundation must notify the holders of depositary receipts and explain the reasons behind their actions. The company considers the issue of depositary receipts for shares as an important measure to safeguard the interests of shareholders, holders of depositary receipts and other stakeholders. This means that the company’s intellec- tual property and its commercial interests are protected, which is also important when it comes to long-term value creation for our stakeholders. Although the Code states that the issue of depositary receipts is not intended to be used as a protective measure, TKH expressly chooses to take this form of protective measure and acts in accordance with the applicable law in article 2:118a of the Dutch Civil Code. This is in derogation to principle of the Code. TKH Trust Office Foundation exercises the rights attached to the shares in such a way that the interests of the company, its associated businesses, and all its stakeholders are protected as far as possible, instead of focusing primarily on the interests of the holders of depositary receipts, as defined in best-practice provision 4.4.5. of the Code. The TKH Trust Office Foundation thus exercises its voting right in line with legal provision 2:118a. In the General Meeting of Shareholders, the Board of TKH Trust Office Foundation may, on request, issue a statement of its intended voting conduct. A detailed explanation of TKH's Corporate Governance structure can be found on the TKH website. ISSUE OF SHARES Shares are issued according to a decision taken by the Executive Board. The decision is submitted to the Supervisory Board for its approval. The extent of this power on the part of the Executive Board is determined by means of a resolution adopted by the General Meeting and does or will not exceed the equivalent of all of those shares in the compa- ny’s authorized capital that have not yet been issued. During the general meeting held on May 6, 2021, this power was extended until November 6, 2022. The directive applies to ordinary shares and cumulative preference financing shares up to a total of 10% of the total nominal value of the issued shares at the time of issue. PURCHASE OF OWN SHARES Subject to specific conditions stipulated in the company’s articles of association and acting in accordance with a deci- sion taken by the Executive Board, the company may acquire depository receipts of shares in its own capital in return for valuable consideration, for a price equivalent to the sum of, on the one hand, the nominal value which they represent or, on the other, one hundred and ten per cent (110%) of their listed price. The decision is submitted to the Supervisory Board for its approval. During the General Meeting held on May 6, 2021 the power for the company to acquire shares in its own capital was conferred on the Executive Board for a period of 18 months as of that date. Among other things, this authorization may be utilized for the purposes of purchasing shares for share and option schemes. CANCELLATION OF OWN SHARES In mid-November 2020, TKH announced a share buy-back program of € 25 million. The program started on November 18, 2020 and was carried out within the conditions set by the General Meeting, with the intention to reduce the issued capital in due time. For the execution of the share buy-back program, TKH has concluded a “Discretionary Management Agreement” with ABN AMRO to carry out the repurchase of its own shares during open and closed periods, inde- pendently of TKH. In the period from November 18, 2020 up to and including April 1, 2021, TKH purchased 623,334 depositary receipts of shares for an amount of € 25 million, which completes the share buyback program. The General Meeting of May 6, 2021 adopted the proposal to reduce the issued capital with due observance of the provi- sions of article 2:99 of the Dutch Civil Code and the articles of association, by cancelling (part of the) ordinary shares that the company holds or of which it holds the depositary receipts. The purpose of the capital reduction is to cancel repurchased (depositary receipts of) shares because there is currently no intention to re-issue those (depositary receipts of) shares. In 2021, 623,334 ordinary shares for an amount of € 25 million were cancelled. PREVENTION OF INSIDER TRADING To ensure that any person deemed to be an “insider” within TKH does not engage in insider trading, TKH has introduced regulations to comply with the European Market Abuse Regulation (EU No. 596/2014 – “MAR”). “Insiders” in the company have therefore consented in writing to act in accordance with these regulations. The Company Secretary serves as Compliance Officer and oversees appropriate compliance with the legislation and regulations concerning insider trading and other compliance risks. GOVERNANCE | TKH GROUP ANNUAL REPORT 202172 RISK MANAGEMENT The Executive Board is responsible for compliance with all relevant primary and secondary legislation and for managing the risks associated with the company’s activities through the appropriate implementation of internal risk management, control and auditing systems. This involves surveying and analyzing the risks related to the company’s strategy and activities, establishing the risk appetite and defining the necessary measures to counter the risks. The Executive Board is accountable to the Supervisory Board for setting up effective and smoothly functioning internal risk management and control systems. RISK MANAGEMENT STRUCTURE TKH has embedded its risk management policy in all levels of the organization. This involves using risk management and control systems that contain the following key components: • An Internal Control Framework (ICF) based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2017). TKH uses this framework to analyze and evaluate the strategic, operational, financial, and compliance risks for each operating company. • The TKH Manual includes regulations and guidelines for decision-making procedures and authorization levels for the strategic management of our operating companies. It also contains guidelines concerning the treasury policy (cash and foreign exchange management), as well as various rules of conduct, such as policy approval proce- dures, code of conduct for staff members, whistleblower procedure, and a privacy policy. The manual also contains guidelines for internal management and control measures including IT controls, internal and external financial reporting, insurance, and how to deal with claims. • A “strategic scorecard”, which is issued every quarterly or more frequently if necessary. It features “high-lights” and “low-lights”, and (potential) risks per business segment. RISK MANAGEMENT STRUCTURE SUPERVISORY BOARD Audit Committee REPORTING AND DISCUSSION ON RISKS AND MITIGATION REPORTING AND DISCUSSION ON RISKS AND MITIGATION EXECUTIVE BOARD OPERATING COMPANIES / CLUSTER MANAGEMENT Reporting Deep dives Technology roadmap Reporting Meetings MANAGEMENT BOARD INTERNAL AUDIT FINANCE & CONTROL LEGAL TAX COMPLIANCE OFFICER ICF MANUALS REPORTING ANALYSIS Strategic scorecard Highlights & Lowlights Budgets GOVERNANCE 73 TKH GROUP ANNUAL REPORT 2021 | R I S K D A T A R I S K A P P E T I T E E N V I R O N M E N T E X P E R T I S E C O N T R O L S C O P E P O L I C Y S T R E S S T E S T HOW DO WE COLLECT THE INFORMATION NEEDED TO MANAGE RISK? WHAT ARE THE RISKS? WHAT IS OUR RISK APPETITE? HOW DO WE ASSESS RISKS? It also features the related action points for the short- and medium-term that need to be discussed between the Executive Board and local management of the operating companies. TKH’s risk management policy matches the organization’s size and decentralized structure. The components this management policy are assessed by the Internal Audit Department. Only continued operations are in scope of the assessments. Each operating company’s main risks are identified and analyzed, and their potential impact on the operating company is determined. For specific themes, including IT & Security, external specialists are used on a project basis. The results of these assessments are discussed with the Executive Board. At least twice a year, the most important findings of the assessments performed by Internal Audit are discussed with the Audit Committee of the Supervisory Board. We consult the guidelines of the Institute of Internal Auditors (IIA) to ensure our internal audit function continues to be aligned with IAA standards. The Executive Board, internal Legal Advisor, Director Finance & Control and the Compliance Officer also evaluate the risk management system. The design and operation of the internal risk management and control systems for financial reporting are also assessed by the external auditor in the context of the audit of the financial statements. The outcome and impact on the audit strategy of the external auditor are discussed with the Executive Board and the Audit Committee. RISK CULTURE An open, transparent culture with sufficient critical capacity is a prerequisite for an organization to deal properly with risks, responsibilities and competencies and to recognize these in time. TKH views a suitable risk-management model as an important tool which enable us to create long-term value. A continuous focus on risk awareness is a key element of TKH’s culture. The pursuit of a balanced risk profile is embedded in this culture by means of short lines of communication and supported by close monitoring of agreed objectives through a comprehensive Key Performance Indicator (KPI) dashboard. Employees are expected to be aware of the core values underlying our actions and our risk profile and to feel respon- sible for the (potential) risks they take. They are also expected to adhere to the principle of TKH’s culture and to act in accordance with TKH’s code of conduct. At the same time we have the obligation to ensure a safe work environment in which our employees can excel regardless of their back- ground, gender and position. The code of conduct is funda- mental to everything we do and describes how we act as a company and in the company, how we make decisions and how we deal with different dilemmas. The code of conduct is published on our website. We have established a procedure that enables employees to report any suspicion of conduct that is unlawful and/or contrary to the code of conduct including sexual harassment, gender inequities and abuse by those in power. Reports are reviewed and investigated by the local Confidential Officer and/or the group Compliance Officer. If deemed necessary, disciplinary and mitigating measures are taken. External parties can also report to the Group Compliance Officer. DEVELOPMENTS IN 2021 In 2021, we evaluated our internal risk management system and made several improvements. The activities carried out by Internal Audit did not lead to any material findings at group level with regard to the administrative organization and RISK CULTURE M E A S U R E M E N T WHAT ELSE COULD GO WRONG? WHAT DO WE DO WITH THE RISKS? WHICH RISKS ARE MAJOR VERSUS MINOR? HOW WELL DO WE MANAGE THE RISKS? G O V E R N A N C E & I N F R A S T R U C T U R E GOVERNANCE | TKH GROUP ANNUAL REPORT 202174 internal control. When shortcomings in the administrative organization and internal control are observed, then we iden- tify areas for improvement. Continuous monitoring takes place so we can adjust the internal risk management and control system to changing internal and external conditions if necessary. In 2021, we focused on further embedding the Internal Control Framework within our operating companies. For operating companies whose size, technology and risks, such as privacy and reputation, are important in the context of implementing the TKH strategy, the risks regarding to IT & Security have been identified and recommendations have been made to further mitigate these risks. These risks and their follow-up are frequently discussed with the Executive Board and the Audit Committee. A number of security inci- dents occurred during the year under review. By reacting in a timely manner with a team of cybersecurity experts, we ensured that these incidents did not result in significant data leaks or cause significant or permanent damage. However, these incidents do confirm the need to be constantly vigilant to IT & Security risks. The COVID-19 outbreak in 2020 significantly impacted the global economy and the impact in general was still felt in 2021. Therefore, the “pandemic” (COVID-19) risk remained an important one for TKH. The worldwide spread of COVID-19 has resulted in lockdowns, quarantines, travel and workplace restrictions, business shutdowns and restrictions, stagnation in the supply chain, an increase - albeit small - in the illness rate, changes in legislation, and general instability of the economic and financial markets. There still is uncertainty about how the pandemic will develop in the future and impact global GDP development and the (end )markets in which TKH operates. By taking early measures, we were able to limit the impact on our business operations in 2021. In 2021, we placed increasing emphasis on the review of non-financial information. Internal Audit developed and conducted review activities focusing on the non-financial KPIs included in TKH’s 2020 Annual Report. The reviews identified improvements areas that were addressed properly at various levels of the group. No material shortcomings were identified. We also devoted further attention to supply chain management during the reporting year. Important raw mate- rials such as copper, steel and plastics, and technical (elec- tronical) components had longer delivery times or were unavailable or only available in limited quantities. Review activities were conducted at several of the group’s operating companies. RISK PROFILE AND RISK APPETITE We have identified most important risks and divided them into four categories: strategic risks, operational risks, financial and reporting risks, and compliance risks. For each risk, we then assess its potential impact on the organization and the probability that this risk will occur. The impact includes financial and non-financial factors such as reputation. It is the duty of the Executive Board to weigh the business opportunities against the expectations and interests of stake- holders. Decisions regarding changes or the fine-tuning of our business models are taken by the Executive Board in accordance with TKH’s risk appetite. A balance is explicitly sought between acceptable risk, on the one hand, and the entrepreneurship conducted in the context of long-term value creation, on the other hand. GOVERNANCE RISK OVERVIEW As part of the strategy process, we have identified four priority areas: Innovation and technical leadership; Being responsible and sustainability impact; Talented people and empowerment; and Sustainable financial performance. Based on these pillars, we have determined our strategic direction and defined specific objectives to manage the strategic process. The risk connectivity matrix shows the most impor- tant risks for TKH and the strategic pillar from which these risks are addressed. In addition, a link has been made with the materiality themes for TKH and our stakeholders, as shown in the materiality matrix (see the Stakeholders section). RISK AREA RISK RISK DESCRIPTION STRATEGIC PILLAR MATERIAL TOPICS RISK TREND RISK APPETITE STRATEGIC 1. MARKET & GEOPOLITICS Influence of global economic and geopolitical developments on the execution of the strategy and financial position and results of TKH. SUSTAINABLE FINANCIAL PERFORMANCE 1 Financial stability, track record & performance 2. PANDEMIC (COVID-19) Impact of a (global) pandemic on the world economy, the (end) markets in which TKH is active and its business operations. SUSTAINABLE FINANCIAL PERFORMANCE TALENTED PEOPLE AND EMPOWERMENT BEING RESPONSIBLE AND SUSTAINABILITY IMPACT 1 Financial stability, track record & performance 11 Good & responsible employment 12 Healthy & safe work environment 16 Integrity & compliance 17 Risk management 18 Privacy & IT Security 3. TECHNOLOGY & INNOVATION Threat to TKH’s long-term value creation due to insufficient technology development and innovation. INNOVATION AND TECHNICAL LEADERSHIP 2 Technological innovations 3 Sustainable capital allocation 4. M&A AGENDA Fai lure to successfully integrate and divest (acquired) companies can result in lower than expected profit contribution and the risk of impairment. SUSTAINABLE FINANCIAL PERFORMANCE 1 Financial stability, track record & performance OPERATIONAL 5. PROJECT MANAGEMENT Risk of projects not being delivered according to specification, agreements, time schedule, and planned margins. SUSTAINABLE FINANCIAL PERFORMANCE 1 Financial stability, track record & performance 6. IT & SECURITY Risk of breach of data availability, confidentiality, and integrity (including IP). INNOVATION AND TECHNICAL LEADERSHIP 18 Privacy & IT Security 7. STAFF Shortage of well-qualified staff and inability to retain qualified staff. Health and safety incidents can cause risks for employees and lead to business stagnation. TALENTED PEOPLE AND EMPOWERMENT 11 Good & responsible employment 12 Healthy & safe work environment 13 Employee satisfaction 14 Personal development opportunities 15 Diversity & inclusiveness 8. SUSTAINABLE BUSINESS OPERATIONS Possible impact of climate change on our strategy and business model. Unsustainable business operations can have an adverse effect on the environment. Future implementation of CO 2 tax/pricing could mean an increase in operational and compliance costs. BEING RESPONSIBLE AND SUSTAINABILITY IMPACT 5 Responsible production 6 Resource efficiency 7 Climate change 8 CO 2 neutral 9 Responsible procurement 10 Circularity 9. (RAW) MATERIALS & COMPONENTS Important raw materials such as copper, steel and plastics, and technical (electronical) components have long delivery times or are unavailable or only available in limited quantities. Also, limited availability of (green) energy results in higher price levels. SUSTAINABLE FINANCIAL PERFORMANCE 1 Financial stability, track record & performance 5 Responsible production 6 Resource efficiency 9 Responsible procurement FINANCIAL AND REPORTING 10. CURRENCIES Volatility of currencies which puts pressure on profit margins. SUSTAINABLE FINANCIAL PERFORMANCE 1 Financial stability, track record & performance 11. COST INFLATION Inflation of costs including (volatility of) raw material prices, components and labor costs, which puts pressure on profit margins. SUSTAINABLE FINANCIAL PERFORMANCE 1 Financial stability, track record & performance 5 Responsible production 6 Resource efficiency 12. REPORTING Risk that TKH’s financial and non-financial reporting contains material errors. SUSTAINABLE FINANCIAL PERFORMANCE BEING RESPONSIBLE AND SUSTAINABILITY IMPACT 1 Financial stability, track record & performance 16 Integrity & compliance COMPLIANCE 13. LEGAL & REGULATORY Dam age (including reputation) due to violation of legislation and regulations including export and sanctions regulations, unfair competition, fraud, corruption and bribery. BEING RESPONSIBLE AND SUSTAINABILITY IMPACT 16 Integrity & compliance 14. TAX Damage (including reputation) due to violation of tax legislation and regulations. SUSTAINABLE FINANCIAL PERFORMANCE BEING RESPONSIBLE AND SUSTAINABILITY IMPACT 1 Financial stability, track record & performance 16 Integrity & compliance 19 Ethical tax RISK CONNECTIVITY MATRIX - OUR MAIN RISKS avoiding low medium high increased equal decreased new 2021 GOVERNANCE 75 TKH GROUP ANNUAL REPORT 2021 | | TKH GROUP ANNUAL REPORT 202176 STRATEGIC MARKET & GEOPOLITICS Inﬂuence of global economic and geopolitical developments (such as the Russia-Ukraine conﬂict) on the execution of the strategy and financial position and results of TKH. Economic and political confrontations between world powers (trade tariffs), the erosion of trade agreements, and the impact of (global) inﬂation can impact TKH’s turnover and results. Our specific risk mitigation measures: • Spread of activities across multiple product/market combi- nations. • Internal efficiency programs and cost reduction programs. • Flexible shell by making use of temporary staff and by outsourcing the production of mainly commodity products. • Geographical spread across Europe, North America, and Asia with multiple production sites. • Strong financial balance sheet and position. • Continuous attention to risk analysis during the execution of the strategy and strategy transformation program. PANDEMIC (COVID-19) Impact of a (global) pandemic on the world economy, the (end) markets in which TKH is active, and its business operations. Possible specific COVID-19 risks with an impact on TKH: • Our employees may face health risks caused by the COVID-19 pandemic. • COVID-19 increased working from home within our organi- zation, which can have an impact on productivity and our internal control environment and can increase the risks of cybersecurity incidents. • Disruptions and stagnation of the activities of important suppliers as a result of COVID-19 can affect us and our ability to manufacture and supply products to customers. • Customers can request a postponement of payment or other contract changes; in addition customer circum- stances can cause delays in deliveries and difficulties achieving other billing milestones due to COVID-19. • Installation and maintenance of our systems are part of our activities with customers all over the world. Travel restric- tion measures caused by COVID-19 can have an impact on these activities. Our specific risk mitigation measures: • The health and safety of our employees is and will remain our top priority. We have taken various preventive measures to support the well-being of our employees. This includes facilitating safe and ergonomic possibilities to work remotely. • A strong financial position to respond to the downturn in activities. This includes the availability of cash and committed finance facilities, a focus on working capital, an investment limitation and cost-reduction programs. • A f ocus on leveraging organic growth into an added value conversion ratio of >35% and translating the increase in gross margin into a further increase in results with more fo- cus on return and cost ratio as a percentage of added value. • Active involvement with our strategic suppliers and an increase in stocks of critical raw materials, components, and products. A search for alternative suppliers where needed. • The implementation of virtual support solutions for remote support of customers at customer locations. • The phasing out of the ﬂexible workforce. TECHNOLOGY & INNOVATION Insufficient technology development and innovation can threaten TKH in terms of long-term value creation. These risks may emerge in the following areas: • The speed of technological developments. • The execution of the R&D roadmap. • Our competitor’s new technologies. • Our payback capacity. • The harmonization of niche specifications to produce standard commodity products and technologies. Our specific risk mitigation measures: • Realize at least 15% of our turnover with innovations that have been introduced in the last two years. • Focus continuously on innovation and the (execution of the) roadmap including time-to-market. • Ensure that the Executive Board and local management frequently discuss developments concerning technology and innovation. • Spend approximately 4% of our turnover on R&D. • Take advantage of technology leadership by leveraging and accelerating growth from innovations and utilizing R&D pipeline. Bring key innovations to maturity with targeted profitability and limit the number of new and large “start-up” projects. • Increase our market share by unlocking the full potential of our innovations and disruptive technologies by taking advantage of the market growth driven by relevant megatrends. M&A AGENDA Failure to successfully integrate acquired companies or execute divestments of group assets can result in lower- than-expected profit contributions and the risk of impairment. Our specific risk mitigation measures: • Establish procedures and guidelines for the implementa- tion of a due diligence process. • Ensure rapid integration of acquired companies in the TKH reporting and control systems. • Harmonize business processes and systems where neces- sary and desirable. • Devote continuous attention to the identification, creation and utilization of synergy effects. • Ensure a continuous focus on portfolio management. Restructure or exit activities that offer limited potential for value creation: limited strategic fit, low return on sales and organic growth potential. GOVERNANCE 77 TKH GROUP ANNUAL REPORT 2021 | OPERATIONAL PROJECT MANAGEMENT Inadequate project management can result in the risk that projects are not delivered according to specification, time schedules, agreements, and planned margins. Our specific risk mitigation measures: • Invest in qualified staff, as well as train and educate staff. Ensure sufficient legal knowledge and professional compe- tence. • Ensure guidelines and procedures for approving projects with an above-average risk, project management, and adequate project administration. • Make sure important projects are discussed at quarterly meetings between the Executive Board and local manage- ment. • Monitor large projects with an above-average risk on a regular basis, if necessary with increased involvement of the Executive Board and/or Management Board and legal advisor. • Constantly evaluate experiences are incorporate them into the risk model, which can lead to strict acceptance criteria. IT & SECURITY IT & Security concerns the risk of breach of data availability, confidentiality and integrity (including IP). This also includes cyber-attacks that violate data (including IP) to disrupt busi- ness operations and infrastructure. The following elements are important in this respect: • A decentralized IT landscape. • The use of various ERP systems. • The continuity of production sites. • The protection of developed technologies (IP protection). • Privacy legislation. Our specific risk mitigation measures: • TKH has issued guidelines outlining the requirements for an ICT infrastructure, including the most important IT controls, partly within the context of cybercrime risks. • Companies from the same region or cluster are encour- aged to generate economies of scale in the field of ICT. • IT managers from the most important operating companies discuss important IT developments, trends, and risks. • The internal and external (IT) security environment is tested by a specialized external agency. • Internal guidelines on privacy handling are established. • Increasing awareness of the need for information security through continuous training and the frequent distribution of newsletters on relevant (cyber) topics (Security Awareness Program) such as safe remote working because of COVID- 19. • The Internal Audit Department oversees the implementa- tion of privacy guidelines. • The risk were identified for operating companies with a high and medium risk in this area, based on size, tech- nology and reputation, and recommendations were made to further mitigate these risks. These risks and the moni- toring of risk management are frequently discussed with the Executive Board and the Audit Committee. STAFF Scarcity of highly qualified personnel and the inability to retain qualified personnel can impact the (progress of the) execution of TKH’s strategy. Health and safety incidents can cause risks for employees and lead to business stagnation. Our specific risk mitigation measures: • Introduce performance/talent management program per operating company. • Establish Management Development Program. • Conduct regular employee satisfaction surveys. • Use good reputation as an attractive employer to recruit talented employees. • Set up cooperation programs between operating compa- nies and training institutes. • Use employer branding and referral recruitment to reach future talent and arouse their interest. • Increase attention on safety by tightening safety standards and creating even better safety awareness, and by imple- menting ISO 45001. • Facilitating healthy and safe homeworking practices. • Communicate frequently with our employees about rele- vant COVID-19 and business developments through various channels. • Establish hotline where our employees can ask questions about COVID-19 and all associated measures and also raise concerns. SUSTAINABLE BUSINESS OPERATIONS Possible impact of climate change on our strategy and busi- ness model. Unsustainable business operations have an adverse effect on the environment. Future implementation of CO 2 tax/pricing could mean an increase in operational and compliance costs. Our specific risk mitigation measures: • Based on the recommendations from the Task Force on Climate Related Financial Disclosures (TCFD), a compre- hensive analysis is carried out on possible risks of climate change and how any climate risks can be converted into opportunities. • Further implementation of optimizations in production processes via our operational excellence program. • Deliver a strong performance regarding our ESG targets, in particular being CO 2 neutral by 2030 (scopes 1-2) and further develop a sustainable portfolio based on SDG criteria. • Continued effort to achieve our waste reduction and recy- cling target so that we can make a responsible and demonstrable contribution to the circular economy. • More information is included in the Being responsible and sustainability impact section. GOVERNANCE | TKH GROUP ANNUAL REPORT 202178 (RAW) MATERIALS & COMPONENTS The fact that important raw materials such as copper, steel and plastics, and technical (electronical) components have long delivery times or are unavailable or only available in limited quantities, and the limited availability of energy, puts pressure on profit margins. Our specific risk mitigation measures: • Increase of our stock of critical raw materials and compo- nents. • Redesign products to increase the use of alternative mate- rials and components with better availability. • Use alternative suppliers. • Align terms and conditions in purchase and sales contracts. • Optimize (regional) portfolio and local manufacturing foot- print. • Launch cooperation programs between operating compa- nies to discuss developments, trends, and risks. • Ensure that developments, including stock positions and purchase conditions concerning important raw materials and components, are frequently discussed between the Executive Board and local management. FINANCIAL AND REPORTING Specific risk mitigating measures for raw material prices related to copper: • The copper positions of each operating company are monitored for the economic stock positions, stock prices, rate of turnover and expected relationship between copper prices and selling prices (price elasticity). • Copper price developments are incorporated to the extent possible in the selling price of products and/or services or where possible temporarily hedged on the futures market. • Every month copper price developments, economic stock positions and hedges are discussed by a committee consisting of members from various disciplines and chaired by TKH’s CFO. • Derivatives are used to a limited extent to hedge the price risk on free inventories. • Important raw materials such as copper are purchased forward to eliminate price risks on the sale of finished products, if: • a sales contract is concluded at a fixed price; • delivery does not take place within one month; and • a significant amount of raw material is needed for the production. REPORTING The risk that TKH’s financial and non-financial reporting contains material errors. These reporting risks mainly relate to the following material items in the financial statements: • Turnover – time of recognition of turnover. • Goodwill – valuation and impairment testing. • Development costs – valuation and impairment testing. • Inventory – valuation and provision. • Contract assets and liabilities – valuation and provision. • Non-financial KPIs. Our specific risk mitigation measures: • Internal procedures and guidelines for internal and external financial reporting and verification of reports. CURRENCIES Volatility of currencies which puts pressure on profit margins. Our specific risk mitigation measures: • A treasury Statute that establishes a currency risk management approach, including responsibilities, authori- zations, and reports. • Material exchange rate risks are hedged in accordance with the Treasury Statute if these risks cannot be passed on in the market. • Exchange rate risk that arises from the translation of net investments into currencies other than euro is partly hedged for the most important currencies by financing investments in the local currency. Monetary assets and liabilities in the same currency are netted as much as possible. • Time differences between the settlement of forward trans- actions and sales and purchase contracts are overcome by using foreign currency bank accounts or by rolling over forward contracts. COST INFLATION Inﬂation of costs including (volatility of) raw material prices, components and labor costs puts pressure on profit margins. Our specific risk mitigation measures: • Frequent adjustment of market price-lists when applicable. • Redesign of products to use alternative materials and components with better prices. • Optimization of (regional) portfolio and local manufacturing footprint to match labor costs developments. • Operational excellence programs to increase labor effi- ciency. • Energy saving and efficiency programs and elimination of (part of) price risks via medium-term energy contracts. • Using different way of transportation to optimize transport efficiency and costs. GOVERNANCE 79 TKH GROUP ANNUAL REPORT 2021 | • Sustainability Reporting Manual. • TKH has drawn up guidelines containing requirements regarding the capitalization of development costs. • Controller meetings are regularly organized during which important reporting topics are being discussed. • Training and education of (financial) staff. • The performance of regular impairment testing, including the annual strategic plans. • Deployment of business intelligence tools to gain insight into risks at an early stage. • Representation letter and in-control statement for each operating company. • The Internal Audit Department performs financial audits and internal audits on non-financial information. COMPLIANCE LEGAL & REGULATORY Non-compliance due to violation of legislation and regulations - including internal guidelines - can result in damage. Examples include: • Unfair competition, violation of export regulations, and sanction programs that can lead to significant penalties and reputational damage. • Global business and use of agents who may expose TKH to local bribery and corruption risks. • Undesirable or unethical conduct of employees that leads to fraud-related matters. • Violation of human rights and child labor rules. Our specific risk mitigation measures: • Internal guidelines include internal control measures, responsibilities and authorization requirements of the management. • Internal guidelines regarding compliance with sanction and export regulations, including a checklist. • Monitoring of financial ﬂows by TKH in part by monitoring: • the transactions monitored through the central treasury system; • the establishment of banking authorizations; and • the setting of credit limits for each operating company, with no local credits being permitted with banks outside of TKH’s banking group, unless TKH has granted permission for this. • The use of banks prescribed by TKH unless another bank is required at the local level because only a local bank is able to perform the required service. • Durin g controller meetings and the international manage- ment meeting attention is paid to the issues of fraud, corruption, and bribery by means of theory and case studies. • The work with agents and intermediaries is framed by guidelines and contracts. • By means of the TKH code of conduct, all our employees are aware that they should follow our business ethics, and confirm this by signing this code of conduct. • Employees can report suspicious of misconduct through a whistleblower policy. Such notifications have no conse- quences for the position of the reporter, provided they follow the procedure drawn up for this purpose. External parties can also report to the Group Compliance Officer. • In all layers of our company, compliance with internal guidelines relating to integrity and behavior is strictly moni- tored (zero tolerance). • Increase the internal legal skills and capacity. • The Internal Audit Department performs internal audits on non-financial information, including supplier assessments. TAX TKH is exposed to tax risks which could result in double taxation, penalties and interest payments. The source of the risks could originate from local tax rules and regulations as well as international and EU regulatory frameworks. These include transfer pricing risks on internal cross-border deliveries of goods and services, tax risks related to acquisitions and divestments, tax risks related to permanent establishments, tax risks relating to tax loss, interest and tax credits carried forward, and potential changes in tax law that could result in higher tax expenses and payments. The risks may have a significant impact on local financial tax results, which, in turn, could adversely affect TKH’s financial position and results. Our specific risk mitigation measures: • Ce ntralized monitoring of compliance and developments in (new) legislation and regulations in field of tax (both national and international), sanction regulations and general legal developments, with attention to specific risks in the areas of transfer pricing, permanent establishment and VAT. • Availability and development of transfer pricing documen- tation in accordance with OECD guidelines as well as compliance with local regulations. GOVERNANCE | TKH GROUP ANNUAL REPORT 202180 • Periodic monitoring of the financial performance of operating companies in accordance with the transfer pricing documentation. • Developing good relations with tax authorities based on mutual respect, transparency and trust. In the Netherlands, a “horizontal monitoring covenant” has been agreed with the Dutch Tax Administration in this context. • Make use of external (tax) advisors for specialized subjects. • Rollout and update of a Tax Control Framework. • Tax reports, including standardized tax reporting packages for determining the tax position, which are also used for determining the tax position in the financial statements as well as “country-by-country” reporting. • During internal trainings, theory and case studies are used to address tax issues (including custom) as well as tax dilemmas. OTHER RISKS In addition to the aforementioned most important risks, we have identified other risks that are also included in TKH’s internal risk management system. This includes the following risks: STRATEGIC • Limited market share and brand awareness in a number of segments and geographical markets. • Dependence on government measures in some markets. • Dependence upon customers and suppliers in a number of segments. OPERATIONAL • Disasters in production facilities. FINANCIAL AND REPORTING • Infringement of IP rights of and by third parties. • Inadequate funding. • Interest rate volatility. QUANTIFICATION OF RISKS AND SENSITIVITY ANALYSIS For the most important risks, we have qualified, where possible, the impact on the result and financial position of TKH should these risks occur. A sensitivity analysis is also included. The financial statements, including in note 21, outline TKH’s objectives and policy regarding the use of financial instruments for risk management, also in the context of hedging risks associated with all major types of transac- tions to which TKH is exposed, related to capital, liquidity, interest, currency, credit, and price risks. CHANGE IMPACT ON ASSUMPTIONS RELATES TO RISK Turnover 1% € 7.4 million EBITA No adjustment of operating costs 1, 2, 3, 4, 10, 11 Raw material price copper 10% € 1.0 million EBITA No derivatives to hedge price risks 1 1 Gross margin 1% € 15.2 million EBITA No adjustments of operating costs 1, 2, 3, 4, 10, 11 Operating costs 1% € 6.0 million EBITA No adjustment of turnover/gross margin Operational and financial risks Currencies – financial instruments 10% € 6.6 million Result before tax All other variables remain constant 1 0 Currencies – financial instruments 10% € 25.5 million Group equity All other variables remain constant 10 Interest 1% € 2.6 million Result before tax Net bank debt including deduction of interest rate swaps held at variable interest rates Financial risks Interest – financial instruments 1% € 0.3 million Group equity Based on concluded interest rate swaps Financial risks GOING CONCERN AND PROSPECTS We have prepared a budget that includes projections of cash ﬂows and liquidity requirements for the coming year. This forecast takes into account current market conditions, possible changes in results based on these conditions, including COVID-19, as well as our ability to adjust our cost structure as a result of changing economic conditions and turnover levels. Our budget also takes into account the total available cash and cash equivalents of € 100.1 million as at December 31, 2021, the possibility of renewing financing agreements and attracting additional financing, and whether we operate within the financial ratio agreed with the banks in the covenant. On this basis, we believe that our available funds at the end of 2021 will be sufficient to finance our activities, investments, and existing contractual obligations for at least the next twelve months. QUANTIFICATION OF RISKS AND SENSITIVITY ANALYSIS GOVERNANCE 81 TKH GROUP ANNUAL REPORT 2021 | During the year under review, our Internal Audit Department assessed the administrative organization and internal control systems of TKH and its associated businesses, with a focus on some of the most important risks and current themes. Improvements were identified where non-material short- comings in the administrative organization and internal control were observed. The Director of Internal Audit discussed the results of these audits with the Executive Board and reported the main findings to the Audit Committee. The activities did not result in any material findings at group level with regard to the administrative organization and level of internal control. Based on the financial results for the 2021 reporting year and the expectations for the 2022 reporting year, the Executive Board has assessed the company’s going concern assumption. Current market conditions, as well as the possibility of continued impact from COVID-19, have been taken into account. The Executive Board has also assessed the strategic, operational, financial, and reporting and compliance risks, as well as the design and effectiveness of the internal risk management and control systems, as described in the Risk Management section of this report. An explanation of the non-financial information in accordance with the Decree on the Disclosure of Non-Financial Information and articles 135b and 145(2) (Book 2 of the Dutch Civil Code), can be found in the management report in the sections on the Report of the Executive Board, Remuneration Report, Risk Management, Corporate Governance, and Report of the Supervisory Board. The effectiveness and performance of the internal risk management and control systems are discussed each year with the Audit Committee and the Supervisory Board. Taking into account the aforementioned risks and measures designed to manage them, and in accordance with the best practice provision I.4.3. of the Dutch Corporate Governance Code, the Executive Board declares that to the best of its knowledge: i. the report provides sufficient insight into any shortcomings in the operation of the internal risk management and control systems; ii. the aforementioned systems provide reasonable assurance that the financial reporting does not contain any errors of material importance; iii. the current situation justifies financial reporting on a going concern basis, and iv. the report contains the material risks and uncertainties that are relevant to the expectation of the company’s continuity for a period of twelve months after the preparation of the report. With reference to Section 5.25c(2c) of the Financial Supervision Act (Wft), the Executive Board declares that to the best of its knowledge: • the financial statements provide a true and fair view of the assets, liabilities, financial position, and profit of TKH and the companies included in the consolidation; • the management report gives a true and fair view of the situation on December 31, 2021, the state of affairs at TKH and its affiliated companies during 2021 (the details of which are presented in the financial statements), and that the management report describes the fundamental risks facing the company. Haaksbergen, the Netherlands, March 7, 2022 J.M.A. van der Lof MBA, Chief Executive Officer E.D.H. de Lange MBA, Chief Financial Officer H.J. Voortman MSc, member of the Executive Board GOVERNANCE MANAGEMENT STATEMENT The Executive Board is responsible for the design and effectiveness of the internal systems for risk management and control. The purpose of these systems is to identify and effectively manage the most significant risks that the company is exposed to. However, the Board cannot provide an absolute guarantee that the group will achieve its objectives, nor can it entirely prevent major errors or losses, incidents of fraud, or other actions in breach of laws and regulations. | TKH GROUP ANNUAL REPORT 202182 DISCLOSURE OF OWNERSHIP AND EQUITY INTERESTS In accordance with the requirements governing the disclosure of ownership and equity interests, any interest in a company's issued share capital of 3% or more must be reported to the Netherlands Authority for the Financial Markets (AFM). Based on the AFM register “Substantial subsidiaries and gross short positions” (Substantiële deelnemingen en bruto shortposi- ties), the following investors (holding an interest of 3% or OPTIONS ON SHARES The options on shares in the TKH Group (ticker symbol: TKG) are listed on NYSE Liffe, the European derivatives business of Euronext. The options expire on the third Friday of the contract month and their initial term is one to nine months. Each option represents 100 TKH shares. TKH’S SHARE STRUCTURE Excluding registered shares, ordinary shares in the company are transferred by notarial deed to Stichting Administratie- kantoor TKH Group (“TKH Trust Foundation Office”). In exchange for these shares, TKH Trust Foundation Office issues depositary receipts of shares. The voting rights to the shares are vested in TKH Trust Foundation Office. If they request to do so, TKH Trust Foundation Office authorizes the depositary shareholders to cast a vote to the exclusion of TKH Trust Foundation Office, based on the shares for which the holder has depositary receipts in the General Meeting specified in the relevant proxy. The authorization is not restricted and is therefore not subject to any conversion limit. Under the terms of Section 2:118a of the Dutch Civil Code, TKH Trust Foundation Office is not required to issue a proxy and may revoke one. The protection afforded by the use of depositary receipts is based on the 1% rule. The depositary receipts may be exchanged for ordinary shares, but not for more than 1% of the total issued capital in the form of ordi- nary shares. This total includes shares owned directly as well as indirectly. Priority shares are managed by the foundation, Stichting Prioriteit, which comprises the company’s Executive Board members. The foundation may not alienate, pledge or otherwise encumber shares. No special rights have been assigned to priority shares. By means of a call option TKH has conferred on Stichting Continuïteit the right to acquire cumulative protective preference shares in TKH, subject to a maximum of 50% of the amount of the total shares outstanding at the time of placement of the protective shares or 100% where the limitation on conversion of depositary receipts ceases to apply. At the end of 2021, the company's issued share capital amounted to 42,198,429 ordinary shares, issued at a nominal value of € 0.25, of which depositary receipts have been issued for 42,086,217, and registered shares for 112,212. In addition, 4,000 prioirity shares are issued with a nominal value of € 1.00. The number of depositary receipts for shares has decreased by 624,648 compared to December 31, 2020 due to the cancellation of 623,334 ordinary shares and conversion of on balance 1,314 depositary receipts for shares into ordinary shares. At the end of 2021, the company held 1,020,885 (depositary receipts of) shares. Further information on the capital structure of TKH is included in note 7 of the company’s financial statements. This information is part of the management report by means of a reference. The divi- dends for 2021 were issued to the holders of (depositary receipts of) shares in cash. The following key figures per ordinary share (or depositary receipt issued for same) apply in relation to the listing on Euronext Amsterdam. GOVERNANCE TKH SHARES TKH's shares are listed on and admitted to the trade on the Euronext Amsterdam stock exchange, with the ticker symbol TWEKA. They have been assigned to the mid-cap index (AMX). In addition, TKH shares are also listed in the Next 150 Index, established by Euronext. 83 TKH GROUP ANNUAL REPORT 2021 | GOVERNANCE DIVIDEND POLICY TKH aims for an attractive r eturn for its shareholders, which is reﬂected in an appropriate dividend policy. Healthy balance sheet ratios are very important to the continuity of the company. In determining the distributable dividend, TKH takes into account the amount of profit the company ne eds to retain to carry out its medium to long-term plans, while also ensuring a company solvency of at least 35%. Based on the growth targets for the coming years, TKH will aim for a pay-out of between 40% and 70% of the net profit before amortization and one-off income and expenses attributable to shareholders. INVESTOR RELATIONS POLICY TKH's investor relations policy is designed to ensure that actual and potential shareholders, analysts, and other finan- cial stakeholders are provided with relevant, strategic, finan- cial and other material information as accurately, carefully, and punctually as possible. In this way, we ensure that they have sufficient insight into our company and the markets in which we operate, as well as information relating to relevant FINANCIAL CALENDAR APRIL 25, 2022 Market Update Q1 2022 APRIL 26, 2022 General Meeting of Shareholders APRIL 28, 2022 Ex-dividend date APRIL 29, 2022 Dividend record date MAY 3, 2022 Payment of dividend AUGUST 16, 2022 Publication interim results 2022 NOVEMBER 15, 2022 Market Update Q3 2022 2021 2020 Annual turnover of shares 19,200,539 29,848,611 Highest price € 56,15 € 51.30 Lowest price € 37.88 € 23.42 Closing price € 55.50 € 39.54 Net earnings per share € 2.31 € 1.14 Dividend € 1.50 € 1.00 Price-earnings ratio as at the end of the financial year 24.0 34.7 Dividend yield on closing price 2.7% 2.5% Market capitalization at end of financial year (in € millions) 2,285 1,640 more in TKH) are disclosed. The table above is based on disclosures until the beginning of 2022. developments in these areas. We maintain frequent contact with major and other shareholders, interested institutional investors, and analysts through roadshows, conferences, company visits, and one-on-one discussions. Due to the restrictions that were put in place following the COVID-19 outbreak, part of the Investor Relations discussions took place virtually. All publications, presentations, meetings, other announcements (non-financial or otherwise), appointments and explanations occur subject to the applicable regulations and guidelines issued by Euronext Amsterdam and the Netherlands Authority for the Financial Markets (AFM), the Dutch financial markets regulatory authority. We take care to ensure that such information is equally and simultaneously supplied to all stakeholders, and that it is readily accessible. By means of the annual report, the interim report, webcasting, the website, and through other financial reporting, we strive for transparent reporting. GOVERNANCE Mandatory disclosing party Interest Date of last disclosure Allianz Global Investors GmbH 9.99% 01-15-2021 ASR Nederland NV 5.11% 10-06-2008 Kempen Oranje Participaties NV 3.77% 04-04-2011 Lucerne Capital Management, LLC 5.62% 08-20-2019 Teslin Participaties Coöperatief U.A. 5.01% 07-06-2017 Vinke Amsterdam B.V. 5.84% 05-28-2020 Janus Henderson Group plc 3.01% 02-19-2021 AllianceBernstein L.P. 3.03% 01-20-2022 INVESTOR RELATIONS J.M.A. van der Lof MBA, Chairman of the Executive Board E.S. Velderman MBA, Director of Corporate Development More information about TKH and its operating companies is available on our website at www.tkhgroup.com. KEY FIGURES PER ORDINARY SHARE DISCLOSURE OF OWNERSHIP AND EQUITY INTERESTS SUSTAINABLE PORTFOLIO SMART VISION SYSTEMS Wafer inspection 86 Access control 87 FactorySmart 88 SMART MANUFACTURING SYSTEMS FLEXX 89 Windturbine measurement systems 90 Revolute 91 SMART CONNECTIVITY SYTEMS SPIC Technology 92 Subsea 93 Special cable Medical systems / Robotics 94 TKH has a strong reputation as an innovator of Smart Technologies, with which we have been distinctive in growth markets for years. Our tech- nologies go beyond the latest market trends, and an essential element in developing our innovative portfolio is sustainability. Being aware of the envi- ronment starts in the design phase, where the first cornerstones are defined by selecting the suitable raw materials. TKH provides Smart Technologies composed to distinguish ourselves on sustainability criteria. Due to intelligent software, we offer a high degree of installation efficiency and solutions that automatically signal and monitor business processes. The technologies of TKH improve efficiency, sustainability, and safety & security. INNOVATIVE SOLUTIONS FOR A SUSTAINABLE FUTURE SUSTAINABLE PORTFOLIO We substantiate the sustainability of our portfolio and make our contribution demonstrable by making a clear link with relevant sustainability goals for TKH. About 70% of our total turnover is linked to one of the selected SDGs. It is not only about supporting our own purposes, but TKH also supports its key stakeholders in achieving their sustainability criteria. We immerse ourselves in what customers, partners, and society expect from us and offer sustainable solutions with which we want to exceed these expectations. Doing so, we give a clear direction to the importance of our sustainable portfolio in the future. INDUSTRY, INNOVATION AND INFRASTRUCTURE GOOD HEALTH AND WELL-BEING SMART TECHNOLOGIES ± 70% OF OUR TURNOVER IS LINKED TO ONE OR MORE OF THESE FOUR SDGs SMART MANUFACTURING SYSTEMS SMART CONNECTIVITY SYSTEMS SMART VISION SYSTEMS INDUSTRY, INNOVATION AND INFRASTRUCTURE SUSTAINABLE CITIES AND COMMUNITIES INDUSTRY, INNOVATIO N AND INFRASTRUCTURE AFFORDABLE AND CLEAN ENERGY 85 TKH GROUP ANNUAL REPORT 2021 | | TKH GROUP ANNUAL REPORT 202186 SEMICONDUCTOR WAFER INSPECTION TECHNOLOGY Vision inspection technology for semiconductor wafer surface The production of wafers is a complex process where a high yield is important to enable the efficient use of materials and energy. For improving sustainable value creation and optimi - zing yield through the early detection of defects, it is essential that customers improve their manufacturing process. The detection of different kinds of defects on the wafer, like cracks, scratches, chipping, saw lines, foreign particles, and more, requires optical inspection at several steps in the pro - duction process using high-resolution cameras and different lights. TKH’s innovative Vision inspection technology combines high- speed line scan cameras and precisely adjusted light modules in a turnkey system. A smart control system enables the captu - ring of up to four different images in one pass by switching between the lights during image acquisition. This combination of perfectly aligned camera, light modules, and smart ﬂash technology allows for simultaneous recording of various wafer surface characteristics to detect even the smallest defects. In addition, the performance of our Machine Vision technology enables 100% inspection and consistent high-quality perfor - CHALLENGE Need for a high-resolution camera system covering a wide field of view to detect the smallest defects, both for highly efficient quality assurance and to reduce waste. SOLUTION Application-specific line scan camera system with smart ﬂash technology to capture wafer surface characteristics highly efficiently, with one system. IMPACT Line scan cameras in combination with smart ﬂash technology result in different images taken in one pass, showing even the smallest defects in the resulting images. The perfectly aligned modules and smart control of camera and light enable more efficient use of resources, and make the inspection process quicker and more efficient. mance. Production issues can be detected earlier, which ena- bles the reduction of waste. Combining various inspection techniques, e.g. brightfield and darkfield illumination simulta - neously, also results in reduced resource consumption. Benefits of TKH’s Vision inspection technology: • 100% inspection • Improved efficiency • Continuous high-quality performance • Reduced resource consumption • Lower operating expenses SMART VISION SYSTEMS INDUSTRY, INNOVATIO N AND INFRASTRUCTURE 87 TKH GROUP ANNUAL REPORT 2021 | ACCESS VERIFICATION AND PREVENTION WITH INTERCOM INTEGRATION Scanning, mask detection and Intercom work seamlessly together to protect staff, customers and visitors As a result of the COVID-19 response measures imposed over the last two years, access to different territories, buildings, and transportation worldwide was significantly disrupted. In many countries, it was mandatory to confirm that people were wea - ring a face mask, check body temperature, or verify the status of a person’s COVID-19 vaccination certificate when monito - ring access to buildings and certain other locations. Often, the- se kinds of verifications require additional staff resources, which is neither efficient nor safe from the perspective of hygie - ne and data privacy. To respond to these market conditions, TKH created Vision ac - cess prevention and verification technology to provide fully au- tomated monitoring of compliance with the above-mentioned regulations. Benefits of TKH’s Vision access technology: • Reliable detection within seconds • P eople who pass all checks are granted access automatically • Audio/video user interface with Intercom functionality for information or guidance, in case of non-compliance SMART VISION SYSTEMS • C ontact surfaces (i.e. touch screen) easy to clean and disinfect • Increased safety and compliance, including data protection, e.g. GDPR When questions arise at entrance points, further communicati - on may be required. This is where integration with TKH techno- logy brings huge benefits. If support is requested by the visitor, the situation can be resolved with an explanation. Alternatively, staff can be directed to the door, gate, or barrier in question. The Intercom system will also allow visitors to call reception and ask for directions. TKH Vision access technology includes an IP-based query terminal with a thin-film-transistor touch screen for user inter- action and video display. In daily operation, each visitor who arrives at the terminal will be presented with a step-by-step operating guide for accessing the location in accordance with the applicable regulations. The solution is simple and easy to use, both indoors and outdoors, and even includes the possibi - lity of mobile Intercom terminals to allow for ﬂexible placement. GOOD HEALTH AND WELL-BEING CHALLENGE Need for access prevention and verification solutions with Intercom integration, and fully automated monitoring of compliance with COVID certificate, face mask, and body temperature requirements. SOLUTION All processes are automatically controlled and documented by a con nec ted controller. If required, a digital DSG- VO-compliant verification list is created, which the system operator can later use to prove compliance with its obligations. IMPACT These solutions help to make cities and other living spaces inclusive, safe, and resilient, especially in relation to COVID-19 response measures, by enabling reliable access verification and risk mitigation through technical solutions and support. | TKH GROUP ANNUAL REPORT 202188 SMART VISION SYSTEMS INDUSTRY, INNOVATIO N AND INFRASTRUCTURE FACTORYSMART ® AI VISION SOLUTIONS AI Vision technology for automating and optimizing food production Many large-scale manufacturing processes benefit from incre- ased sustainability through innovation and automation with 3D Vision and AI technology systems. TKH’s FactorySmart ® AI So- lutions addresses the need for sustainable value creation with a tailored approach. For example, most manual food processing, sorting, grading, and handling tasks can be automated using AI Vision-based in - spection. Since individual food products can have many variati- ons, the Vision system never sees the exact same item twice. Whereas rules-based computer vision requires reliable and re - peatable features that don’t exist in organic material, AI-based methods thrive on high product variability and can adapt to the most challenging food automation and inspection applications. We apply our specialized knowledge of deep learning models, pre-and post-processing, and AI infrastructure to develop and deploy a custom AI solution. As part of this full-service process, TKH works with the custo - mer to implement a highly reliable and accurate vision system that communicates decisions to a programmable logic control - ler, or logic controller on the customer’s production line. TKH provides the user interface for the factory staff, as well as access to a remote dashboard service that provides system telemetry and health data. FactorySmart® AI provides turnkey visual inspection solutions that deliver higher product yield, reduced rejects and field returns (for optimal price per pound), minimized operating expense, and reduced food wastage. They can also reduce pandemic (COVID-19) infection risk in the production facility by minimizing the need for on-premises human contact. The result is highly accurate and reliable automated defect detection, clas - sification, and grading applications that do not require the customer to invest in engineering expertise, training servers, or system maintenance. Benefits of FactorySmart AI: • >99% accuracy • 10x increase in yield • Reduction in food waste • 10x increase in efficiency • >40% reduction in operating expenses CHALLENGE Need for achieving sustainable automated food processing that increases yields and improves quality. SOLUTION FactorySmart ® AI provides a turnkey solution including data collection , pip eline development and training, user interface design, and factory communication to leverage the power of AI in a production environment. Once deployed, cloud connectivity allows ongoing optimization and maintenance of the system to ensure the return on investment is fully realized. IMPACT Smart Technology that allows for innovative, resilient automated systems that reliably outperform standard food production systems or human operators, increasing the production yield as well as the quality and safety of the end product. Food waste is reduced through both the increased yield of the production process and the reduced possibility for recall through higher quality enforcement. 89 TKH GROUP ANNUAL REPORT 2021 | THE NEW APPROACH TO BREAKER MATERIAL FOR TIRES Innovative breaker technology, leading to lower energy use, higher speed and better quality Tires are built from “breaker” material, which combines a rub- ber-based compound (meticulously developed to achieve spe- cific performance criteria), and a fine wire mesh, normally produced by a calender machine. This is energy-intensive: the rubber compound must be melted under intense heat, forced onto the wire, filled under pressure, and then cooled. It is also dirty, with extremely poor air quality around the machinery. The material is normally produced in two stages: first by making the combined rubber/mesh material, and second by transferring this to a breaker cutting machine, where it is cut to the right width and angle, then wound onto a roll for use in tire-building machines. FLEXX uses a completely new technology, which combines the calender and cutting machines in one. Wire is fed directly into the rubber extruder and comes out already embedded in the compound. This leads to substantial improvements in environ - mental and economic performance. SMART MANUFACTURING SYSTEMS Benefit of TKH’s Smart Manufacturing technology: • Energy savings of at least 25% • Highly efficient • Near-elimination of air pollution • Significant reduction in operating expenses • Reduced material requirements, with up to 50% waste re- duction and further savings achieved by producing thinner breaker material Material saving could be the greatest sustainability benefit of all. First, the greater precision of FLEXX integrated extrusion allows for reduced rubber thickness while still fully covering the wire mesh. This also cuts tire weight and rolling resistance. Second, because material extruded by FLEXX is in 400 mm lengths, rather than the 1 to 1.2-meter length normal for calen - der-generated material, there is much less wastage when moving from one tire specification to another. Thanks to FLEXX, manufacturers can deliver short product runs at no higher cost than large runs. That means this technology is excellent for the environment, profitability, and long-term sus - tainability in business operations. INDUSTRY, INNOVATIO N AND INFRASTRUCTURE CHALLENGE Need for more ﬂexible and cost-effective production, with lower energy costs and less pollution. SOLUTION Combi ned compound and wire extrusion and cutting, removing the need for separate calender line, cutting energy usage, and enabling a faster change of specification at no extra cost. IMPACT Moving from traditional production methods to a more streamlined, integrated process reduces energy costs by around 25%, cuts air pollution almost to zero, and cuts waste by up to 50%. Tire manufacturers can now make short production runs at low cost, more ﬂexibly adapt to market demands, and significantly reduce carbon impact, making their business more sustainable for the environment and shareholders alike. | TKH GROUP ANNUAL REPORT 202190 WIND TURBINE MEASUREMENT TECHNOLOGY Advanced measurement systems for wind turbine testing & optimization The current energy transition is helping to pave the way to a climate-neutral future. Wind energy, in particular, plays an key role in generating sustainable energy, and it is expected that its contribution will significantly grow in the years to come. Rigorous tests and inherent optimization are therefore essential to increasing the viability of sustainable wind energy generation. TKH creates data acquisition systems, engineered for testing and analysis, to improve wind turbines and overall wind park performance. The measurement systems can simultaneously acquire data from the nacelle (a cover housing that house all of the generating components in a wind turbine) and on the ground. The technology analyzes electrical, mechanical, and environmental parameters to reduce downtime, optimize main - tenance processes, and improve systems efficiency. In addition, the failure rate in harsh environments can be reduced by 47%, using acquired data for the early detection of failures. It is also important that manufacturers and operators ensure the safety, reliability, and activity of wind parks and turbines, at the same time as optimizing wind park performance; continuous SMART MANUFACTURING SYSTEMS AFFORDABLE AND CLEAN ENERGY measurement and analysis systems are vital to this. TKH tech- nology systems can measure parameters such as apparent versus active power, strain, vibration, wind force, wind direction, and temperature. Monitoring and analyzing these kinds of parameters leads to informed decision-making – based on actual data and dashboards – that helps to ensure safer, more efficient and more reliable wind farms. Thanks to advanced measurement technology, constant measurements and analyses, wind turbines can achieve maxi - mum performance with minimum investment. Benefit of TKH’s advanced system measurement technology: • Early detection of potential failures • 5–10% increase in life cycle • Significant reduction of failure rate (more than 40%) • Improved performance output of up to 5% • Significant reduction in operating expenses • Improved safety and reliability CHALLENGE All wind farm operators face extensive technical, logistical, and economic challenges. Achieving a difference of just 1% in the overall performance of wind turbines can make a decisive difference between profit or loss, success or failure. Therefo- re, there is a need for high-performing measurement systems. SOLUTION Installing advanced measurement systems, both in the nacelle and on the ground, to capture key data insights including electrical, mechanical, and environmental parameters to measure performance and predict required maintenance. IMPACT The measurement technology improves the performance output of wind turbines by up to 5% and contributes to the long-term viability of generating affordable wind energy (increasing the life cycle of wind turbines up to between 5 and 10%). In addition, by using the measurement technology, wind farm operators can significantly improve the efficiency, reliability, and safety of wind turbines and parks. REVOLUTE: RETHINKING THE BEAD APEX PROCESS Unique machine design delivers sustainability and efficiency combined The Apex is a triangular section of compound above the steel-reinforced bead, providing a cushion for the components wrapped around the bead. The Bead Apex is critically impor - tant, and the process for creating the perfect Bead Apex is the key to consistent, reliable tire performance. TKH’s new Revolute machine redefines the process for Bead Apex production and delivers enhanced sustainability perfor - mance. The Revolute’s ground-breaking design ensures a bet- ter balance in speed and volume between the extruder, buffer, and assembler. Moreover, the Revolute is easy to use and redu - ces machine downtime, since tooling changes are high-speed and fully automated. Production cycle time is shorter, which, combined with a long festoon buffer, enables continuous out - put, and eliminates the traditional “stop-start” approach. Benefit of TKH’s Smart Manufacturing technology: • Lower power consumption for each bead produced, due to: • Reduced air consumption, since the Revolute uses servo actuators, not pneumatic cylinders • The removal of the start-stop process, enabled by the Re- volute’s single high-volume extruder (which works conti- SMART MANUFACTURING SYSTEMS nuously). The Revolute thus uses less energy for each item produced, with higher efficiency and lower emissi - ons • Increased productivity and double throughput from a single extruder • The Revolute’s innovative design cuts scrap by: • Using a vertical rather than a ﬂat drum, which removes the need to cut and scrap a triangular piece of material from each Bead Apex produced • Delivering consistently higher-quality output than traditio- nal machines, reducing rework and scrap • Reliable production with lower downtime and reduced need for manual intervention The Revolute helps customers improve quality and broadens their design options. For example, it enables the use of com - pounds that are too hard for traditional machines, so that customers are able to use compounds that reduce rolling re - sistance and improve sustainability performance. The Revolute also includes additional quality monitoring systems, reducing quality problems in tire building downstream. INDUSTRY, INNOVATIO N AND INFRASTRUCTURE CHALLENGE Need for faster, more reliable production, with less downtime and scrap. SOLUTION New design approach that doubles the throughput from a single, high-performance extruder, using a vertical drum to reduce waste, enabling a wider variety of compounds to be handled, cutting energy use, and improving quality. IMPACT Increased productivity, with lower downtime and reduced need for manual intervention. Energy consumption is reduced, and scrap associated with traditional production is eliminated. A wider range of compounds can be used, leading to tires with better environmental characteristics, while the entire process is more sustainable than before. 91 TKH GROUP ANNUAL REPORT 2021 | | TKH GROUP ANNUAL REPORT 202192 SMART PASSIVE INFRASTRUCTURE CONTROL Making essential unmanned connectivity infra- structures more secure with intelligent technology SMART CONNECTIVITY SYSTEMS INDUSTRY, INNOVATIO N AND INFRASTRUCTURE The exponential growth of various digitalized and connected products, communicating over fiber-optic networks, necessi - tates high-speed bandwidth, data traffic, network automation, and unmanned network management systems supervision. In Europe alone, hundreds of thousands of passive cabinets re - quire supervision and service, to secure high-quality connecti- vity networks. Managing unmanned locations in critical environments, such as Telecom and Utility services, leads to complexity and high cost. Multiple network providers often use the same cabinets and, as a result, various operators have access to these un - manned passive network management locations. This leads to critical situations, as there is a lack of ownership and monito - ring. In addition, it is inefficient, time-consuming, and unsustai- nable. TKH’s innovative Smart Passive Infrastructure Control (SPIC) technology makes it possible to manage and monitor passive network management systems efficiently and securely. The SPIC technology includes remote access control, including logs and sensors, to measure tilt and temperatures. All these can be checked, managed, and automated remotely, offering operators and service employees improved reliability, efficien - cy, and safety. In addition, the technology can be easily integra- ted into all types of existing street cabinets. The SPIC technology improves the efficiency and sustainability of network supervision since key data is digitalized, and fewer operators need to travel to the various sites. Control and gran - ting access take place digitally and remotely for reliable, effi- cient, cost-saving, and secured connectivity network manage- ment. During the Internet of Thing (IoT )Awards in 2021 in France, TKF won an award for its SPIC technology. Benefits of TKH’s Smart Connectivity technology: • Improved reliability of connectivity networks • Significant reduction in emissions and CO 2 footprint • Remote control and monitoring • Significant reduction in operating expenses CHALLENGE Managing unmanned locations in critical environments, such as telecom and utility services, is complex and costly. Real-time supervision must be available to determine the status of these locations at any time. SOLUTION TKH’s Smart Passive Infrastructure Control technology (SPIC) includes intelligent sensors and monitoring software to remotely supervise and service passive street cabinets. IMPACT By combining street cabinets with intelligent technology, fewer complications occur, resulting in more reliable connectivity networks and activity. Moreover, this enables a cost reduction for operators at the same time as increasing security. In addition, there is a huge emission reduction for the operators since less travel is required, resulting in more sustainable business operations. 93 TKH GROUP ANNUAL REPORT 2021 | OFFSHORE WIND FARM CABLE TECHNOLOGY Sustainable cable systems for the reliable distribution of renewable energy The demand for sustainable energy is increasing, and the offshore wind sector is growing rapidly. Preventing downtime and reducing failure costs is one of the key priorities within this fast-evolving segment, to help reduce risk and improve energy generation and distribution reliability. Sustainable energy pro - duction via offshore wind farms is therefore an important growth market for TKH’s subsea cable systems. Our innovative cable systems combine modern cable design, based on state-of-the-art production technology, and modern and environmentally friendly materials. Robust subsea cables are supplied as a total solution, equipped with all necessary smart accessories and connectors. The unique design reduces installation failures, as well as installation time, risks, and costs, while improving durability. The environmentally friendly design does not use polluting materials like bitumen and lead, so that it is possible for them to be recycled. Due to the HDPE outer sheath, there is no chance of materials leaching into the marine environment. This is true during installation, operation, and eventual recovery. At the end of its operational life, 99% of the cable is recyclable to equivalent applications. The TKH R&D team is working on the partial replacement of fossil-based po - SMART CONNECTIVITY SYSTEMS lymers with recycled chemical polymers to reduce the carbon footprint of the cable further. In 2021, TKH secured significant orders for the delivery of subsea cable systems for the Baltic Eagle offshore wind farm in the German waters of the Baltic Sea, as well as for the “Hollandse Kust (noord)” and “Hollandse Kust (west)” wind farms in the North Sea. Benefit of TKH’s Smart Connectivity technology: • Modern cable design using environmentally friendly materials • 99% of the cable is recyclable to equivalent applications • Reduction of installation failures and installation time • Cost savings • Improved durability AFFORDABLE AND CLEAN ENERGY CHALLENGE Growing demand for sustainable energy from offshore wind farms, and the need for reliable and sustainable energy distribution. SOLUTION TKH subsea cable systems for energy distribution from offshor e wind farms IMPACT Sustainably generated energy from offshore wind farms is distributed via sustainable subsea cable systems. In this way, TKH contributes to the increasing demand for clean, green energy. Innovative cable specifications are compo- sed of durable materials. The innovative cable concept is easy to install and provides the customer with installation efficiency, cost savings, and a reduction in risk. Green energy calls for sustainable Smart Connectivity systems. | TKH GROUP ANNUAL REPORT 202194 CUSTOMIZED INNOVATIVE AND SUSTAINABLE MEDICAL CABLE Small, robust, and highly ﬂexible next-generation endoscopic camera cable Hospitals are always looking for innovative treatment methods that will be more comfortable and safer for their patients. Doc - tors use a variety of techniques to operate in the least invasive way possible, to limit the impact on their patient’s body. TKH’s advanced Connectivity technology, which is used in, for example, endoscopic camera cables, makes it possible to further reduce the cable’s effect on the body due to its unique design, robustness, and ﬂexibility. Smart Connectivity systems for medical technology not only have to function reliably, but also need to made as small as possible to allow minimally inva - sive surgeries. To meet these high demands, close cooperation between our research & development team and our customers is essential. A highly adapted cable design and structure, com - bined with the selection and processability of raw materials, enables more innovative medical cables with more sustainable resource use. Hybrid cables that combine various elements under one cable sheath have become more important in improving the sustaina - bility and efficiency of our social and healthcare systems. The new generation of endoscopy cables is designed using smart, SMART CONNECTIVITY SYSTEMS hybrid cables – including fiber optics for high-resolution imaging – which adhere the highest medical standards, and enable resource-efficient production Benefits of TKH’s Smart Connectivity technology: • Reduced risk and impact on the body for patients • Improved product life cycle (up to 500 sterilization processes) • Adherence to the highest medical hygienic standards • Reduction in operating expenses GOOD HEALTH AND WELL-BEING CHALLENGE The need to develop a new generation of endoscopy cables with the smallest possible dimensions (and meeting the highest hygiene standards), which allow for high-resolution imaging through minimally invasive surgeries. SOLUTION The creation of highly ﬂexible hybrid cables that contribute to minimally invasive surgery techniques, with fiber optics and non-sticky jacket m aterial. IMPACT TKH innovative endoscopic cables deliver excellent technical performance and ensure gentle handling during surgeries, with the least possible impact on the patient. Special grade material with a non-sticky-jacket surface reduces dirt and dust susceptibility. Compared to disposable cables, TKH endoscopic cables can be easily cleaned through a sterilizing process – up to 500 times – which creates cost savings and allows the conservation of esources. Consolidated statement of profit and loss 96 Consolidated statement of comprehensive income 97 Consolidated balance sheet 98 Consolidated statement of changes in group equity 99 Consolidated cash ﬂow statement 100 Notes to the consolidated financial statements 101 CONSOLIDATED FINANCIAL STATEMENTS | TKH GROUP ANNUAL REPORT 2021 96 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT AND LOSS in thousands of euros Notes 2021 2020 Total turnover 23 1,523,773 1,289,368 Raw materials, consumables, trade products and subcontracted work 787,253 654,977 Personnel expenses 24 378,267 352,852 Other operating expenses 26 123,526 109,081 Depreciation and result on divestment of property, plant and equipment 27 45,166 43,867 Amortization 28 51,110 53,720 Impairments 29 1,564 3,968 Total operating expenses 1,386,886 1,218,465 Operating result 136,887 70,903 Financial income 31 191 342 Financial expenses 31 -7,799 -8,787 Exchange differences 31 -680 -1,965 Share in result of associates 6 2,074 -3,194 Result on sale of subsidiaries 11 0 5,496 Fair value changes of financial liability for earn-out and put options of holders of non-controlling interests 15 -1,759 120 Result before tax 128,914 62,915 Tax on result 32 33,690 15,389 Net result 95,224 47,526 Attributable to: Shareholders of the company 95,212 47,520 Non-controlling interests 12 6 95,224 47,526 Earnings per share attributable to shareholders 33 Ordinary earnings per share (in €) 2.31 1.14 Diluted earnings per share (in €) 2.30 1.14 Earnings per share attributable to shareholders from continued operations Ordinary earnings per share (in €) continued operations 2.31 1.14 Diluted earnings per share (in €) continued operations 2.30 1.14 Ordinary earnings per share before amortization (in €) continued operations 1 2.66 1.54 Ordinary earnings per share before amortization and one-off income and expenses (in €) continued operations 1 2.77 1.69 1 Non IFRS measure. 97 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME in thousands of euros Notes 2021 2020 Net result 95,224 47,526 Items that may be reclassified subsequently to profit or loss (net of tax) Currency translation differences 16,883 -14,165 Currency translation differences in associates 917 -303 Effective part of changes in fair value of cash ﬂow hedges (after tax) 1 -870 3,098 16,930 -11,370 Items that will not be reclassified subsequently to profit or loss (net of tax) Actuarial gains/(losses) 1 17 68 -325 68 -325 Other comprehensive income (net of tax) 16,998 -11,695 Comprehensive income for the period (net of tax) 112,222 35,831 Attributable to: Shareholders of the company 112,254 35,865 Non-controlling interests -32 -34 Total comprehensive income for the period (net of tax) 112,222 35,831 1 For the impact of taxes is referred to note 32. | TKH GROUP ANNUAL REPORT 2021 98 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET in thousands of euros Notes 31-12-2021 31-12-2020 ASSETS Non-current assets Intangible assets and goodwill 3 537,062 577,330 Property, plant and equipment 4 222,487 219,900 Right-of-use assets 5 68,797 77,357 Associates 6 28,699 25,540 Other receivables 8 748 1,872 Deferred tax assets 16 15,277 14,322 Total non-current assets 873,070 916,321 Current assets Inventories 7 294,736 236,714 Trade and other receivables 8 185,318 157,363 Contract assets 9 150,131 124,230 Contract costs 9 4,566 3,314 Current income tax 1,310 1,776 Cash and cash equivalents 1 10 100,135 121,645 Total current assets 736,196 645,042 Assets held for sale 11 88,184 4,594 Total assets 1,697,450 1,565,957 in thousands of euros Notes 31-12-2021 31-12-2020 EQUITY AND LIABILITIES Group equity Shareholders’ equity 12 721,930 661,820 Non-controlling interests 13 53 86 Total group equity 721,983 661,906 Non-current liabilities Interest-bearing loans and borrowings 18 333,804 409,508 Deferred tax liabilities 16 55,965 55,061 Retirement benefit obligation 17 4,716 5,844 Other non-current financial liabilities 15 2,160 3,408 Provisions 14 8,772 5,741 Total non-current liabilities 405,417 479,562 Current liabilities Interest-bearing loans and borrowings 1 19 47,589 57,143 Trade payables and other payables 20 324,696 258,717 Contract liabilities 9 127,044 73,931 Current income tax liabilities 7,845 11,008 Other financial liabilities 15 4,989 4,542 Provisions 14 20,687 19,148 Total current liabilities 532,850 424,489 Liabilities directly associated with assets held for sale 11 37,200 0 Total equity and liabilities 1,697,450 1,565,957 1 Including € 32.9 million (2020: € 56.0 million) cash and cash equivalents that are part of cash and interest pools. These cash and cash equivalents are not netted in the consolidated balance sheet. 99 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN GROUP EQUITY in thousands of euros Share capital Share premium Legal reserve Translation reserve Cash ﬂow hedge reserve Retained earnings Unappropriated profit Total share- holders’ equity Non-controlling interests Total group equity Balance at 1 January 2020 10,709 85,021 80,428 11,835 -1,179 403,654 114,048 704,516 304 704,820 Net result 47,520 47,520 6 47,526 Total other comprehensive income -14,428 3,098 -325 -11,655 -40 -11,695 Total comprehensive income 0 0 0 -14,428 3,098 -325 47,520 35,865 -34 35,831 Appropriation profit last year 114,048 -114,048 0 0 Capital contribution 5 5 7 12 Dividends -62,566 -62,566 -62,566 Acquisition of non-controlling interests 0 -191 -191 Share and option schemes 2,335 2,335 2,335 Purchased shares for share buy-back program -7,144 -7,144 -7,144 Purchased shares for share and option schemes -12,821 -12,821 -12,821 Sold shares for share and option schemes 1,630 1,630 1,630 Change in legal reserve for participations -198 198 0 0 Capitalized development costs 5,331 -5,331 0 0 Balance at 31 December 2020 10,709 85,021 85,561 -2,593 1,919 433,683 47,520 661,820 86 661,906 Net result 95,212 95,212 12 95,224 Total other comprehensive income 17,844 -870 68 17,042 -44 16,998 Total comprehensive income 0 0 0 17,844 -870 68 95,212 112,254 -32 112,222 Appropriation profit last year 47,520 -47,520 0 0 Dividends -41,126 -41,126 -1 -41,127 Share and option schemes 3,869 3,869 3,869 Purchased shares for share buy-back program -18,428 -18,428 -18,428 Cancellation of shares -155 155 0 0 Purchased shares for share and option schemes -9,214 -9,214 -9,214 Sold shares for share and option schemes 12,755 12,755 12,755 Change in legal reserve for participations 76 -76 0 0 Capitalized development costs 6,905 -6,905 0 0 Balance at 31 December 2021 10,554 85,021 92,542 15,251 1,049 422,301 95,212 721,930 53 721,983 | TKH GROUP ANNUAL REPORT 2021 100 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT in thousands of euros Notes 2021 2020 Cash ﬂow from operating activities Operating result 136,887 70,903 Depreciation, amortization and impairment 97,972 103,025 Share and option schemes not resulting in a cash ﬂow 3,869 2,335 Result on disposals -72 -1,567 Changes in provisions 4,404 -811 Changes in working capital -3,531 42,504 Cash ﬂow from operations 239,529 216,389 Interest received 192 344 Interest paid -7,655 -9,001 Income taxes paid -33,050 -19,905 Net cash ﬂow from operating activities (A) 199,016 187,827 Cash ﬂow from investing activities Investments in intangible assets and goodwill 3 -40,692 -39,562 Divestments of intangible assets and goodwill 194 355 Purchases of property, plant and equipment -33,551 -31,097 Disposals of property, plant and equipment 2,545 1,664 Dividends received from associates 31 Repayments on loans 630 94 Divestment of associates -212 Divestments of assets held for sale 11 3,853 Ac quisition of subsidiaries less cash and cash equivalents acquired 35 -495 -481 Divest ment of subsidiaries classified as held-for-sale less trans- ferred cash 21,178 Net cash ﬂow from investing activities (B) -71,550 -43,996 in thousands of euros Notes 2021 2020 Cash ﬂow from financing activities Dividends paid -41,127 -62,566 Settlement of financial liabilities regarding put options of non-controlling interests and earn-out 15 -4,032 -614 Capital contribution non-controlling interests 12 Acquisition of non-controlling interests -191 Purchased shares for share buy-back program -18,428 -7,144 Purchased shares for share and option schemes -9,214 -12,821 Sold shares for share and option schemes 12,755 1,630 Payment of lease liabilities -15,570 -16,005 (Repayments)/proceeds from long-term debts -71,501 -4,985 (Repayments)/proceeds from other long-term debts 2,782 -513 Change in short-term borrowings 19 15,884 -47,676 Net cash ﬂow from financing activities (C) -128,451 -150,873 Net increase/(decrease) in cash and cash equivalents (A+B+C) -985 -7,042 Exchange differences 3,388 -3,490 Change in cash and cash equivalents 2,403 -10,532 Cash and cash equivalents at 1 January 65,614 76,146 Cash and cash equivalents at 31 December 1 0 68,017 65,614 101 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 ACCOUNTING PRINCIPLES General The consolidated financial statements of technology firm TKH Group N.V. (hereafter ’TKH’) have been drawn up in accordance with the International Financial Reporting Standards (‘IFRS’) adopted by the European Commission and applicable on the accounting period that begun on 1 January 2021. The company financial statements are part of the financial statements of TKH. The financial statements have been prepared based on the historical cost basis, except for the valuation at fair value of investment property, derivatives and share-based payments. All transactions in financial instruments are recognized at transaction date. To the extent that alternative performance measures are used these are explained in the glossary, which is included in the ‘Other information’. TKH has been incorporated and domiciled in Haaksbergen, the Netherlands. TKH Group N.V. has its registered office and factual seat at Spinnerstraat 15, 7481 KJ Haaksbergen in the Netherlands in the Netherlands and is registered in the trade register under number 06045666. Going concern TKH has prepared the financial statements on the basis that it will continue to operate as a going concern. Comparative figures Comparative figures may have been reclassified for comparability purposes, if considered to be material, the relevant disclosure has been added to the applicable note. A reclassification of € 3.2 million has been made in the comparative figures from ‘Other operating expenses’ to ‘Raw materials , consumables, trade products and subcontracted work’ New accounting principles and interpretations As from 1 January 2021 the following amendments of standards and new interpretations are effective: • Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 • Covid-19-Related Rent Concessions beyond 30 June 2021 – Amendment to IFRS 16 (effective date 1 April 2021) The adoption of the amendments and improvements did not have material impact on the financial statements. TKH has not opted for an early adoption of the following new standards, amendments to standards and new IFRIC interpretations, which are mandatory for accounting periods that begin on or after 1 January 2022: • Reference to the Conceptual Framework – Amendments to IFRS 3 1 • Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 1 • Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37 1 • AIP IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter 1 • AIP IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities 1 • AIP IAS 41 Agriculture – Taxation in fair value measurements 1 • IFRS 17 Insurance Contracts 2 • Classification of Liabilities as Current or Non-current - Amendments to IAS 1 2 • Definition of Accounting Estimates - Amendments to IAS 8 2 • Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2 2 • Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 2 TKH expects that the adoption of the other new standards and amendments in future periods will not have a material impact on its financials statements. Consolidation The consolidated financial statements include the annual accounts of all subsidiaries over which TKH has or can exercise control. Control is achieved when TKH is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. A list of consolidated entities is included in the overview of subsidiaries in ‘Other information’. If facts and circumstances indicate that there are changes to one or more of the three elements of control, TKH re-assesses whether or not it controls a subsidiary. Consolidation of a subsidiary begins when TKH obtains control over the subsidiary and ceases when TKH loses control of the subsidiary. Profit or loss and each component of other comprehensive income (hereafter ‘OCI’) are attributed to the shareholders of TKH and to the non-controlling interests, even if this results in the non- controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting principles in line with TKH’s accounting 1 Effective for financial years starting on or after 1 januari 2022 2 Effective for financial years starting on or after 1 januari 2023 | TKH GROUP ANNUAL REPORT 2021 102 CONSOLIDATED FINANCIAL STATEMENTS principles. All intra-group assets and liabilities, equity, income, expenses and cash ﬂows relating to transactions between subsidiaries are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If TKH loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement profit and loss. Segment reporting As announced on our Capital Markets Day in November 2021, TKH changed its management structure as from November 2021 and is now organized along the lines of our three technologies: Smart Vision systems, Smart Manufacturing systems and Smart Connectivity systems. The internal and external segment reporting as of November 2021 follows this structure. For these segments, discrete financial information is available that the Executive Board, the highest operational decision- makers, evaluates regularly. The Executive Board decides on the allocation of resources and reviews the performance of the three segments. These performances are reviewed and reported to the level of operating result. The accounting principles that are applied to these consolidated financial statements also apply to the business segments. The transaction prices for deliveries between segments are determined on an arm’s length basis. The results, assets and liabilities of a segment include both items directly linked to that segment as items that can reasonably and consistently be allocated to that segment. Besides the information about the operating segments, selective information by geographic region is disclosed. In the annual report 2021, the ‘Information per segment’ in note 23 is provided for both the previous segmentation (Telecom, Building and Industrial Solutions) as the new segmentation (Smart Vision systems, Smart Manufacturing systems and Smart Connectivity systems). In the overview of ‘Consolidated entities’, as part of the ‘Other information’, is shown in which of the segments the different subsidiaries operate. Foreign currencies The consolidated financial statements are presented in euros, which is also the functional currency of the holding. Transactions in foreign currencies are translated into the respective functional currencies of the entities of the group, at the prevailing exchange rate at transaction date. In foreign currency denominated monetary assets and liabilities at the balance sheet date are translated at the exchange rate prevailing at that date. The result of the conversion occurring exchange differences on monetary items, are recorded in the statement of profit and loss. Assets and liabilities of foreign subsidiaries with a functional currency other than the euro are translated at the exchange rates prevailing at the balance sheet date. The profit and loss accounts of foreign subsidiaries are translated using the weighted average monthly exchange rates over the year under review. Goodwill and fair value adjustments related to the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rates at the balance sheet date. The exchange differences arising from the translation are recognized through OCI as a separate item in equity. Exchange differences recorded through OCI are reclassified to the statement of profit and loss as part of the result on diposal in the period in which the related entities are disposed of. Business combinations Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date at fair value and the amount of any non-controlling interests in the acquiree, in exchange for control of the acquiree. Acquisition related costs are recognized in the statement of profit and loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that: • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of TKH entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; • assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non- current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the net amounts of the identifiable assets acquired and the liabilities assumed at acquisition date. If the amount is negative, a badwill (bargain purchase gain) is recognized immediately as benefit in the statement of profit and loss. Non-controlling interests are reported separately from the group result and group equity. The acquisition of an additional ownership interest in a subsidiary without a change of control is accounted for as an equity transaction. Any excess or deficit of consideration paid over the carrying amount of the non-controlling interests is recognized in equity of the parent in transactions where the non-controlling interests are acquired or sold without loss of control. TKH has elected to recognize this effect in retained earnings. When a non-controlling shareholder has an unconditional right to sell its shares to TKH according to a contractual agreed formula (’put option’), a liability is recognized by TKH for the shares to be purchased. The liability is recognized at the present value of the estimated future cash outﬂow. A legal reserve is accounted for the interest in the equity of the subsidiary of which the economic ownership has been obtained, but not yet the legal ownership. Adjustments after the first recognition on the value of the financial liability for put options and earn- out payments are recognized directly into the statement of profit and loss. 103 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS Intangible assets and goodwill Goodwill Goodwill is capitalized and allocated to cash-generating units. Goodwill is not amortized. Instead, it is tested at least annually for impairment. Any impairment loss is recognized in the statement of profit and loss as soon as it occurs and is not reversed in subsequent periods. On sale of a subsidiary, the goodwill is included in the determination of the profit or loss on a disposal. Other intangible assets Expenditure for research is charged to the profit and loss when incurred. Expenditure for development is capitalized if the following conditions are met: • An asset is created that can be identified; • It is probable that the asset created will generate future economic benefits; and • The development costs can be measured reliably. Development costs are not capitalized if they are directly reimbursed by third parties and TKH does not obtain the property rights. Other intangible assets are valued at historical cost less amortization. The amortization is on a straight-line basis over their expected useful life. The expected useful life is as follows: • Capitalized development costs: 3-7 years • Patents, licenses and trademarks: 3-10 years • Acquired customer relationships: 7-17 years • Acquired brand names: 10-15 years • Acquired intellectual property: 5-10 years Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Property, plant and equipment are depreciated from the date they are ready for their intended use. Depending on the type of asset, a residual value of 0 to 10% is taken into account. The expected useful life is as follows: • Buildings: 30-33 years • Machinery and installations: 5-15 years • Other equipment: 3-10 years Land is not depreciated. Other equipment includes furniture, IT-hardware and transport equipment. Right-of-use assets For new agreements, TKH considers whether the contract is or contains a lease. A lease is defined as a contract or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration. To apply this definition, TKH assesses whether the contract meets three important criteria, namely: • The contract contains an identified asset that is explicitly or implicitly identified in the contract; • TKH has the right to obtain substantially all economic benefits from the use of the identified asset during the period of use, given its rights within the defined scope of the contract; and • TKH has the right to use the identified asset throughout the period of use. TKH assesses whether it has the right to determine how and for what purpose the asset is used during the term of the lease. At commencement date of the lease, TKH recognizes an asset and a lease liability in the balance sheet. The right of use is valued at cost, which consists of the initial valuation of the lease obligation, any initial direct costs incurred by TKH, an estimate of any costs for dismantling and r emoving the asset at the end of the lease, and all lease payments made before the commencement date of the lease (after deduction of received incentives). The Right-of-use assets are amortized on a straight-line basis from the commencement date of the lease to the first of the end of the useful life of the right of use or the end of the lease period or over the useful life if the underlying asset is (expected) to be acquired. TKH assesses the asset for impairment when such indicators exist. On the commencement date, TKH values the lease obligation at the present value of the lease payments unpaid on that date, discounted using the interest rate implicit in the lease if it is readily available or the incremental borrowing rate. Lease payments that are included in the measurement of the lease obligation consist of fixed payments, variable payments based on changes in an index or price, amounts that are expected to be paid under a residual value guarantee and payments that arise from extension options that are reasonably certain to be exercized. After the initial valuation, the obligation is lowered for payments and increased for interest. The obligation is determined again in the event of changes in underlying provisions. When the lease obligation is remeasured, the corresponding adjustment is reﬂected in the asset or in the result if the asset has already been reduced to zero. TKH has chosen to apply the exemption for short-term leases and for leasing assets with a low value. Instead of including a right of use and lease obligation, the payments related to these are recognized as a charge in the income statement on a straight-line basis over the lease period. Impairment At least annually, the company reviews its tangible and intangible non-current assets to determine whether there are indications that those assets have suffered an impairment loss. If there is any such indication the recoverable value of the asset is estimated to determine the extent of the impairment loss. If the asset does not generate cash itself, the company determines the recoverable value of the smallest cash-generating unit to which the asset belongs. The recoverable amount is the fair value less cost of disposal or the value in use, whichever is higher. The value in use is based on the estimated future cash ﬂows that are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is less than its carrying amount, the ass et is written down | TKH GROUP ANNUAL REPORT 2021 104 CONSOLIDATED FINANCIAL STATEMENTS to its recoverable amount. An impairment loss is recognized immediately in the statement of profit and loss. When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, with the exception of goodwill, but never higher than the carrying amount that would have been determined when no impairment loss has been recognized. The increase is recognized immediately in the statement of profit and loss. Associates The associates in which TKH has significant inﬂuence in the financial and operating policy decisions, but no control or joint control, are valued according to the equity method. Under the equity method, the share in the profit or loss of the associate is recognized in the statement of profit and loss, provided that it would not result in negative carrying value of the associate, unless TKH is obliged to partially or completely compensate losses. The share in the associate is determined based on TKH’s share in the net assets of the associate, including the paid goodwill at acquisition and less any impairment loss. Dividend from associates is recognized when the shareholders’ right to receive payments has been established. Receipt of dividends reduces investments in associates. Inventories Inventories are stated at the lower of cost and net recoverable amount. The net recoverable amount is the estimated sales price in normal course of business less estimated cost of completion and selling expenses. The cost of raw materials and consumables is based on the average purchase price and cost incurred in bringing the inventories to their present location and condition. The cost of semi-manufactured and finished products comprise the direct materials and direct labor costs as well as a surcharge for the attributable production costs. Contract assets A contract asset is the right to consideration in exchange for products or services transferred to the customer. If TKH performs by transferring products or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration. Upon completion of the performance obligation and acceptance by the customer, the amount recognized as contract assets is reclassified to trade receivables. Contract costs Capitalized contract costs are systematically amortized over the transfer period of the related products or services to the customer. Contract labilities A contract liability is the obligation to deliver products or services to a customer for which TKH has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before products or services are delivered to the customer, a contract liability is recognized. Contract liabilities are recognized as revenue when TKH performs under the contract. Financial instruments A financial instrument is any contract that gives rise to a financial asset for an entity and a financial liability or equity instrument for another entity. Financial assets and financial liabilities are recognized in the balance sheet when TKH becomes a party in a contract. Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value with recognition of changes in value in the profit and loss) are added to or deducted from the fair value of the financial assets or financial liabilities upon initial recognition. Transaction costs that are directly attributable to the acquisition of financial assets or financial liabilities at fair value with recognition of value changes in the profit and loss are recognized immediately in the profit and loss. An exception to this relates to trade receivables, which are valued at the transaction price determined under IFRS 15. Financial assets Financial assets are at initial recognition classified in one of three groups for the subsequent measurement: • amortized cost, • fair value with change in value through OCI or • fair value with change in value through profit or loss. The classification of a financial asset on initial recognition depends on the contractual cash ﬂow characteristics and the business model of TKH to manage it. A financial asset can only be classified and valued at amortized cost or fair value through OCI if it generates cash ﬂows that consist solely of repayment of principal and interest (‘SPPI’) on the outstanding principal. This assessment is called the SPPI test and is performed at instrument level. The business model refers to the way in which TKH manages its financial assets to generate cash ﬂows. The business model determines whether cash ﬂows arise from the collection of contractual cash ﬂows, the sale of financial assets or both. Purchases or sales of financial assets that require delivery of assets established by regulation or convention in the market place (regular way trades) are recognized on the trade date, the date that TKH commits to purchase or sell the asset. Financial assets at amortized cost are then measured using the effective interest method (“EIR”) and tested for impairment. Gains and losses are recognized in the income statement when the asset is no longer recognized, adjusted or written off. The financial assets at amortized cost mainly comprise trade receivables. 105 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS A financial asset is derecognized when: • The rights to receive cash ﬂows from the asset have expired, or; • TKH has transferred its rights to receive cash ﬂows from the asset or has assumed an obligation to pay the received cash ﬂows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) TKH has transferred substantially all the risks and rewards of the asset, or (b) TKH has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When TKH has transferred its rights to receive cash ﬂows from an asset or has entered into a pass- through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, TKH continues to recognize the transferred asset to the extent of its continuing involvement. In that case, TKH also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reﬂects the rights and obligations that TKH has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that TKH could be required to repay. Impairment of financial assets TKH recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash ﬂows due in accordance with the contract and all the cash ﬂows that TKH expects to receive, discounted at an approximation of the original effective interest rate. ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months. For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default. A financial asset is written off when there is no reasonable expectation to recover the contractual cash ﬂows. For trade receivables and contract assets, TKH applies a simplified approach in calculating ECLs. Therefore, TKH does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. TKH has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. A further explanation is included in note 21. Financial liabilities Financial liabilities are classified, at initial recognition, as • financial liabilities at fair value through profit or loss, • loans and borrowings, • other payables, or • derivatives designated as hedging instruments in an effective hedge. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. TKH’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments. The measurement of financial liabilities depends on their classification. Financial liabilities at fair value through profit or loss This category include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by TKH that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Gains or losses on liabilities held for trading are recognized in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. TKH has no designated financial liabilities at the balance sheet date at fair value with the recognition of changes in value in the statement of profit and loss. Loans and borrowings This is the category most relevant to TKH. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. The EIR method is a method for calculating the amortized cost of a financial liability and for allocating interest expenses over the relevant period. The effective interest rate is the rate that discounts the estimated future cash payments (including any fees paid or received that are an integral part of the effective interest rate and transaction costs) over the expected life of the financial liability to the amortized cost of a financial liability. Gains and losses are recognized in the statement of profit and loss when the liabilities are no longer recognized. In addition, the EIR amortization is included in the statement of profit and loss as financing costs. Other payables The other current liabilities are initially recognized at fair value and subsequently at amortized cost, which is generally equal to the nominal value. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or e xpired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss. | TKH GROUP ANNUAL REPORT 2021 106 CONSOLIDATED FINANCIAL STATEMENTS Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. Derivatives Derivative financial assets and financial liabilities (‘derivatives’) are recognized in the balance sheet when TKH concludes a contract for such an instrument. Derivatives are stated at fair value on the contract date and are then measured at the prevailing fair value at subsequent reporting dates. Changes in the fair value of derivatives that are designated and effective as hedges of future cash ﬂows are recognized directly in the OCI and accounted for as a separate item in equity. The ineffective portion is recognized immediately in the statement of profit and loss. If the cash ﬂow from an existing commitment or an expected future transaction results in the recognition of an asset or liability, at the time the asset or liability is recognized the associated gains or losses on the hedging instrument that had previously been recognized in the OCI are included in the valuation of the asset or the liability. For hedges that do not result in the recognition of an asset or a liability, the gains or losses recognized in the OCI are recognized in the statement of profit and loss in the same period as the underlying hedged transaction is recognized in the statement of profit and loss. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized immediately in the statement of profit and loss. Hedge accounting is discontinued when the hedge instrument expires, is sold, exercised or no longer qualifies for hedging. The cumulative gains or losses on that hedging instrument recognized up to that time in equity are recognized in the statement of profit and loss when the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the cumulative gains or losses recognized in the OCI are transferred to the statement of profit and loss. Assets and directly associated liabilities held for sale and discontinued operations Assets held for sale Assets and liabilities are classified as held for sale if their carrying amount will be realized primarily through a sales transaction rather than through continued use. The reclassification takes place when the assets and liabilities are available for immediate sale and the sale is within one year. Assets and liabilities held for sale are stated at book value or lower fair value less costs to sell. Selling costs are the incremental costs that can be directly attributed to the sale of an asset, excluding any financing costs and income tax. Said classification only takes place if the sale is very likely, in its current condition the assets are immediately available for sale and the sale is expected to be completed within one year. Assets and liabilities that are classified as held for sale are presented separately in the consolidated balance sheet. Non-current assets held for sale are not depreciated. Discontinued operations A group of assets being disposed of qualifies as a ‘discontinued operation’ if it is (part of) an entity that is either disposed of or classified as held for sale, and: • represents a separate major line of business or geographical business area; • is part of a coordinated plan to dispose of a separately important business activity or geographical area; or • is a subsidiary, which has been taken over solely for the purpose of resale. Discontinued operations are excluded from the results from continuing operations and are presented as a single amount in the line ‘Result after tax from discontinued operations’ in the profit and loss account. All other notes to the financial statements include amounts for continuing operations, unless otherwise indicated. Provisions General Provisions are recognized when (a) TKH has a present obligation (legal or constructive) as a result of a past event, (b) it is probable that an outﬂow of resources embodying economic benefits will be required to settle the obligation and (c) a reliable estimate can be made of the amount of the obligation. Provisions are recognized based on the expected expenditure required to settle the obligation. Long-term provisions, with the exception of the provision for deferred tax, are discounted using a current pre-tax rate that reﬂects, when appropriate, the risks specific to the liability. When discounting is used, an increase in the provision as a finance cost is recognized due to the passage of time. Pensions Premiums for defined contribution plans are recognized as expense in the period to which they relate. For defined benefit pension plans, which relate to foreign plans, the net liability is calculated per scheme by estimating the defined benefit obligation that employees are entitled to in exchange for their services rendered during the financial year and previous years. The defined benefit obligations are discounted. The defined benefit obligations and the costs of the defined benefit plans are calculated according to the ‘Projected Unit Credit Method’, with actuarial calculations being made at balance sheet date. This method takes into account future salary increases as a result of the career opportunities of employees and general wage developments including inﬂation adjustment. The discount rate is the yield rate at the balance sheet date on high quality corporate bonds with a term that approaches the term of the obligations of TKH. Actuarial gains and losses are directly accounted for in the OCI, which will not be reclassified subsequently to the statement of profit and loss. If the calculation results in a potential asset, the recognition of the asset is limited to the present value of any economic benefits available in the form of future refunds from the plans or reduced future pension contributions (‘asset ceiling’). This is evaluated per pension scheme. In the 107 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS calculation of the present value of economic benefits any minimum funding obligations that apply are taken into account. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. Net interest on defined benefit obligations are accounted for as interest expense as part of the financial expenses. When pension entitlements are changed under a pension plan, the change in pension entitlements related to past service or the gain or loss on that change is recognized directly in the statement of profit and loss. Pension costs, including pension costs on past service and the impact of settlements and curtailments are recognized as personnel costs. Jubilee bonuses The net liability for jubilee bonuses is the amount of future benefits that relate to services from employees during the financial year or previous periods. The liabilities are discounted to its present value taking into account estimated dismissal chances and salary increases. Provision warranty obligations The provision warranty obligations is recognized for the estimated costs that are expected to arise from active warranty obligations in respect of goods and services at balance sheet date. The costs arising from warranty claims are charged against the provision. Onerous contracts A loss-making contract is a contract in which the unavoidable costs (i.e., the costs that TKH can not avoid because it has the contract) to meet the obligations under the contract exceed the economic benefits that are expected to be received. The unavoidable costs under a contract reﬂect the lowest net costs of terminating the contract, the performance of the contract and any compensation or penalties arising from non-compliance. For a loss-making contract with customers, a provision is recognized and valued insofar as the unavoidable costs for completing the contracts are higher than the contract price. Restructuring liability This provision relates to costs in connection with the restructuring of operations and is formed if effectively or legally a commitment for TKH has arisen. A provision is formed if a plan has been formalized as at balance sheet date and either the legitimate expectation has arisen with the people involved that the restructuring will be implemented, or that a start has been made with implementing the restructuring plan. Other provisions Unless stated otherwise, the other provisions are valued at the nominal value of the expenditure that are estimated to be necessary to settle the respective obligations. Deferred tax Deferred tax relates to temporary differences between the value in the financial statements and the value for tax purposes. No deferred tax is recognized for non-deductible goodwill and subsidiaries and associates included in the participation exemption. Deferred tax assets are only recognized to the extent that it is probable that they can be realized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. In assessing the recoverability of deferred tax assets, TKH relies on the same forecast assumptions used elsewhere in the financial statements and in other management reports. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Changes in deferred tax are recognized immediately in the statement of profit and loss, with the exception of deferred tax that relates to items that are recognized in the OCI or directly in equity. TKH offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Turnover The turnover includes the net tu rnover, as well as other revenues. Net turnover is the revenue from products and services delivered to third parties during the year under the deduction of discounts, bonuses and stock returns. Revenue is measured on the basis of the consideration set out in a contract with a customer. Products are regularly sold with volume discounts based on total sales over a period of one year. Revenues from these sales are recognized on the basis of the price specified in the contract, after deduction of the estimated volume discounts. Revenue is only recognized to the extent that it is highly probable that a reversal will not take place. A refund liability, included in the other current liabilities, is recognized for expected volume discounts payable to customers in connection with sales made until the end of the reporting period. There is no financing element applicable because the sales take place with a relatively short credit term, which is consistent with market practice. The turnover of TKH consists of products and services within the business segments Smart Vision systems, Smart Manufacturing systems and Smart Connectivity systems that are delivered to customers as a separate product/service or as a total solution. TKH recognizes revenue when control of a product or service is transferred to a customer. In the following overview the revenue recognition per segment is further elaborated. | TKH GROUP ANNUAL REPORT 2021 108 CONSOLIDATED FINANCIAL STATEMENTS Segment Products and services Nature and timing of fulfillment of performance obligations SMART VISION SYSTEMS Vision technology represents about 86% of the turnover of the Smart Vision systems segment and consists of 2D & 3D machine Vision and Security Vision technology. The technolo- gies are combined with software to create smart technologies and one-stop-shop solutions with plug-and-play integrated systems. Our Machine Vision technology systems improve quality inspection, operation, and object monitoring within various industries such as consumer electronics, factory automation, ITS, medical and life sciences. Our Security Vision systems, combined with advanced com- munication technologies, enable the customers to manage and control the urban environment efficiently. Simultaneously, the technologies improve sustainability factors, safety and security in various markets such as Infrastructure, Parking and Building security. A large part of the revenue in Smart Vision systems is accounted for when the products are transferred to the customer in accordance with the delivery conditions of the sales contract and there is no unfulfilled obligation that could affect the customer’s acceptance. A receivable is recognized at that moment because the consideration has become unconditional and only the passage of time is required before the payment is due. To a lesser degree also the following revenue streams exist: • Customer-specific products and systems (including software products): Customer-specific products and systems: A number of products and systems are designed or adapted to customer- specific requirements. TKH recognizes turnover over a period if (i) the customer has control during the creation or improvement of the product / system or (ii) a product/system is created without alternative use and TKH has an enforceable right to payment for the work performed. Examples of (i) include parking guidance that are built up and commissioned on-site. Examples of (ii) are amongst others machine vision cameras constructed for a specific customer application and by TKH integrated security and communication systems. If the two conditions mentioned above are not met, revenue is only recognized at transfer date. For customer-specific systems, installation can be part of the transaction price. A distinction is made between configuration and the physical installation. The configuration is an integral part of the system sold, while the installation is often regarded as a separate service that is usually out - sourced to third parties. The installation services to be delivered are separately identifiable and ac- cordingly the transaction price is attributed to the system and the installation based on the relative stand-alone selling prices. Installation is a performance obligation that is fulfilled over time. If revenue is recognized over a period, this is based on the stage of completion of the contract. The progress is determined on the basis of the input method based on a cost price method. Which means, the part of the contract costs incurred for the work that has been carried out to date in relation to the estimated total contract costs. For the payments due by the customer, which according to the contract cannot yet be invoiced, a contract asset is recognized for the period in which the work has been carried out. This contract asset reﬂects the right to compensa- tion for work performed to date. If more is invoiced than has been performed to date, a contract liability is recorded. Contract liabilities are recognized as revenue when TKH performs under the contract. • Maintenance and licenses: Maintenance and licenses are part of the transaction price for a number of products and systems. These relate to activities that may have to be carried out during a certain period after sale. This period can thereafter be extended by the customer at then appli- cable prices. Maintenance and licenses are considered as a separate service. A part of the trans- action price is therefore allocated to these services based on their stand-alone selling price. The transaction price allocated to these services is recognized as a contract liability at the time of the initial sale transaction and is subsequently recognized as revenue on a straight-line basis over the contract period. 109 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS Using the relative stand-alone sales price method, a portion of the transaction price is allocated to the service-type warranty and recognized as a contract liability. Revenue is recognized on a straight-line basis over the period in which the service-type warranty is granted based on the time elapsed. Segment Products and services Nature and timing of fulfillment of performance obligations SMART MANUFACTURING SYSTEMS TKH engineers complete manufacturing systems and machines that contribute to super-efficient manufacturing and processing. Systems engineering and assembly, control and analysis software, as well as connectivity and vision technology, are the basic building blocks for the distinctive Smart Manufacturing systems supplied to various industries such as car and truck tire production, factory automation, and care solution by providing medicine distribution machines. Tire Building systems represents about 68% turnover share of Smart Manufacturing systems segment. • The majority of the revenue within Smart Manufacturing systems qualifies as Customer-specific products and systems for which recognition is already described at Smart Vision systems. Examples are tire building, medicine distribution and industrial automation systems. In contrast to Smart Vision Systems, for the tire building activities the installation is regarded as an integral part of the performance obligation to the customer, because on-site systems are constructed, configured and tested by employees. The remainder of the revenue relates to standardized products and is accounted for when the products are transferred to the customer in accordance with the delivery conditions of the sales contract and there is no unfulfilled obligation that could affect the customer’s acceptance • Sales commissions: Agents are used, who earn a sales commission on the revenue collected. These incremental costs for obtaining a contract are directly related to the sales that were realized in a certain period. The sales commissions, mostly paid before start of the contract, are capitalized as contract costs and amortized over the expected contract period. SMART CONNECTIVITY SYSTEMS TKH makes advanced Connectivity systems and engineers complete Smart Connectivity systems with a unique integrated system approach and sustainability proposition. Energy and Digitalization represent about 33% and 38% turnover share of the Smart Connectivity systems segment. Our connectivity systems are developed for on-shore and off-shore energy distribution. Our Fibre Optic connectivity systems are manufactured for data and communication net- works. In addition, TKH produces specialized cable systems for diverse industrial automation applications in high-tech environments, such as the industrial, marine & offshore and medical sectors. Our advanced connectivity technology for contactless energy and data distribution (CEDD) for airfield ground lighting systems is a connectivity system consisting of both hardware components and software, to further improve the efficiency and safety of specific airfield applications. • The majority of revenue relates to standardized products and are accounted for in a similar way as described above. Customer-specific products and systems for which there is no enforceable right to payment for the work that has already been performed, are also recognized as revenue in the same way. • Customer-specific products and systems are accounted for in the same way in Smart Vision systems. Examples are special cable and cable systems for machines, robots, medical applica- tions and subsea cable systems. The obligation to repair or replace defective products under the standard warranty conditions is recognized as a warranty provision. In addition, TKH offers to a limited extent an extended warranty that is sold together with products and systems. Two performance obligations can be distinguished in such contracts, namely the delivery of products and services and the service-type warranty. | TKH GROUP ANNUAL REPORT 2021 110 CONSOLIDATED FINANCIAL STATEMENTS Operating expenses General The cost of production and other expenses directly related to ordinary operational activities, which underlie the turnover, are stated as operating expenses. Government subsidies Government subidies are recognized when there is reasonable assurance that the grant will be received and all conditions will be met. Government subsidies are recognized in the statement of profit and loss in the same period as the expenses to which they relate. The subsidy is deducted from the related costs. Grants related to fixed assets are deducted from these assets and credited to the profit and loss account over the expected useful life of the asset concerned. Share-based payments TKH has a stock option and a share scheme, which both qualify as share-based payments: • The stock options are settled in equity instruments. They are valued at fair value at the date they were granted. The fair value is calculated by using an option pricing model that takes into account market related vesting conditions attached to the granting of the options. The fair value is charged to the profit and loss account over the period between the granting of the options and the time that the share options vest, adjusted for the expected number of share options to be exercised. • The shares issued free of charge are also settled in equity instruments and are measured at the grant date at fair value. The fair value is determined based on the prevailing share price at the time of grant. The fair value is charged to the profit and loss account in the year to which the grant relates. Financial income and expenses Financial income and expenses comprise the interest received from or paid to third parties relating to the year under review. Interest is recognized according to the effective interest method. The interest income and the interest expenses on bank accounts that belong to one and the same interest compensation system are set off. The interest balance of the interest combination is stated under interest income or interest expenses. Financial expenses related to the construction of tangible non-current assets have been recognized as part of the asset. Translation differences on sale and purchase transactions are classified under financial income and expenses. Tax Tax is calculated on the result before tax, taking into account the prevailing tax rates and tax legislation in the different countries. Tax is accounted for in the statement of profit and loss, unless it relates to items directly recognized in the OCI, in which case taxes are also accounted for in the OCI. In addition to the tax directly payable or receivable for the reporting year, the item also includes the changes in the deferred tax assets and liabilities and adjustments to tax assessments from previous years. Non-controlling interest This item comprises the share of third parties in the results and equity of subsidiaries according to TKH’s accounting principles. Cash ﬂow statement The cash ﬂow statement has been drawn up using the indirect method. With this method, the o perating result is adjusted for items in the statement of profit and loss that have no impact on receipts and payments in the year under review and changes in items in the balance sheet and statement of profit and loss whose income and expenses are not considered to belong to the operational activities. The cash position in the cash ﬂow statement consists of cash and cash equivalents less short-term borrowings included in cash pools as this is part of the daily cash management. Cash ﬂows in foreign currencies are converted at an average exchange rate. Exchange differences with respect to cash and cash equivalents are presented separately in the cash ﬂow statement. Income taxes, paid and received interest are included in the cash ﬂow from operating activities. Received dividends are included in the cash ﬂow from investment activities, while paid dividends are included in the cash ﬂow from financing activities. The purchase price of acquisitions is included in the cash ﬂow from investing activities, to the extent that payment has taken place in cash or cash equivalents. Cash and cash equivalents that are present in the acquired subsidiaries are subtracted from the purchase price. Transactions, which do not involve a cash exchange, are not included in the cash ﬂow statement. The payments of the lease terms are presented as repayments on loans for the repayment component of debt (cash ﬂow from financing activities) and as paid interest for the interest component (cash ﬂow from operating activities). Payment of lease installments that are not included in the lease obligation included in the balance sheet (including leases of assets with a low value or with a term of less than one year) are included under cash ﬂow from operating activities. 2 SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS In preparing the consolidated financial statements management has made judgments, estimates and assumptions. These judgments, estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses and disclosed contingent assets and liabilities at the date of the financial statements. The actual outcome can vary from these judgments, estimates and assumptions. All assumptions, expectations and forecasts used as a basis for judgments in the consolidated financial statements are as good as possible a reﬂection of the forecast of TKH. Management is of the opinion that a reasonable basis exists for the assumptions, expectations and 111 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS forecasts. Judgments are related to known and unknown risks, uncertainties and other factors that can lead to future results and performances that significantly vary from those forecasted. Significant judgments, estimates and assumptions are described hereafter. Fair values TKH periodically reviews the significant fair value changes regarding specific positions in the financial statements. In case external information is used to determine the fair value, TKH reviews the evidence obtained from these third parties to verify if these valuations meet IFRS requirements, including the level of hierarchy of the fair values in which these valuations are classified. TKH applies the following hierarchy for determining the fair value of financial instruments: • Level 1: Price quotations on active markets for identical assets and liabilities. • Level 2: Other inputs than quoted prices included in level 1, that are either directly or indirectly observable for the asset or liability. TKH makes use of derivatives valuation reports of financial institutions. These valuations are checked with interest rates, interest curves and exchange rates that are regularly published. • Level 3: Calculations that use input variables that have a significant effect on the fair value and that are not based on available market quotations. Here TKH may use valuations by independent appraisers. The table below shows the hierarchy and carrying amounts of the assets and financial instruments that are recognized in the balance sheet at fair values: in thousands of euros Notes Hierarchy 2021 2020 Assets Financial assets at fair value through P&L Level 3 407 927 Foreign currency forward contracts 21 Level 2 3,020 2,007 Commodities (derivatives) 21 Level 2 1,895 1,874 Total 5,322 4,808 Liabilities Interest rate swaps 21 Level 2 294 566 Foreign currency forward contracts 21 Level 2 3,305 422 Commodities (derivatives) 21 Level 2 195 159 Total 3,794 1,147 The fair value of the financial assets measured at fair value with recognitio n of the change in value through the statement of profit and loss is calculated on the basis of expected cash ﬂows discounted at the estimated market interest rate. Credit risks are taken into account in this market interest rate. TKH has concluded derivatives with various financial institutions with an investment grade rating. Interest rate swaps, forward exchange contracts and forward contracts on commodities are valued based on present value calculations using market data, such as the credit quality of counterparties, base spreads, spot and forward prices, yield curves and forward curves. More information about the assumptions for the determination of the fair value is included in the relevant explanatory notes. Price, credit, interest and currency risks Note 21 contains information about these risks. Intangible assets and goodwill related to acquisitions In the financial statements a material amount has been reported for intangible non-current assets acquired in an acquisition. The first recognition of these assets at fair value has been determined on the basis of valuation models. The outcomes are largely dependent on management estimates with respect to the assumptions used (such as growth percentages, royalty fees, economic life) and future expectations. The difference between the purchase price and the acquired net fair value of the identifiable assets and liabilities is recognized as goodwill. Note 1 and 3 includes information about intangible assets and goodwill. Impairments and valuation of tax-losses Information about impairment testing is included in note 3. TKH regularly invests in R&D (capitalized development costs), production facilities and new, innovative processes with the aim of developing a distinctive product portfolio. Particularly where TKH still has a small market position, the degree of management estimates with regard to learning curve developments, capacity utilization and develop- ment of returns is higher. On the other hand, management involvement is larger. TKH has valued tax deductible losses, whereby the entity concerned has incurred a loss in the current and/or previous financial year. In these cases, the recognition and measurement of these deductible losses are based on financial forecasts supported by a profitable order book. It should be noted that these deductible losses often originate from the start-up period of new activities and/or innovations. Contracts with customers TKH develops, produces or configures products and systems on behalf of cust omers on which revenue is recognized over a period of time. As a result, profit is recognized over time based on the expected profit on the contract and the estimated level of progress. This estimate makes use of detailed calculations that are specified for each performance obligation in a contract. Based on the realization and estimates of project managers and controllers, new estimates are drawn up periodically for each contract. These are reviewed by local management and then used as the basis for the costs and revenue to be recognized. In a new innovative portfolio and/or production process, the uncertainty in management estimates can be significantly higher than in other projects d ue to the lack of historical experience figures and the learning curve that needs to be going through. | TKH GROUP ANNUAL REPORT 2021 112 CONSOLIDATED FINANCIAL STATEMENTS Financial liabilities for earn-out and put option agreements In the financial statements, financial liabilities are recognized for obligations related to earn-out agreements and put options granted to shareholders of non-controlling interests. The financial liabilities for earn-out and put options are based on estimates of future operating results and are derived from business plans of the companies concerned. Other provisions The other provisions relate amongst othe rs to onerous contracts, warranty liabilities, claims, jubilee arrangements and restructuring liability. These provisions are based on estimates and available information. With regard to onerous contracts with customers, reference is made to the previous paragraph ‘contracts with customers’. With regard to the restructuring liability further reference is made to note 14 Extension options of lease contracts When TKH has the option of renewing a lease, management uses its judgment to determine whether it is reasonably certain that an option would be exercised. Management takes into account all the facts and circumstances, including their past experience and any costs that will be incurred to change the asset if no extension option is taken, to determine the lease term. Goodwill Brand names, customer relations and intellectual property Development costs Patents, licenses, software and trademarks Total in thousands of euros Notes 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Historical cost at 1 January 330,832 333,440 288,102 290,213 238,176 209,400 66,193 62,865 923,303 895,918 Accumulated amortization and impairment losses 2,323 2,323 169,741 148,428 127,067 106,882 46,842 41,881 345,973 299,514 Book value at 1 January 328,509 331,117 118,361 141,785 111,109 102,518 19,351 20,984 577,330 596,404 Purchases and capitalization 34,689 34,390 6,003 5,172 40,692 39,562 Acquisitions 35 1,210 383 982 178 1 2,192 562 Reclassification from property, plant and equipment 4 26 3 26 3 Reclassification to assets held for sale -32,768 -136 -594 -896 -34,394 0 Reclassifications -24 80 24 -80 0 0 Disposals -190 -320 -4 -35 -194 -355 Amortization 28 -19,240 -22,907 -25,549 -24,171 -6,321 -6,642 -51,110 -53,720 Impairment losses 29 -965 -323 -31 -996 -323 Adjustment goodwill -1,537 0 -1,537 Exchange differences 1,538 -1,454 709 -695 1,234 -1,065 35 -52 3,516 -3,266 Book value at 31 December 298,489 328,509 100,676 118,361 119,710 111,109 18,187 19,351 537,062 577,330 Accumulated amortization and impairment losses 2,323 2,323 187,269 169,741 149,599 127,067 50,254 46,842 389,445 345,973 Historical cost at 31 December 300,812 330,832 287,945 288,102 269,309 238,176 68,441 66,193 926,507 923,303 Goodwill is allocated to reporting segments, which are considered as cash generating units (‘CGU’) for goodwill impairment testing purposes. Impairment is assessed at this level. The goodwill is allocated as follows: 3 INTANGIBLE ASSETS AND GOODWILL in thousands of euros Goodwill Discount rate before tax Functional currency CGU 2021 2020 2021 2020 Smart Vision systems 238,223 235,537 9.8% n/a EUR/USD Smart Manufacturing systems 10,530 10,530 11.3% n/a EUR Smart Connectivity systems 49,736 82,442 10.6% n/a EUR Total 298,489 328,509 113 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS Land and buildings Machinery and installations Other equipment Assets under construction Total in thousands of euros Notes 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Historical cost at 1 January 184,273 196,095 253,787 259,482 134,933 126,034 8,828 6,440 581,821 588,051 Accumulated depreciation and impairments 88,914 92,112 173,762 173,968 98,833 90,963 412 70 361,921 357,113 Book value at 1 January 95,359 103,983 80,025 85,514 36,100 35,071 8,416 6,370 219,900 230,938 Purchases 4,121 4,360 13,344 7,870 10,741 14,005 3,951 3,856 32,157 30,091 Acquisitions 5 40 5 40 Disposals -46 -53 -1,276 -1,079 -1,133 -865 -18 -97 -2,473 -2,094 Depreciation 27 -6,419 -6,432 -12,147 -11,995 -11,583 -11,342 -30,149 -29,769 Impairments 29 652 -618 -71 -377 581 -995 Reclassifications -35 -108 271 145 -271 2 0 Reclassification from/to intangible assets 3 -26 -3 -26 -3 Reclassification to assets held for sale 11 -23 -5,502 -994 -4 -191 0 -1,212 -5,502 Exchange differences 1,621 -1,311 1,568 -820 418 -538 95 -137 3,702 -2,806 Commissioning of assets under construction 3,264 314 2,311 882 1,809 0 -7,384 -1,196 0 0 Book value at 31 December 97,842 95,359 83,375 80,025 36,472 36,100 4,798 8,416 222,487 219,900 Accumulated depreciation and impairments 96,381 88,914 180,925 173,762 111,245 98,833 483 412 389,034 361,921 Historical cost at 31 December 194,223 184,273 264,300 253,787 147,717 134,933 5,281 8,828 611,521 581,821 The recoverable amount of the cash generating units, in which goodwill has been reported, is based on the value in use. The value in use is based on estimated future cash ﬂows. These forecasts are derived from the internal business plans, which are drawn up annually and have a horizon of five years. These business plans contain financial budgets and have been prepared by local management and are approved by the Executive Board. Cash ﬂows after the financial budget period have been extrapolated, taken into account an annual growth of 1.15% (2020: 1.0%). The future cash ﬂows are discounted at the discount rate shown in the table, which is based on the risk profile of the CGU. Based on the assumptions, the impairment test did not lead to impairments at year-end 2021. In addition, in 2021 impairments totaling € 1.0 million were recognized, mainly related to capitalized development costs in the CGU Smart Vision systems. The impairment is mainly related to the merging of activities, as a result of which a part of the portfolio and developments will not be continued. Also some small development projects did not lead to goods or services for which a sufficient market demand was expected. Inherent to the applied calculation methodology, a change in the assumptions can lead to a different conclusion regarding impairment. For all CGU’s a sensitivity analysis was performed, in which: 4 PROPERTY, PLANT AND EQUIPMENT In millions of euros Decrease EBIT- DA by 10% Increase discount rate by 1% Decrease growth rate by 0.5% Combination of all assumptions Smart Vision systems -140.3 -141.0 -53.2 -294.8 Smart Manufacturing systems -109.1 -110.1 -42.7 -234.0 Smart Connectivity systems -111.1 -101.0 -35.1 -247.2 These scenarios do not lead to an impairment in any of the CGUs in connection with the available headroom between the recoverable amounts and the carrying amounts. The market capitalization of TKH amounted to € 2,285 million on 31 December 2021 and was significantly higher than the book value of the net assets of TKH. • absolute EBITDA decreases by 10%, or • the discount rate increases by 1%, or • the annual growth rate after the financial budget period decreases by 0.5%. Other parameters remain constant. The amounts relate to the impact on the recoverable amount based on the sensitivity analysis. This sensitivity analysis does not take any cost savings into account in order to maintain profitability. | TKH GROUP ANNUAL REPORT 2021 114 CONSOLIDATED FINANCIAL STATEMENTS The impairments in 2020 mainly relate to the closure of the cable production activities in Ittervoort, whereby the core activities have been transferred to the production site in Haaksbergen. In 2021, the remaining machineries have been sold which resulted in a partly reversal of the impairment. 5 RIGHT-OF-USE ASSETS TKH has lease contracts for various buildings, vehicles and other equipment used in its activities. Building lease agreements generally have a duration of between 3 and 18 years, while vehicles and other equipment generally have a duration of between 3 and 5 years. Land and buildings Machinery and installations Other equipment Total in thousands of euros Notes 2021 2020 2021 2020 2021 2020 2021 2020 Book value at 1 January 71,492 73,959 14 27 5,851 6,766 77,357 80,752 Purchases 8,010 8,725 37 4,577 2,792 12,624 11,517 Disposals -479 -391 -161 -870 -161 Reassesment 6,009 4,358 227 132 6,236 4,490 Depreciation 27 -11,709 -12,013 -44 -13 -3,336 -3,639 -15,089 -15,665 Impairments 29 -1,209 -2,552 -1 -1,209 -2,553 Exchange differences 848 -985 30 -38 878 -1,023 Reclassification to assets held for sale 11 -10,717 -413 -11,130 0 Book value at 31 December 62,245 71,492 7 14 6,545 5,851 68,797 77,357 The impairments relate to the vacancy of rented buildings, as a result of the integration of activities, either a too low occupancy and a slowdown in revenue growth from rented buildings due to COVID-19. In 2021, the costs related to variable lease payments that were not included in the lease obligation amounted to € 2.7 million (2020: € 2.3 million). In 2021, the costs of leasing assets with a low value amounted to € 0.2 million (2020: € 0.2 million). In 2021, the costs of leases with a term of less than one year amounted to € 0.2 million (2020: € 0.1 million). There are no leases with a residual value guarantee and as at 31 December there are no obligations with regard to lease agreements that have not yet been started. See note 19 for the lease liability. See note 31 for the interest charges on lease obligations. See the consolidated cash ﬂow statement for the lease payments. The total cash outﬂow from leases in 2021 was € 18.7 million. 115 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS Place Country Equity interest Operating segment Name of other associate 2021 2020 Speed Elektronik Vertrieb GmbH Schwelm Germany 25.0% 25.0% Smart Connectivity systems NET Italia S.r.l. Brescia Italy 49.0% Smart Vision systems Shin-Etsu (Jiangsu) Optical Preform Co. Ltd. Jiangyin PR China 12.5% 12.5% Smart Connectivity systems Commend Australia Integrated Security and Communication Systems Pty Ltd. Melbourne Australia 49.0% 49.0% Smart Vision systems Traff Is B.V. Hedel Netherlands 33.3% 33.3% Smart Connectivity systems Cable Connectivity Group B.V. Benthuizen Netherlands 41.5% 41.5% Smart Connectivity systems P + S Technik GmbH Ottobrunn Germany 23.2% 23.2% Smart Vision systems The shares in NET Italia S.r.l. have been sold in the first half of 2021. The amounts involved were insignificant. Despite the 12.5% interest in the associate Shin-Etsu (Jiangsu) Optical Preform Co. Ltd., TKH has significant inﬂuence over the financial and operating policies. The associate is an important manufacturer of preforms (semi-finshed product for the production of fibre optics) for TKH. The strategic shareholding is linked to a right to 50% of the production capacity of this plant. TKH provides one of the three Supervisory Board members. The overview below shows the summarized financial information of the associates on the basis of the most recent available information, where the financial data are included based on the share of interest in these companies. Of the ‘summarized financial information other’ a large part relates to Shin-Etsu (Jiangsu) Optical Preform Co.Ltd. in thousands of euros Assets Liabilities Turnover Net result Other comprehensive income Share in result of associates Summarized financial information 2021 of Cable Connectivity Group 67,115 51,760 83,272 2,266 2,266 Summarized financial information 2021 other 17,380 6,770 5,123 185 135 Summarized financial information 2020 of Cable Connectivity Group 54,616 41,694 62,749 -870 -129 -2,790 Summarized financial information 2020 other 15,214 5,766 4,345 86 -2 Movements in the associates are as follows: in thousands of euros 2021 2020 Balance at 1 January 25,540 28,635 Share in result of associates 2,401 -2,792 Dividend received -31 Sale of a share interest -128 Exchange differences 917 -303 Balance at 31 December 28,699 25,540 6 ASSOCIATES TKH owns direct or indirect the following relevant associates: | TKH GROUP ANNUAL REPORT 2021 116 CONSOLIDATED FINANCIAL STATEMENTS 7 INVENTORIES in thousands of euros 2021 2020 Raw materials 119,714 72,241 Work in progress 45,573 34,281 Finished goods 129,449 130,192 Inventories 294,736 236,714 An amount of € 686.0 million is reported in the statement of profit and loss for costs of raw materials, consumables and finished goods (2020: € 560.0 million). A part of inventories is valued at lower net recoverable amount. The book value of these written-down inventories is € 25.3 million (2020: € 24.3 million). The total write-down on inventories, based on aging analysis and sales statistics, in 2021 recognized in the statement of profit and loss is € 4.5 million (2020: € 3.9 million). 8 TRADE AND OTHER RECEIVABLES 9 CONTRACT ASSETS The following table provides information on receivables, capitalized contract costs, contract assets and contract liabilities from contracts with customers. in thousands of euros 2021 2020 Trade accounts receivable 161,085 137,063 Contract assets 150,131 124,230 Contract liabilities -127,044 -73,931 Refund liabilities from customer volume rebates -10,641 -8,852 Contract costs 4,566 3,314 The changes in the balance of contract assets and liabilities during the financial year are as follows: in thousands of euros Notes 2021 2020 Trade accounts receivable 161,085 137,063 Loss allowance 21 -6,377 -6,675 Derivatives 21 4,910 3,881 Receivables from related parties 34 444 1,194 Prepayments and accrued income 13,137 7,936 Other short-term receivables 12,119 13,964 Long-term receivables 748 1,872 Receivables 186,066 159,235 The amounts above are expected to be settled within 12 months, with the exception of long-term receivables. The receivables are mainly held according to a ‘held-to-collect’ business model. For the other part TKH applies non-recourse factoring that transfers the ownership of the trade receivables and the associated risks to a factoring company. At the end of 2021 receivables with an amount of € 34.3 million are sold to a factoring company (2020: € 43.6 million). The trade receivables are non-interest bearing and generally have a payment term between 14 and 90 days. Credit risk is further described in note 21. The contract assets mainly relate to the rights of TKH to consideration for work performed, but which have not yet been invoiced on balance sheet date. The contract assets are reclassified to receivables when the rights become unconditional. The contract liabilities mainly relate to the advance payment received from customers, of which the revenues are recognized at the performance of the contracted work. As at 31 December 2021, performance gurantees amounted to € 107.5 million (2020: € 75.8 million). These relate to advance payments received from customers, which are presented as part of contract liabilities. These guarantees are included in the off-balance sheet commitments (note 22). A large part of the contract assets and liabilities relates to the segment Smart Manufacturing systems. Contract assets Contract liabilities in thousands of euros 2021 2020 2021 2020 Revenue recognized that was included in the contract liability balance at the beginning of the period 73,931 49,187 Increases due to cash received, excluding amounts recognized as revenue during the period -127,044 -73,931 Transfers from contract assets recognized at the beginning of the period to receivables -124,230 -115,692 Increases as a result of changes in the measure of progress 150,131 124,230 117 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS The commissions paid to agents for obtaining the contracts are expected to be recovered and are therefore capitalized as contract costs. Capitalized commissions are amortized when the related revenue is recognized. In 2021, amortization amounted to € 6.2 million, which is included in the statement of profit and loss under raw materials, consumables, trading products and outsourced work. There was no impairment in the financial year in respect of the capitalized contract costs. The restitution obligations for agreed customer volume discounts are mostly annual bonuses based on revenue tables. The accrual is calculated based on historical figures, revenue already realized and the outstanding order book. The following table shows the expected future revenue with respect to contractual performance obligations that have not yet (or partially) been satisfied at balance sheet date. in thousands of euros 2021 2020 Expected to be recognized as revenue within 1 year 705,061 408,168 Expected to be recognized as revenue between 1 and 2 years 35,809 17,945 Expected to be recognized as revenue after 2 years 5,693 2,221 Total 746,563 428,334 10 CASH AND CASH EQUIVALENTS in thousands of euros 2021 2020 Ca sh and bank balances as included in the cash ﬂow statemen t 68,017 65,614 Cash at companies assets held for sale -736 Cash and bank balances in cash and interest pools 32,854 56,031 Cash and bank balances 100,135 121,645 Cash and cash equivalents consist of cash and bank balances and deposits that are direct available on demand. 11 ASSETS AND DIRECTLY ASSOCIATED LIABILITIES HELD FOR SALE As part of the ‘Simplify & Accelerate’ program, TKH decided in the first half of 2021 to start an active program to divest certain activities engaged in the distribution of connectivity solutions. Accordingly the associated assets and liabilities have been reclassified to assets and liabilities held for sale. Besides working capital, goodwill is also an important part of this value. The amount of allocated goodwill has been updated in the second half of 2021 based on applying the relative value method. Barring unforeseen circumstances, a sale is highly probable within the upcoming 12 months. The main categories of assets and liabilities classified as held for sale are as follows: in thousands of euros 2021 2020 Assets Intangible assets and goodwill 34,394 Property, plant and equipment 5,806 4,594 Right-of-use assets 11,130 Other receivables 494 Deferred tax assets 738 Inventories 25,383 Trade and other receivables 9,503 Cash and cash equivalents 736 Assets held for sale 88,184 4,594 Liabilities Non-current interest-bearing loans and borrowings 9,693 Deferred tax liabilities 711 Retirement benefit obligation 1,105 Other long-term provisions 10 Current interest-bearing loans and borrowings 2,075 Trade payables and other payables 20,372 Current income tax liabilities 3,234 Liabilities directly associated with assets held for sale 37,200 0 Net assets directly associated with held for sale 50,984 4,594 12 EQUITY T he group equity is equal to the shareholders’ equity. The group equity is disclosed in the Consolidated statement of changes in group equity and in note 7 of the company-only financial statements. | TKH GROUP ANNUAL REPORT 2021 118 CONSOLIDATED FINANCIAL STATEMENTS 13 NON-CONTROLLING INTEREST THIRD PARTIES At some subsidiaries that are or were not fully owned by TKH during the year at any time, there third party non-controlling interests that are not significant: 14 OTHER PROVISIONS The long-term provisions have been discounted. The increase of the provision as a result of expiration of time and adjustment of the discount rate is not significant. The short-term provisions have not been discounted since the effect is not material. The short-term part of the provision is mainly related to reorganizations and warranties. The term of the other provisions is as follows: in thousands of euros 2021 2020 Other long-term provisions 8,772 5,741 Other short-term provisions 20,687 19,148 Other provisions 29,459 24,889 The breakdown and movement of the other provisions is as follows: in thousands of euros Warranty Employee liabilities Onerous contracts Restructuring Other Total Balance at 31 December 2020 6,268 3,334 7,734 5,699 1,854 24,889 Additions 3,575 518 3,141 508 6,085 13,827 Releases -442 -29 -780 -59 -1,310 Utilized -1,363 -154 -1,067 -4,711 -772 -8,067 Other reclassifications -101 -101 Exchange differences 80 6 112 24 -1 221 Balance at 31 December 2021 8,118 3,675 9,920 740 7,006 29,459 Provision for warranties The provision for warranties is related to warranties on delivered products and services under the standard warranty conditions. The purpose of the provision is to cover costs arising if products and services supplied do not meet the agreed specifications and quality requirements under normal conditions of use. The provision is based on judgments by using historical warranty data relating to comparable products and services and known warranty claims at balance sheet date. In general the recorded liabilities are expected to arise in the next one to three years. Employee liabilities The provision for employee liabilities mainly relates to defined jubilee arrangements and is in general long-term. Restructuring liability The restructuring provision relates mainly to the lay-off of employees. An important withdrawal is related to the merging and outsourcing of activities in the Smart Connectivity systems and Smart Vision systems segments, among which the cable production activities in Ittervoort (NL). The remaining term is less than 1 year. Onerous contracts The provision for onerous contracts mainly relates to contracts with customers, from which the revenue is recognized over a period of time. This mainly concerns contracts in the segment Smart Manufacturing systems, which relate to new technologies and sometimes in combination with newly acquired customers. Because of the strategic importance of these contracts for the future revenue and profit development of TKH, these have been accepted with a negative or a limited margin at order acceptance. The duration of a project under such a contract is normally shorter than one year, but for larger framework agreements, subprojects can be executed and concluded in different years. Other items The other items relate to claims, matters of dispute, guarantees which are expected to be claimed and other contractual obligations. These liabilities consist of amounts at which a judgement by an independent party will probably lead to compensation. The recognized provisions have been based on the best estimate, made on the basis of currently available information and will mainly have a term no longer than one year. There is no asset recognized for expected compensation fees in relation to the reported provisions. Result non-controlling interests Cumulative non-controlling interests 2021 2020 2021 2020 Various non-controlling interests 12 6 53 86 119 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS 15 OTHER FINANCIAL LIABILITIES The movement of the financial liabilities is as follows: in thousands of euros Earn-out Put options of holders of non-controlling interests Total Balance at 1 January 2021 7,341 609 7,950 Acquisitions 1,467 1,467 Payment for acquisitions from previous years -3,707 -325 -4,032 Unwinding of discount through the profit and loss account 321 321 Change in value through the profit and loss account 729 709 1,438 Exchange differences 5 5 Balance at 31 December 2021 6,156 993 7,149 in thousands of euros 2021 2020 Term shorter than 1 year 4,989 4,542 Term between 1 and 5 years 2,160 3,408 Financial liabilities 7,149 7,950 Earn-out For several acquisitions, contractual arrangements have been made about earn-out payments, when certain targets are realized. The liability for earn-out payments has been determined on the basis of fair value of the expected future cash outﬂows. Put options of holders of non-controlling interests TKH has option rights on several non-controlling interests held by local management of subsidiaries of TKH. Besides, TKH has a liability to buy these shares when local management decides to offer these shares. A financial liability has been recognized for this obligation. On the balance sheet date, the following option rights and liabilities are outstanding: Name of subsidiary Percentage Option exercisable as from EFB Nordics A/S 10.0% 1 January 2014 USE System Engineering Holding B.V. 25.0% 1 January 2014 JOHRAmont s.r.o. 5.0% 1 January 2022 The liability is based on the discounted value of the expected future cash outﬂows. The expected maturity of the above mentioned liabilities is equal to the period as from 31 December 2021 till the first possibility to exercise. The amount to be paid depends on the future results of the aforemen- tioned subsidiaries. The year of the cash outﬂow is dependent on a decision to exercise by TKH or the option owner. An amount of € 0.8 million has a maturity of shorter than 1 year. 16 DEFERRED TAX The deferred tax assets and liabilities relate to the following items of which the movements are also shown: in thousands of euros Property, plant & equipment and leases Intangible assets and goodwill Inventories and construction contracts Provisions Unused tax losses and credits Financial instruments Undistributed intragroup profits Other Total Balance at 1 January 2020 -1,821 -55,823 -3,214 1,497 12,415 405 -2,055 4,030 -44,566 (Charge)/credit to other comprehensive income -89 -1,089 -1,178 (Charge)/credit to profit or loss 2,542 1,612 712 -478 -506 -165 -205 3,512 Adjustment valuation through goodwill for prior year acquisition 1,537 1,537 Acquisitions -44 -44 Balance at 31 December 2020 721 -54,255 -2,502 930 13,446 -684 -2,220 3,825 -40,739 (Charge)/credit to other comprehensive income -8 400 392 (Charge) /cred it to profit or loss 251 2,435 -2,353 137 31 5 -511 -97 -102 Reclassifi cation to assets h eld for sale -63 47 635 -276 -370 -27 Acquisitions -212 -212 Balance at 31 December 2021 909 -51,985 -4,220 783 13,477 -279 -2,731 3,358 -40,688 | TKH GROUP ANNUAL REPORT 2021 120 CONSOLIDATED FINANCIAL STATEMENTS Certain deferred tax assets and liabilities have been offset in accordance with the applicable principles in IFRS. The deferred tax assets and liabilities are recognized in the balance sheet as follows: in thousands of euros 2021 2020 Deferred tax assets stated under non-current assets 15,277 14,322 Deferred tax liabilities stated under non-current liabilities -55,965 -55,061 Deferred taxes -40,688 -40,739 TKH has unused tax losses for which no deferred tax assets have been recognized because realization is uncertain. These unused tax losses can be compensated with future profits. Based on current tax legislation, these unused and unrecognized tax losses have the following terms: in thousands of euros 2021 2020 Term infinite 40,325 31,804 Term longer than 10 years 12,944 10,781 Term between 5 and 10 years 39 39 Term shorter than 5 years 32 5,386 Unrecognized tax losses and credits 53,340 48,010 The subsidiaries neither have any taxable temporary difference nor any tax planning opportunities available that could partly support the recognition of these losses as deferred tax assets. On this basis, TKH has determined that it cannot recognize deferred tax assets on the tax losses carried forward. The unrecognized unused tax losses represent a value of € 12.5 million at the end of 2021 based on the applicable tax rates. TKH has valued tax deductible losses, whereby the entity concerned has incurred a loss in the current and/or previous financial year. In these cases, the recognition and measurement of these deductible losses are based on financial forecasts supported by a profitable order book. It should be noted that these deductible losses often originate from the start-up period of new activities and/ or innovations. 17 PENSIONS Defined contribution plans TKH’s pension plans in the Netherlands differ per subsidiary. The pension scheme of a number of subsidiaries has been placed with the industry pension fund PME and PMT respectively. As of 1 January 2020, the employees of the other Dutch subsidiaries have a so-called individual defined contribution scheme, which has been placed with Nationale-Nederlanden. TKH also had guarantee contracts with external pension insurer Nationale-Nederlanden for a number of subsidiaries until 31 December 2019. These warranty contracts have been terminated as of December 31, 2019. After termination, the existing indexation deposits have been settled. After termination of the agreement, TKH has no longer accrued any actuarial risks with regard to the entitlements before 31 December 2019 under the previous contract. On a small part of the entitlements accrued before 31 December 2014, TKH runs an actuarial risk of additional payment in the event of outgoing value transfers. However, according to TKH, this risk is not material. That is why any additional payment is accounted for in the P&L in the year that the additional payment will be made. The employees of the foreign subsidiaries are members of industry or state-managed pension plans. The subsidiaries are only required to pay a certain percentage of the salary costs to the concerning industry or state managed pension plans. These pension schemes classify as defined contribution plan. The pension schemes in the Netherlands, to the extent not already covered by the industry pension schemes, are recognized as a defined contribution scheme in the financial statements. The total pension expense recognized in 2021 related to the defined contribution plans amounts to € 15.3 million (2020: € 14.5 million). The industry pension plans are included in this pension expense. TKH expects for 2022 a pension expense of € 16 million for all defined contribution plans, of which about € 11.1 million relates to industry pension schemes. Defined benefit plans Multi-employer union plans In the Netherlands 1,686 employees of TKH participate in the multi-employer union plans of ‘Pensioenfonds van de Metalektro’ (‘PME’) and ‘Pensioenfonds Metaal & Techniek’ (‘PMT’) in accordance with the collective bargaining agreements applicable for the industry in which the TKH companies operate. These collective bargaining agreements have no expiration date. PME covers approximately 1,432 companies and 333,000 participants and PMT approximately 34,000 companies and 1,400,000 participants. The pension rights of each employee are based upon the employee’s average salary during employment (depending on coverage ratio). TKH’s contribution to the multi-employer union plans are far less than 5% of the total contribution to the plans. The pension funds are subject to regulation by Dutch governmental authorities. By law (the Dutch Pension Act), a multi-employer union plan must be monitored against specific criteria, including the coverage ratio of the plan assets to its obligations. The multi-employer union plans have reported the following coverage ratio at year-end: 2021 2020 coverage ratio of PME 103.2% 92.3% coverage ratio of PMT 100.8% 91.2% 121 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS The actual coverage ratio is calculated by dividing the plan assets by the total sum of pension liabilities. The coverage ratio is the average coverage ratio over the past 12 months. There are no additional contribution requirements for participating companies to prevent indexation cuts or lowering of pensions. The schemes qualify as defined benefit plans because the companies bear the risk that in the negotiation of the level of pension contributions after 2021 the social partners take the amount of a surplus or a deficit in the industry pension fund as part of the negotiations. As a result, future premiums may be somewhat related to deficits or surpluses that relate to pension entitlements accrued in the past. This concerns shortages or surpluses of current and former employees of TKH but also of other companies. In addition, there is no consistent and reliable basis for allocating the pension liability, assets and costs to individual companies participating in the industry pension scheme. TKH therefore classifies the multi-employer plans as if it were defined contribution plans (in line with IAS19.34). TKH’s net periodic pension cost for the multi-employer plan over a financial period is equal to the required contribution for that period. Other pension schemes There are some individual defined benefit plans abroad for a small number of participants. These defined benefits are accrued in the subsidiaries and are not covered by plan assets. The duration of the defined benefit obligations of these arrangements will be, on average, 12 years at 31 December 2021. Furthermore, there is legislation for the Austrian employees obligating to pay a onetime compensation at the end of the employment for employees working for the subsidiary before 1 January 2003. The amount of compensation depends on the years of service and the average salary in the last 3 years of service. The actuarial calculations for the pension schemes are performed by actuaries. The following assumptions have been applied in the actuarial calculations: 2021 2020 Discount rate before tax 0.8-2.0% 0.4-2.0% General percentage salary increase 2.1% 1.6% The following amounts are recognized in the balance sheet with respect to all defined benefit plans: in thousands of euros 2021 2020 Present value of the defined benefit obligations 4,716 5,844 Fair value of the plan assets Net pension obligation 4,716 5,844 The following amounts are recognized in the statement of profit and loss with respect to the defined benefit plans: in thousands of euros 2021 2020 Current service costs 62 119 Interest costs included in financial expenses 42 40 Pension expense in the profit and loss account 104 159 For 2022 TKH expects to pay a pension premium of € 0.2 million (including contributions from participants) related to the defined benefit plans. The change in the present value of the defined benefit plan obligations is as follows: in thousands of euros Notes 2021 2020 Balance at 1 January 5,844 5,759 Reclassification to liabilities held for sale -1,039 Current service costs 62 119 Interest costs included in financial expenses 42 40 Actuarial (gains)/losses recognized through other com- prehensive income -30 236 Entitlements paid -163 -310 Balance at 31 December 4,716 5,844 Changes in the assumptions have consequences for the present value of the defined benefit obligation. In the summary below a sensitivity analysis on the gross and net defined benefit obligation is shown for the three largest pension schemes, which together represent 75% of the net pension liability, when there is an absolute change of 1% or 1 year in the relevant assumptions: 2021 2020 +1.0% -1.0% +1.0% -1.0% Discount rate -355 422 -378 453 General percentage salary increase 481 -411 521 -442 +1 year -1 year +1 year -1 year Mortality table 139 -140 150 -154 | TKH GROUP ANNUAL REPORT 2021 122 CONSOLIDATED FINANCIAL STATEMENTS 18 NON-CURRENT LIABILITIES in thousands of euros Notes 2021 2020 Debts to credit institutions 19 268,010 339,511 To be amortized transaction costs for the credit facility -322 Long term lease liabilities (Right-of-use assets) 19 62,528 69,835 Other non-current liabilities 3,266 484 Interest-bearing loans and borrowings 333,804 409,508 The credit margin on the non-current debts to credit institutions is variable and dependent on the net-interest bearing debt/EBITDA, including the amount of the draws from the credit facility. On average the margin is 1.4%. The interest is variable and based on Euribor or Libor. The material subsidiaries are guarantor for the obtained financing. No additional securities were provided. See note 21 for more details on the capital and liquidity risk. 19 BORROWINGS Term Interest Amount in thousands of euros Notes 2021 2020 Bank loans reported under non-current liabilities 18 2.1 years Euribor + margin 268,010 339,511 Long term lease liabilities (Right-of-use assets) 18 1-18 years 2.0% 62,528 69,835 Short term lease liabilities (Right-of-use assets) < 1 year 2.0% 12,959 13,736 Borrowings reported under current liabilities < 1 year Euribor/Libor + margin 34,630 43,407 Cash and cash equivalents 10 < 1 year Euribor/Libor - margin -100,135 -121,645 Net interest bearing debt 277,992 344,844 At year-end 2021, € 32.9 million of the borrowings forms part of cash and interest pools (2020: € 56.0 million). The interest on the borrowings is variable and based on Euribor or Libor. The credit margins differ per credit institution, duration and country and vary from 0.3% to 1.4%. The material subsidiaries are guarantor for the obtained financing from credit institutions. No special securities were provided. The credit margin for lease liabilities differ per right-of-use asset, duration and country and vary from 1.4% to 26.7%, with a weighted average of 2.0%. The obligations arising from leasing are guaranteed by the lessor’s property right on the leased assets. See note 21 for more details on the capital and liquidity risk. 123 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS The overview below shows the changes in the interest-bearing liabilities arising from financing activities Borrowings reported under current liabilities Bank loans reported under non-current liabilities Total lease liabilities (Right-of-use assets) Total in thousands of euros 2021 2020 2021 2020 2021 2020 2021 2020 Balance at 1 January 43,407 44,361 339,511 344,258 83,571 84,753 466,489 473,372 Cash ﬂows from financing activities 15,884 -47,676 -71,501 -5,498 -55,617 -53,174 Proceeds/(repayments) from cash pools -23,177 46,052 -23,177 46,052 Payment of lease liabilities -15,570 -16,005 -15,570 -16,005 Non-cash changes: - Acquisition of subsidiaries 110 0 110 - Reclassification to liabilities held for sale -386 -11,382 -11,768 0 - New leases and reassesments 17,990 15,846 17,990 15,846 - Amortized transaction costs 322 0 322 - Interest 1,700 1,857 1,700 1,857 - Effect of changes in exchange rates -1,098 670 319 -822 -2,880 -1,920 -1,891 Balance at 31 December 34,630 43,407 268,010 339,511 75,487 83,571 378,127 466,489 The withdrawals and repayments of cash pools relate to changes in cash pools presented under cash and cash equivalents (note 10). 20 TRADE AND OTHER PAYABLES in thousands of euros Notes 2021 2020 Trade creditors 198,623 139,078 Advance receipts 4,628 2,808 Other taxes and social insurance contributions 23,000 45,247 Derivatives 21 3,794 1,147 Refund liabilities from customer volume rebates 9 10,641 8,852 Other payables and accruals 84,010 61,585 Trade payables and other payables 324,696 258,717 The other payables and accruals relate to, among others, personnel bonuses to be paid, commissions, holidays and holiday allowances as well as accruals for invoices to be received. At the end of 2021, a number of suppliers made use of supply chain finance (reversed factoring) for a total of € 39.7 million (2020: € 27.5 million), which is recognized as trade payables. | TKH GROUP ANNUAL REPORT 2021 124 CONSOLIDATED FINANCIAL STATEMENTS 21 FINANCIAL INSTRUMENTS AND RISKS General The main financial risks faced by TKH relate to the capital and liquidity risk, interest risk, currency risk, credit risk and price risk. TKH’s financial policy is aimed at minimizing the effects of ﬂuctuations in currency exchange and interest rates on its results in the short-term and following market rates in the long-term. TKH uses derivatives to manage the financial risks relating to the business operations and does not undertake speculative positions. Financial risks and the control by management of these risks are disclosed in the chapter ‘Risk management’ in the annual report. Capital and liquidity risk External financing is contracted by the holding for the entire TKH Group. TKH has a committed revolving and standby credit facility of € 500 million with a group of banks. The revolving and standby credit facility has a high ﬂexibility in relation to utilizations and repayments. Next to the committed facility, there are uncommitted facilities with several banks for a total of € 315 million. TKH has per 31 December 2021 unused available credit facilities for a total of € 436 million (2020: € 395 million). The available credit facilities are reduced for the outstanding bank guarantees. The maximum credit facility per subsidiary is determined centrally. In the credit facility the following financial covenant is agreed, which is tested on a quarterly basis: Covenant Realization 31-12-2021 Realization 31-12-2020 Net debt compared to EBITDA (debt leverage ratio) < 3.0 0.9 1.6 The debt leverage ratio is calculated excluding the impact of IFRS 16 Leases. Furthermore, it has been agreed with the banks that in the calculation of the debt leverage ratio acquisitions may be consolidated pro forma for 12 months. TKH uses internally a debt leverage ratio up to 2.0. TKH operates within the banks’ required covenant at the end of 2021. The following table provides an overview of the liquidity risk for the financial liabilities of TKH at the end of 2021 based on agreed repayment periods: in thousands of euros Average interest Payable on demand <3 months >3 months <1 year 1-5 years >5 years Contractual cash ﬂows Book value Bank loans reported under non-current liabilities 1.4% 938 2,814 272,075 275,827 268,010 Lease liabilities (Right-of-use assets) 2.0% 5,939 10,478 38,293 31,165 85,875 75,487 Other financial liabilities 1.5% 4,989 2,499 7,488 7,192 Borrowings reported under current liabilities 1.0% 34,637 34,637 34,630 Trade creditors 198,623 198,623 198,623 Other payables excluding derivatives 94,651 94,651 94,651 Interest rate swaps (derivatives) 64 191 51 306 294 Foreign currency forward contracts (derivatives) 31,615 55,643 17,479 104,737 285 Commodities (derivatives) -638 -732 -330 -1,700 -1,700 Other financial liabilities 34,637 331,192 73,383 330,067 31,165 800,444 677,472 125 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS The following table provides an overview of the liquidity risk for the financial liabilities of TKH at the end of 2020 based on agreed repayment periods: in thousands of euros Average interest Payable on demand <3 months >3 months <1 year 1-5 years >5 years Contractual cash ﬂows Book value Bank loans reported under non-current liabilities 1.4% 1,189 3,567 349,580 354,336 339,673 Lease liabilities (Right-of-use assets) 2.1% 6,240 11,030 42,464 35,732 95,466 83,571 Financial liabilities 1.5% 4,542 3,747 8,289 7,950 Borrowings reported under current liabilities 1.0% 43,416 43,416 43,407 Trade creditors 139,078 139,078 139,078 Other payables excluding derivatives 70,437 70,437 70,437 Interest rate swaps (derivatives) 62 186 338 586 566 Foreign currency forward contracts (derivatives) 24,590 49,287 4,863 78,740 -1,585 Commodities (derivatives) -609 -885 -221 -1,715 -1,715 Financial liabilities 43,416 240,987 67,727 400,771 35,732 788,633 681,382 The cash ﬂows in these statements are not discounted. The cash ﬂows are based on the interest rates and the exchange rates at the end of the year. The cash ﬂows for interest rate swaps are based on the contracted fixed interest rates compared to the variable interest rate at balance sheet date. The interest rate swap and commodity derivatives are net settled. Currency contracts are gross settled. The following table shows the corresponding reconciliation of these amounts and their book value: in thousands of euros Payable on demand <3 months >3 months <1 year 1-5 years >5 years 31-12-2021 Total Incoming 32,354 55,444 16,650 104,448 Outgoing -31,615 -55,643 -17,479 -104,737 Net 0 739 -199 -829 0 -289 Discounted at con- tractual bank rates 681 -73 -893 0 -285 in thousands of euros Payable on demand <3 months >3 months <1 year 1-5 years >5 years 31-12-2020 Total Incoming 24,735 50,248 5,027 80,010 Outgoing -24,590 -49,287 -4,863 -78,740 Net 0 145 961 164 0 1,270 Discounted at con- tractual bank rates 123 1,231 231 1,585 Interest risk The interest risk policy aims at minimizing the interest rate risks associated with the financing of the company and thus at the same time optimizing the net interest costs. Long-term financing has been obtained with a ﬂoating-rate and will partly be fixed by means of interest rate swaps, whereby TKH aims to fix 40-70% of the interest associated with the borrowing. During the past period of negative interest rates, TKH has chosen to hedge the interest rate risk below this bandwidth. The following table provides an overview of the, for hedging purposes, agreed interest rate swaps: Average contracted interest rate Nominal amount Fair value in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 2021 2020 Maturity between 1 and 2 years 0.45% 25,000 -294 Maturity between 2 and 5 years 0.45% 25,000 -566 Cash ﬂow hedge accounting has been applied to all interest rate swaps mentioned above. There was no material ineffectiveness in relation to these hedges. | TKH GROUP ANNUAL REPORT 2021 126 CONSOLIDATED FINANCIAL STATEMENTS The following sensitivity analysis of borrowings, bank credits and cash and related interest rate swaps to interest rate movements assumes an immediate 1% change in interest rates for all currencies and maturities, with all other variables held constant. A raise of the interest rates with 1% would result in: • Additional interest costs of about € 2.6 million per year as a result of financing and cash with a ﬂoating interest rate (2020: € 3.3 million). The impact is reduced by existing interest rate swaps. • An increase of the fair value of the financial instruments with about € 0.3 million (2020: € 0.6 million) as a result of the contracted interest rate swap. This raise would be recognized in the hedging reserves of the equity through the consolidated statement of comprehensive income. Currency risk It is TKH’s general policy to hedge currency risks on purchases if these risks cannot be charged to the market. Purchase transactions in foreign currencies are hedged when the sales prices are already fixed in case of material transactions. Sales transactions in foreign currencies are fully hedged in case of material transactions. The main currencies that cause this exposure are the USD and CNY. Foreign currency forward contracts are applied to minimize the exposure of ﬂuctuations in the currency rates. These contracts mainly have a term to maturity of less than one year. In addition to the currency risk on the purchase and sale transactions, there is a currency risk resulting from the translation of net investments in TKH subsidiaries denominated in functional currencies other than euros. The main currencies that cause this exposure are the USD, CNY, and PLN. These risks are partially hedged by financing these investments in local currency. The remaining risk is not hedged. The carrying amounts of monetary assets and liabilities specified to currencies are as follows: Average contract rate Nominal amount in foreign currency Fair value in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 2021 2020 Cash ﬂow hedges of balance positions Sell USD with settlement within 3 months 1.18 1.17 -10,930 -5,511 -354 313 Buy USD with settlement within 3 months 1.18 135 -5 Buy CNY with settlement within 3 months 7.64 7.91 92,894 89,049 591 -214 Cash ﬂow hedges Sell USD with settlement within 3 months 1.21 1.18 -1,424 -3,466 -83 101 Sell USD with settlement between 3 months and 1 year 1.21 1.19 -33,307 -31,373 -1,966 1,084 Sell USD with settlement after 1 year 1.19 1.19 -19,797 -5,967 -893 231 Buy USD with settlement between 3 months and 1 year 1.11 1.16 159 2,979 10 -55 Buy CNY with settlement within 3 months 7.67 7.99 65,538 47,144 527 -72 Buy CNY with settlement between 3 months and 1 year 7.69 8.11 200,548 171,404 1,883 202 Total -285 1,585 Euro USD CNY Other currencies Total in thousands of euros 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Trade and other receivables 265,406 230,244 37,709 30,505 14,782 6,918 17,552 13,926 335,449 281,593 Cash and cash equivalents 43,573 76,991 28,863 25,428 13,503 6,508 14,196 12,718 100,135 121,645 Non-current interest-bearing loans and borrowings -333,804 -409,508 -333,804 -409,508 Current interest-bearing loans and borrowings -30,012 -35,782 -7,012 -13,177 -629 -488 -9,936 -7,696 -47,589 -57,143 Trade payables and other payables -362,247 -278,639 -37,713 -27,751 -40,292 -17,266 -11,488 -8,992 -451,740 -332,648 Total -417,084 -416,694 21,847 15,005 -12,636 -4,328 10,324 9,956 -397,549 -396,061 On balance sheet date, TKH has entered into foreign currency forward contracts: 127 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS Time differences between the settlement of the forward contracts and the sale and purchase contracts are anticipated by the use of foreign currency bank accounts or the rollover of forward contracts. The translation risk on financial instruments, when the euro will decrease with 10% compared to all other currencies, with all other variables held constant, would be expected to have an inﬂuence of € 6.6 million negative on the result before tax (2020: € 3.4 million negative). The foreign currency forward contracts are taken into account in this calculation. The impact of a decrease of the euro on the shareholders’ equity is larger because of the net investments in foreign subsidiaries with another functional currency. The impact of this is approximately € 25.5 million positive (2020: € 21.0 million positive). An increase of the euro with 10% will have the opposite inﬂuence, namely a positive inﬂuence of € 6.6 million on the result before tax and a negative inﬂuence of € 25.5 million on equity. Price risk An important raw material for TKH is copper and aluminium. The price risk of copper and aluminium is limited by a continuously monitoring of sales prices against the development of the purchase price where price changes are passed on to customers. Important raw materials such as copper, aluminum, steel and plastics are purchased with forward delivery contracts, to reduce the price risk on the sale of finished products, provided that: • a sales contract with a fixed price has been entered into, • delivery will not take place within one month, and • an important quantity is required for production. With physical purchases on long-term against a fixed price in advance, TKH made limited use of derivatives to hedge price risks on free inventories and to fix purchase prices of copper regarding large sales orders with delivery times exceeding one month, if not covered by a long-term purchase. On balance sheet date TKH has entered into the following derivatives for raw materials: Average contract rate Quantity in metric tons Fair value in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 2021 2020 Cash ﬂow hedges Buy Copper with settlement within 3 months 5.86 5.66 905 699 617 566 Buy Copper with settlement between 3 months and 1 year 8.05 5.55 1,390 1,045 674 813 Buy Copper with settlement between 1 and 3 years 6.48 5.55 161 292 330 221 Buy Aluminium with settlement within 3 months 1.31 1.51 1,724 412 21 43 Buy Aluminium with settlement between 3 months and 1 year 2.43 1.48 2,061 553 58 72 Total 1,700 1,715 A decrease of the copper price with 10% would have a negative impact of approximately € 1.0 million on the result (2020: € 0.6 million negative) if all other factors and conditions remain the same. This is caused by the free stock, for which price risk is not hedged, which will then be sold at a lower price. Credit risk The financial assets of the group mainly consist of cash and cash equivalents, trade receivables, contract assets and other receivables. The credit risk for cash and cash equivalents is outstanding at major international system banks. The credit risks mainly relate to trade receivables and contract assets. However, it concerns a risk that is spread over a large number of customers that operate in several countries and in different markets. At balance sheet date there was no concentration of credit risk for material amounts. Part of the risk is insured at credit insurance companies. In addition, part of the risk is transferred to factoring companies. The credit risks insurances and factoring is in particular related to receivables on customers in the reporting segment Smart Connectivity systems. These customers are mainly located in the Netherlands, Germany and Asia. In addition, for large projects to foreign customers bank guarantees, advanced payments (towards a bank guarantee) or confirmed irrevocable ’Letter of Credit’ are used. The maximum exposure to credit risk is represented by the carrying amounts of contract assets and financial assets that are recognized in the balance sheet, including derivatives with a positive market value. | TKH GROUP ANNUAL REPORT 2021 128 CONSOLIDATED FINANCIAL STATEMENTS An impairment analysis is performed at each balance sheet date, whereby the expected credit losses are calculated using a provision matrix. The percentages in the provision matrix are initially based on historical losses for various customer segments (geographic region, customer type, rating and coverage by, for example, credit insurance).The historical credit risk percentages in the matrix are then adjusted with forward-looking information. If the predicted economic conditions are expected to deteriorate, which may lead to an increase in the number of defaults, the historical credit risk rates will be adjusted. On each reporting date, the historical observed credit risk percentages are updated and changes in estimates are analyzed. The assessment of the correlation between historical observed credit risk percentages, predicted economic conditions and expected credit losses is a management estimate. The actual future credit losses may differ. Below is shown the age of the trade receivables, contract assets and the expected credit losses. in thousands of euros Not overdue Up to 30 days 31 - 60 days 61 - 90 days 91 - 180 days 181 - 365 days Older than 365 days 31-12-2021 Total Book value 257,130 35,995 8,086 3,679 4,391 2,059 7,550 318,890 Expected credit loss rate 0.1% 0.3% 1.0% 3.3% 6.2% 19.1% 67.5% Loss allowance 300 117 77 121 272 394 5,096 6,377 22 CONTINGENT LIABILITIES Framework agreements have been concluded with some suppliers for the availability of some important raw materials. There are no long-term purchase obligations. in thousands of euros 2021 2020 Bank guarantees provided to third parties 122,860 87,291 Corporate guarantees provided to banks 13,391 12,904 Purchase obligations arising from orders for property, plant and equipment 11,935 9,680 The majority of the bank guarantees provided relate to down payments and performance guarantees issued to customers. Claims TKH and its subsidiaries are involved in a number of legal proceedings. According to the information currently available and legal advice received, TKH expects any adverse effects from the outcome of these legal proceedings to be adequately covered by other provisions or insurance. in thousands of euros Not overdue Up to 30 days 31 - 60 days 61 - 90 days 91 - 180 days 181 - 365 days Older than 365 days 31-12-2020 Total Book value 211,460 39,212 8,420 2,812 2,466 1,343 8,363 274,076 Expected credit loss rate 0.1% 0.6% 1.6% 3.0% 12.1% 20.3% 65.1% Loss allowance 202 239 133 83 299 273 5,446 6,675 There are no significant overdue account receivables that are not largely covered by insurances or guarantees or for which no provision has been recognized. The movement of the allowance for doubtful debts is as follows: in thousands of euros 2021 2020 Balance at 1 January 6,675 7,261 Additions 1,236 806 Releases -749 Acquisitions -13 Reclassification to assets held for sale -468 Utilized -418 -1,207 Exchange differences 101 -172 Balance at 31 December 6,377 6,675 129 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS 23 INFORMATION BY SEGMENT As announced on our Capital Markets Day in November 2021, going forward from November 2021, TKH changed its management structure and is now organized along the lines of our three technologies: Smart Vision systems, Smart Manufacturing syst ems and Smart Connectivity systems. The segment reporting as of November 2021 follows this structure. This note contains disclosures for the previous segmentation (Telecom, Building and Industrial Solutions) and new segmentation (Smart Vision systems, Smart Manufacturing systems and Smart Connectivity systems). Smart Technology segmentation (November 2021 onwards) In the overview of ‘Consolidated entities’, as part of the ‘Other information’, is shown in which of the segments the different subsidiaries operate. In the annual report, a detailed overview of the activities by business segment is shown. Operating segments Smart Vision systems Smart Manufacturing systems Smart Connectivity systems Other and eliminations Total in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Geographic segments Netherlands 38,130 39,100 41,540 38,268 260,136 226,943 2 86 339,808 304,397 Europe (other) 175,230 173,362 145,558 111,792 364,137 271,906 184 642 685,109 557,702 Asia 109,920 86,855 146,554 121,915 37,012 37,091 293,486 245,861 North America 81,369 77,455 80,079 71,123 7,458 6,034 35 29 168,941 154,641 Other 20,143 11,527 2,488 2,375 13,798 12,865 36,429 26,767 External turnover 424,792 388,299 416,219 345,473 682,541 554,839 221 757 1,523,773 1,289,368 Inter-segment revenue 4,986 4,657 2,835 3,987 9,780 10,745 -17,601 -19,389 0 0 Total turnover 429,778 392,956 419,054 349,460 692,321 565,584 -17,380 -18,632 1,523,773 1,289,368 Timing of revenue recognition Revenue at a point-in-time 401,273 356,845 81,484 68,931 567,626 481,932 36 86 1,050,419 907,794 Revenue over time 22,492 30,776 334,683 276,521 114,229 72,738 1 471,405 380,035 Inter-segment revenue 4,986 4,657 2,835 3,987 9,780 10,745 -17,601 -19,389 0 0 Revenues from contracts with customers 428,751 392,278 419,002 349,439 691,635 565,415 -17,564 -19,303 1,521,824 1,287,829 Other revenues 1,027 678 52 21 686 169 184 671 1,949 1,539 Total turnover 429,778 392,956 419,054 349,460 692,321 565,584 -17,380 -18,632 1,523,773 1,289,368 Added value 250,760 232,174 205,417 170,350 279,942 230,930 401 937 736,520 634,391 Added value in % 58.3% 59.1% 49.0% 48.7% 40.4% 40.8% 48.3% 49.2% EBITDA 88,512 77,528 67,354 49,357 94,914 66,203 -16,053 -12,101 234,727 180,987 EBITA 73,791 62,057 59,391 41,384 73,207 45,221 -16,828 -13,144 189,561 135,518 ROS 17.2% 15.8% 14.2% 11.8% 10.6% 8.0% 12.4% 10.5% One-off income and expenses 3,129 318 4,317 -837 0 6,927 Amortization 37,588 40,499 9,561 9,037 3,903 4,108 58 76 51,110 53,720 Impairments 2,237 2,930 -51 208 -653 830 31 1,564 3,968 Segment operating result 33,966 15,499 49,881 31,821 69,957 35,966 -16,917 -12,383 136,887 70,903 | TKH GROUP ANNUAL REPORT 2021 130 CONSOLIDATED FINANCIAL STATEMENTS Operating segments Smart Vision systems Smart Manufacturing systems Smart Connectivity systems Other and eliminations Total in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Other information Investments in intangible assets, property, plant and equipment, Right-of-use assets, including acquisitions 40,888 35,185 17,418 17,116 28,557 29,066 807 834 87,670 82,201 Employees (FTE) 1,862 1,827 1,677 1,609 2,162 2,061 83 86 5,784 5,583 Balance sheet Assets 731,607 688,230 342,306 303,350 488,877 501,807 17,777 42,436 1,580,567 1,535,823 Assets held for sale 87,140 3,577 1,044 1,017 88,184 4,594 Associates 2,884 2,886 25,813 22,652 2 2 28,699 25,540 Total assets 734,491 691,116 342,306 303,350 601,830 528,036 18,823 43,455 1,697,450 1,565,957 Total liabilities 203,627 178,363 260,367 159,746 223,521 189,341 287,952 376,601 975,467 904,051 Capital employed current year 488,804 473,896 71,645 128,481 350,350 314,290 16,955 6,673 927,754 923,340 Return on Capital Employed (ROCE) 15.3% 12.6% 59.4% 33.2% 22.0% 13.6% 20.5% 14.0% Added value is calculated by deducting ‘Raw materials, consumables, trade products and subcontracted work’ from ‘Total turnover’ TKH has no individual customers representing 10% or more of the consolidated turnover. Other revenues relate to other services provided to third parties, such as rental, insurance payments and charged costs. Non-current assets 1 Employees (FTE) in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 Geographic segments Netherlands 288,263 272,659 34% 36% Europe (other) 448,523 514,419 43% 42% Asia 63,514 52,027 14% 14% North America 47,396 57,993 7% 7% Other 10,097 4,901 2% 1% Total 857,793 901,999 100% 100% 1 The non-current assets are shown excluding the deferred tax assets. 131 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS Solutions segmentation (until November 2021) Operating segments Telecom Solutions Building Solutions Industrial Solutions Other and eliminations Total in thousands of euros (unless stated otherwise) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Geographic segments Netherlands 46,783 52,378 250,909 209,201 41,391 42,818 339,083 304,397 Europe (other) 161,140 117,569 296,836 263,765 227,858 176,368 685,834 557,702 Asia 9,014 10,887 122,041 101,355 162,430 133,618 293,485 245,860 North America 544 514 85,314 79,536 83,082 74,592 168,940 154,642 Other 1,689 1,787 27,714 18,676 7,028 6,304 36,431 26,767 Total turnover 219,170 183,135 782,814 672,533 521,789 433,700 0 0 1,523,773 1,289,368 Timing of revenue recognition Revenue at a point-in-time 217,718 181,730 723,151 627,196 109,550 98,868 1,050,419 907,794 Revenue over time 1,341 1,301 58,474 44,681 411,590 334,053 471,405 380,035 Revenues from contracts with customers 219,059 183,031 781,625 671,877 521,140 432,921 0 0 1,521,824 1,287,829 Other revenues 111 104 1,189 656 649 779 1,949 1,539 Total turnover 219,170 183,135 782,814 672,533 521,789 433,700 0 0 1,523,773 1,289,368 Result EBITA before one-off income and expenses 29,344 23,108 96,155 77,257 77,175 47,328 -13,113 -12,175 189,561 135,518 ROS 13.4% 12.6% 12.3% 11.5% 14.8% 10.9% 12.4% 10.5% One-off income and expenses -8,606 1,679 0 -6,927 Amortization -1,005 -1,139 -40,311 -43,276 -9,781 -9,291 -13 -14 -51,110 -53,720 Impairments 182 -1,615 -3,796 51 -354 -1,564 -3,968 Segment operating result 28,339 22,151 54,229 21,579 67,445 39,362 -13,126 -12,189 136,887 70,903 Other information Investments in intangible assets, property, plant and equipment, Right-of-use assets, including acquisitions 9,859 8,952 57,312 52,755 19,924 19,979 575 86 87,670 81,772 Depreciation and amortization 6,773 6,843 67,866 70,587 21,468 19,899 169 258 96,276 97,587 Employees (FTE) 730 718 2,741 2,657 2,282 2,178 31 30 5,784 5,583 Balance sheet Assets 183,025 179,380 952,495 904,131 418,485 395,220 26,562 57,092 1,580,567 1,535,823 Assets held for sale 20,914 48,708 3,646 18,357 948 205 88,184 4,594 Associates 10,017 8,959 2,851 2,847 15,829 13,732 2 2 28,699 25,540 Consolidated total assets 213,956 188,339 1,004,054 910,624 452,671 409,900 26,769 57,094 1,697,450 1,565,957 Liabilities 48,033 46,551 209,233 201,544 261,426 169,171 456,775 486,785 975,467 904,051 | TKH GROUP ANNUAL REPORT 2021 132 CONSOLIDATED FINANCIAL STATEMENTS Total turnover in thousands of euros 2021 2020 Vertical markets Fibre Optics Networks 151,341 121,837 Parking 33,679 37,119 Infrastructure 146,994 130,557 Marine & Offshore 74,181 55,303 Care 63,124 52,129 Machine Vision 199,454 173,391 Tire Building Industry 285,940 242,467 Other vertical markets 569,060 476,565 Total turnover 1,523,773 1,289,368 The turnover in the vertical growth market Fiber Optic Networks is mainly realized in Telecom Solutions. Tire Building Industry mainly concerns the segment Industrial Solutions, while Care covers both Building Solutions and Industrial Solutions. The other vertical growth markets mainly relate to Building Solutions. 24 PERSONNEL EXPENSES The personnel expenses include the following items: in thousands of euros 2021 2020 Wages and salaries 303,004 287,202 Share-based payments 5,042 2,592 Social insurance contributions 49,243 46,491 Pension costs 15,421 14,627 Temporary labor 19,506 17,047 Capitalized development costs -27,571 -26,969 Other personnel expenses 13,622 11,862 Personnel expenses 378,267 352,852 Personnel costs for 2020 include one-off charges of € 7.7 million associated with restructuring within the ‘Simplify & Accelerate’ program. During the year 2021 no significant use has been made of available COVID-19 government support. In 2020, government support programs reduced personnel costs with € 6.8 million, often related to schemes for job retention or a form of short-time working. In the Netherlands, no government support has been used. 25 SHARE-BASED PAYMENTS Stock option scheme settled in equity instruments Option rights to (depositary receipts of) ordinary shares of TKH are granted to the management of the subsidiaries. The rights can never be exercised until after the publication of the company’s annual results three calendar years following the year in which the rights were granted, and have an exercise period of two years. Partly to avoid abuse of inside knowledge, the conditions for participation have been laid down in an internal regulation and have been accepted in writing by the participants. Executive Board No option rights are granted to the members of the Executive Board and the Supervisory Board. Mr. H.J. Voortman has been awarded options in the period before being appointed as a member of the Executive Board. The movement and balance of the outstanding option rights granted to him is as follows: Year of allocation Exercise price in € Number at 01-01-2021 Granted during the year Expired during the year Elapsed during the year Exercised during the year Number at 31-12-2021 Exercise period 2016 33.92 12,000 -12,000 2019-2021 2017 41.19 7,350 7,350 2020-2022 2018 52.25 8,400 8,400 2021-2023 Total 27,750 0 0 0 -12,000 15,750 Other option beneficiaries The movement and balance of the outstanding option rights granted to the other option beneficiaries are as follows: Year of allocation Exercise price in € Number at 01-01-2021 Granted during the year Expired during the year Elapsed during the year Exercised during the year Number at 31-12-2021 Exercise period 2016 33.92 194,450 -2,210 -780 -191,460 2019-2021 2017 41.19 218,328 -1,756 -145,998 70,574 2020-2022 2018 52.25 220,091 -2,004 -1,008 217,079 2021-2023 2019 46.02 312,860 -2,683 310,177 2022-2024 2020 32.28 306,515 -2,449 304,066 2023-2025 2021 37.88 335,669 -4,495 331,174 2024-2026 Total 1,252,244 335,669 -2,210 -14,167 -338,466 1,233,070 At the end of 2021, the company owns 1,020,885 purchased (depositary receipts of) shares to cover the option rights. These (depositary receipt of) shares have been purchased against an average share price of € 40.27. The total purchase value is € 41,113,418. The average share price on the 133 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS date at which the share options were exercised during the financial year was € 36.96. The options were granted during the financial year on 9 March 2021. The estimated fair value of the options granted in 2021 is € 2,766,232. The fair value was determined on the basis of a binomial valuation model with the following assumptions: 2021 2020 Fair value at the date of allocation (in €) 8.12 8.41 Expected volatility 35.7% 26.7% Expected dividend 3.0% 3.0% Risk free rate -0.380% -0.453% Expected period to expiry of the option (in years) 4.0 4.0 The current restrictions on the exercise of the options, the chances that employees will leave the company and possible personal considerations of option holders have been taken into account for the expected expiry period of the options. TKH has a reported total charge of € 2,237,169 (2020: € 1,936,252) for these share-based payments which have been settled in equity instruments. Other share-based payments Based on the share scheme, (depositary receipts of) shares have been allotted to the members of the Executive Board. During 2021 Mr. J.M.A. van der Lof was allotted 2,216 (depositary receipts of) shares, Mr. E.D.H. de Lange 1,662, and Mr. H.J. Voortman 1,508 (depositary receipts of) shares related to the performance for the year 2020. At the same time, the Executive Board members purchased respec- tively 2,216, 1,662 and 1,508 (depositary receipts of) shares at the actual share price of € 38.44, all in accordance with the regulation of the share scheme. As a result of the share-based payments, TKH has recognized a total charge of € 2,805,000 (2020: € 656,000) in the statement of profit and loss. 26 OTHER OPERATING EXPENSES Other operating expenses include overhead, selling, accommodation and manufacturing expenses. 27 DEPRECIATION in thousands of euros 2021 2020 Depreciation of property, plant and equipment 30,149 29,769 Depreciation of Right-of-use assets 15,089 15,665 Result on disposal of propery, plant and equipment -72 -1,567 Depreciation 45,166 43,867 28 AMORTIZATION in thousands of euros 2021 2020 Amortization of intangible non-current assets 31,870 30,813 Amortization of intangible non-current assets from acquisi- tions as a result of ‘Purchase Price Allocations’ 19,240 22,907 Amortization 51,110 53,720 29 IMPAIRMENT in thousands of euros Notes 2021 2020 Impairment of intangible assets and goodwill 3 996 323 Impairment of property, plant and equipment 4 -581 995 Impairment Right-of-use assets 5 1,209 2,553 Onerous contracts -60 97 Impairment 1,564 3,968 30 RESEARCH AND DEVELOPMENT COSTS The total operating expenses over the financial year include the following items: in thousands of euros 2021 2020 Research and development costs 64,422 60,643 Less: Capitalized development costs -34,689 -34,390 Add: Amortization of development costs 25,549 24,171 Add: Impairment on capitalized development costs 965 323 Research and development costs accounted for in the profit and loss account 56,247 50,747 Government subsidies for research and development costs 3,680 4,288 | TKH GROUP ANNUAL REPORT 2021 134 CONSOLIDATED FINANCIAL STATEMENTS 31 FINANCIAL INCOME AND EXPENSES in thousands of euros 2021 2020 Exchange and translation differences, including the effect of realized cash ﬂow hedges -680 -1,965 Amortized transaction costs -322 -322 Interest costs in defined benefit plans -10 -15 Interest expense on lease liabilities -1,700 -1,857 Interest expenses -5,767 -6,593 Interest income from debt instruments at fair value through P&L 30 30 Interest income 161 312 Financial income and expenses -8,288 -10,410 32 TAX in thousands of euros Notes 2021 2020 Current tax 33,852 19,154 Adjustments for previous years -264 -253 Deferred tax 16 102 -3,512 Total tax on result 33,690 15,389 The taxes that are included directly in the statement of other comprehensive income are shown below. in thousands of euros Notes 2021 2020 Deferred taxes on revaluation of cash ﬂow hedges 16 -400 1,089 Deferred taxes on actuarial gains and losses 16 8 89 Total tax on other comprehensive income -392 1,178 The tax rate is calculated at the prevailing tax rates in each country. The tax rate over the year can be reconciled with the profit before tax as follows: in thousands of euros (unless stated otherwise) 2021 2020 Result before tax 128,914 62,915 Tax calculated at the Dutch tax rate 32,229 25.0% 15,729 25.0% Correction due to tax effect for: Tax participation exemption -380 -0.3% -495 -0.8% Non-deductible expenses 2,564 2.0% 1,000 1.6% Non-taxable income -245 -0.2% -459 -0.7% Advantages from tax facilities -3,110 -2.4% -2,862 -4.5% Write off/recognition of deferred taxes 72 0.1% 209 0.3% (Recognition)/derecognition of deferred tax asset for unused tax losses 1,206 0.9% 1,725 2.7% Settlement of income tax returns for previous years -264 -0.2% -253 -0.4% Differences in tax rates for foreign subsidiaries 2,248 1.7% 1,576 2.5% Change in statutory tax rate -586 -0.5% 1,093 1.7% Other tax benefits -44 0.0% -1,874 -2.9% Effective tax rate 33,690 26.1% 15,389 24.5% The effective tax rate increased compared to last year. The change is mainly attributable to the following circumstances: • The non-deductible expenses increased due to higher costs related to share based payments; • In 2020, TKH received government support for COVID-19, which was in some countries classified as non-taxable income; • Although the benefits from tax R&D facilities increased compared to previous year, the relative reduction of the tax rate decreased as a result of a governmental change to less favorable tax facilities in the Netherlands and China. These current facilities mainly relate to the Netherlands (innovation box), Canada (SR&ED) and Austria; • Not fully recognizing tax losses resulted in a tax loss of € 1.2 million in 2021 (2020: € 1.7 million); • Differences in tax rates for foreign subsidiaries causes on balance a higher effective tax rate. This mainly applies to our subsidiaries in Germany, France, Canada and Australia; • Changes in statutory tax rates applied in the calculation of deferred taxes resulted in a tax benefit of € 0.6 million (2020: tax expense of € 1.1 million); and • In 2020, there was a tax write-down on a business premises, which was recognized as other tax benefits. 135 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS 33 EARNINGS PER SHARE ATTRIBUTABLE TO SHAREHOLDERS in thousands of euros (unless stated otherwise) Notes 2021 2020 Weighted average number of (depositary receipts of) shares (x 1,000) 41,184 41,729 Effect of share options (x 1,000) 158 29 Weighted average number of (depositary receipts of) shares diluted (x 1,000) 41,342 41,758 Net profit 95,224 47,526 Less: Non-controlling interests -12 -6 Net profit attributable to the shareholders of the company 95,212 47,520 Amortization of intangible assets from acquisitions 3 19,240 22,907 Taxes on amortization -5,045 -6,014 Net profit before amortization attributable to the shareholders of the company 109,407 64,413 One-off costs for restructurings, integrations, divestments and acquisitions 6,927 Result from divestments and purchase price allocations in the result of associates 1,556 -2,143 Impairments 1,564 3,968 Fair value changes of financial liability for earn-out and put options of holders of non-controlling interests 15 1,759 -120 Tax impact on one-off expenses and benefits -391 -2,723 Net profit before amortization and one-off income and expenses attributable to the shareholders of the company 113,895 70,322 Earnings per share attributable to shareholders Ordinary earnings per share (in €) 2.31 1.14 Diluted earnings per share (in €) 2.30 1.14 Ordinary earnings per share (in €) continued operations 2.31 1.14 Diluted earnings per share (in €) continued operations 2.30 1.14 Ordinary earnings per share before amortization (in €) continued operations 1 2.66 1.54 Ordinary earnings per share before amortization and one-off income and expenses (in €) continued operations 1 2.77 1.69 1 Non IFRS compulsory disclosure In 2020, the one-off costs related to the execution of the ‘Simplify & Accelerate’ program. Various integrations and mergers, in particular in the segments Smart Connectivity systems and Smart Vision systems, resulted that year in restructuring costs and write-downs. | TKH GROUP ANNUAL REPORT 2021 136 CONSOLIDATED FINANCIAL STATEMENTS 34 RELATED PARTIES Trade transactions During the year trade transactions with non-consolidated related parties have taken place. These transactions were concluded at market prices, taking into account discounts for volumes and the existing relationship between the parties. The following transactions with related parties occurred during the year: Remuneration of the Executive Board and the Supervisory Board The remuneration payab le to the members of the Executive Board comprises a basic salary (TRI), pension and a variable element, comprising an annual performance bonus (STI) and a long-term bonus (LTI) scheme entailing a share scheme. The remuneration of the Supervisory Board consists of a fixed remuneration and a remuneration for participation in a committee. The various remuneration components are explained below, as well as the amount charged to the legal entity and its subsidiary or group companies. Total regular income (TRI) Bonus (STI) Share scheme (LTI) Pension Compensation for pension premium Total in thousands of euros 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Executive Board 1,707 1,657 997 179 2,736 356 82 79 325 303 5,847 2,574 Supervisory Board 313 326 313 326 Total remuneration 2,020 1,983 997 179 2,736 356 82 79 325 303 6,160 2,900 The breakdown of the remuneration per person and according to the various remuneration components is included in the remuneration report that is part of the annual report. Sold to Bought from Trade receivables Trade payables in thousands of euros 2021 2020 2021 2020 2021 2020 2021 2020 Cable Connectivity Group B.V. 3,096 4,769 5,996 5,325 280 1,027 731 631 Shin-Etsu (Jiangsu) Optical Preform Co. Ltd. 16,626 10,960 7,980 2,307 Speed Elektronik Vertrieb GmbH 216 352 136 226 18 3 2 Commend Australia Integrated Security and Communication Systems Pty Ltd. 588 560 88 39 NET Italia S.r.l. 202 7 125 7 Total 3,900 5,883 22,758 16,518 386 1,194 8,711 2,947 Shareholdings of members of the Executive Board and the Supervisory Board During the financial year J.M.A. van der Lof sold in total 15,432 (depositary receipts of) shares at an average stock price of € 46.00, E.D.H. de Lange sold 3,324 (depositary receipts of) shares at a stock price of € 38.44 and H. Voortman sold 1,508 (depositary receipts of) shares at a stock price of € 38.44, in accordance with the share scheme. In addition, Messrs. J.M.A. van der Lof, E.D.H. de Lange and H.J. Voortman purchased under the share scheme respectively 2,216, 1,662 and 1,508 (depositary receipts of) shares at a stock price of € 38.44. Among the members of the Executive Board, Mr. J.M.A. van der Lof owned 122,147 (depositary receipts of) shares, Mr. E.D.H. de Lange owned 95,789 (depositary receipts of) shares and Mr. H.J. Voortman owned 26,153 (depositary receipts of) shares shares at the end of 2021. Of the Supervisory Board, Mr. A.J.P. De Proft owned 2,000 (depositary receipts of) shares at the end of 2021. 137 TKH GROUP ANNUAL REPORT 2021 | CONSOLIDATED FINANCIAL STATEMENTS 35 ACQUISITIONS On 27 January 2021, TKH, through its subsidiary LMI Technologies (LMI), completed the acquisition of FringeAI, an innovative AI and IIoT / 5G inspection company based in Boston, Massachusetts. The company delivers a software suite that leverages integrated deep learning, dedicated edge devices and IIoT / 5G connected cloud services to deliver AI-based solutions in many markets. The activities within TKH are part of the business segment Smart Vision Systems. The purchase price was immaterial and paid in cash. In addition, a contingent consideration / earn- out has been agreed for the acquisition. This amount is estimated on the basis of expected future results. The actual compensation to be paid in the future may deviate positively or negatively based on future realization. The company’s contribution to the consolidated activities of TKH was immaterial in 2021. TKH expects the acquisition to have an immaterial effect on earnings per share in 2022. 36 NON-CASH TRANSACTIONS There were no material non-cash transactions. 37 EVENTS AFTER BALANCE SHEET DATE No events of fundamental significance for insight into the financial statements and the preceding period occurred after balance sheet date. However, after balance sheet date, the geopolitical situation and conﬂict surrounding Russia- Ukraine escalated, which can impact our operations and outlook. For the financial statements 2021, this is treated as a non-adjusting event. In 2021, TKH realized in Ukraine a turnover of € 1 million (2020: € 1 million) and in Russia a turnover of € 10 million (2020: € 21 million). At December 31, 2021, the order book related to Russian and Ukrainian customers was in total € 11 million, but the amount of outstanding contract assets and receivables are limited. Furthermore, TKH has a subsidiary based in Kiev (Ukraine) with 128 FTE active in the assembly of specialized connectivity systems. The equipment, right-of-use assets and inventories have a book value of about € 4 million, of which a part has been transported to Poland. 38 SERVICE FEES PAID TO EXTERNAL AUDITORS The service fees paid to the external auditor EY, recognized as other operating expenses, can be specified as follows: Ernst & Young Accountants LLP (Netherlands) Other parts of EY Total in thousands of euros 2021 2020 2021 2020 2021 2020 Audit of the financial statements 1,113 1,315 596 543 1,709 1,858 Other assurance engagements 70 5 3 70 8 Other non-audit services 11 9 28 20 28 Servicecosts external auditors 1,194 1,320 605 574 1,799 1,894 COMPANY FINANCIAL STATEMENTS Company statement of profit and loss 139 Company balance sheet 140 Notes to the company financial statements 141 139 TKH GROUP ANNUAL REPORT 2021 | COMPANY FINANCIAL STATEMENTS COMPANY STATEMENT OF PROFIT AND LOSS in thousands of euros Notes 2021 2020 Net turnover 14 9,768 9,387 Wages and salaries 15 11,091 8,795 Social insurance contributions 1,069 1,128 Depreciation and result on divestment of property, plant and equipment 188 227 Other operating expenses 9,488 6,883 Total operating expenses 21,836 17,033 Operating result -12,068 -7,646 Financial income 5,475 1,386 Financial expenses -3,476 -4,044 Exchange differences 114 -246 Change in value of financial liability for earn-out and put-options of holders of non-controlling interests -1,620 120 Result before tax -11,575 -10,430 Tax on result 16 -1,160 -1,669 Company result -10,415 -8,761 Share in result of participations after tax 105,627 56,281 Net result 95,212 47,520 | TKH GROUP ANNUAL REPORT 2021 140 COMPANY FINANCIAL STATEMENTS COMPANY BALANCE SHEET As of 31 December before profit appropriation in thousands of euros Notes 2021 2020 ASSETS Non-current assets Intangible assets and goodwill 2 170,828 147,181 Property, plant and equipment 3 465 494 Financial non-current assets 4 832,534 788,043 Deferred tax assets 5 890 800 Total non-current assets 1,004,717 936,518 Current assets Receivables on subsidiaries 33,751 50,447 Other receivables 6 5,641 3,855 Cash and cash equivalents 12 3,372 4,747 Total current assets 42,764 59,049 Total assets 1,047,481 995,567 in thousands of euros Notes 2021 2020 EQUITY AND LIABILITIES Shareholders’ equity Share capital 10,554 10,709 Share premium 85,021 85,021 Legal reserve 92,542 85,561 Translation reserve 15,251 -2,593 Cash ﬂow hedge reserve 1,049 1,919 Retained earnings 422,301 433,683 Unappropriated profit 95,212 47,520 Total shareholders’ equity 7 721,930 661,820 Provisions Deferred tax liabilities 5 581 597 Other financial liabilities 11 345 3,157 Provisions 10 33,989 25,259 Total provisions 34,915 29,013 Non-current liabilities Interest-bearing loans and borrowings 85 35 Total non-current liabilities 85 35 Current liabilities Interest-bearing loans and borrowings 12 34 28 Payables to group companies 280,058 295,906 Other financial liabilities 11 4,989 4,542 Other current liabilities 5,470 4,223 Total current liabilities 290,551 304,699 Total equity and liabilities 1,047,481 995,567 141 TKH GROUP ANNUAL REPORT 2021 | COMPANY FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS 1 ACCOUNTING PRINCIPLES For setting the principles for the recognition and measurement of assets and liabilities and determination of the result for its separate financial statements, TKH makes use of the option provided in Article 2:362 sub 8 of the Dutch Civil Code. This means that the principles for the recognition and measurement of assets and liabilities and determination of the result for the separate financial statements of TKH are the same as those for the consolidated financial statements. For a description of these accounting principles, reference is made to the accounting principles of the consolidated financial statements. Investments in subsidiaries are valued at net asset value. The net asset value is determined on basis of the valuation principles, as described in note 1 of the consolidated financial statements. The net asset value of subsidiaries consists of cost price, exclusive goodwill, the share of TKH in the sum of the assets, liabilities and provisions of the subsidiary, plus the share in the result of the subsidiary since the takeover that is attributed to TKH, less the received dividends. The expected credit losses as prescribed in IFRS 9 Financial Instruments on receivables on group companies are included in the carrying amount of the participations. 2 INTANGIBLE ASSETS AND GOODWILL Goodwill in thousands of euros 2021 2020 Historical cost at 1 January 148,871 149,692 Accumulated impairment losses 1,690 1,690 Book value at 1 January 147,181 148,002 Acquisitions 383 Transfer within the group 23,150 Adjustment goodwill -1,537 Exchange differences 497 333 Book value at 31 December 170,828 147,181 Accumulated impairment losses 1,690 1,690 Historical cost at 31 December 172,518 148,871 The ‘Transfer within the group’ relates to an internal restructuring where some additional subsidiaries now reside directly under TKH Group N.V. The adjustment of goodwill in 2020 relates to an upward adjustment of the valuation of the carry forward losses of an acquisition from 2019. 3 PROPERTY, PLANT AND EQUIPMENT Other equipment in thousands of euros 2021 2020 Historical cost at 1 January 2,665 2,803 Accumulated depreciation and impairments 2,171 2,072 Book value at 1 January 494 731 Purchases 177 48 Disposals -18 -58 Depreciation -188 -227 Book value at 31 December 465 494 Accumulated depreciation and impairments 1,994 2,171 Historical cost at 31 December 2,459 2,665 | TKH GROUP ANNUAL REPORT 2021 142 COMPANY FINANCIAL STATEMENTS 4 FINANCIAL NON-CURRENT ASSETS Subsidiaries Associates Receivables on subsidiaries Total in thousands of euros 2021 2020 2021 2020 2021 2020 2021 2020 Balance at 1 January 748,637 830,299 24,884 27,997 14,522 334,259 788,043 1,192,555 Acquisition and/or incorporation of subsidiaries and associates 348 0 348 Disposals -24,367 0 -24,367 Capital contribution 15,780 20,374 -20,374 15,780 0 Result 100,877 54,154 2,370 -2,802 103,247 51,352 Result after tax from discontinued operations -31 -31 0 Dividend received -86,681 -42,184 -86,681 -42,184 Change in cash ﬂow hedge reserves -1,073 3,059 -1,073 3,059 Liquidation -3 -3 0 Transfer within the group 1,889 -405,057 1,889 -405,057 Loans granted less repayments -14,522 5,158 -14,522 5,158 Actuarial gains/(losses) from defined benefit plans 64 -243 -83 64 -326 Other changes 1,537 0 1,537 Reclasification between receivables and participations -130 -100,536 100,536 -130 0 Reclassification provision subsidiaries and associates 8,567 18,741 8,567 18,741 Exchange differences 16,504 -12,545 880 -228 17,384 -12,773 Balance at 31 December 804,431 748,637 28,103 24,884 0 14,522 832,534 788,043 In 2020, the majority of the receivables from group companies, together with the associated external financing, were transferred within the group to TKH Finance B.V. The shown reclassification between receivables and participations are also a consequence of this. A number of loan agreements with group companies were in 2021 and 2020 converted into share capital. This has resulted in a reclassification of receivables from group companies to consolidated subsidiaries. An at arm’s length interest rate is charged on the receivables from and debts to group companies with a credit risk premium ranging from 1.0% to 2.8%. 143 TKH GROUP ANNUAL REPORT 2021 | COMPANY FINANCIAL STATEMENTS 5 DEFERRED TAXES The deferred tax assets and liabilities are related to the following items: in thousands of euros Undistributed intragroup profits Tax write-down of loans Financial instruments Total Balance at 1 January 2020 -853 659 154 -40 ( Charge)/credit to other comprehensive income -13 -13 (Charge)/credit to profit or loss 256 256 Balance at 31 December 2020 -597 659 141 203 (Charge)/credit to other comprehensive income -65 -65 (Charge)/credit to profit or loss 16 155 171 Balance at 31 December 2021 -581 814 76 309 Certain deferred tax assets and liabilities are offset in accordance with the principles provided in IFRS. The deferred taxes are recognized in the balance sheet as follows: in thousands of euros 2021 2020 Deferred tax assets stated under non-current assets 890 800 Deferred tax liabilities stated under non-current liabilities -581 -597 Deferred taxes 309 203 6 OTHER RECEIVABLES in thousands of euros 2021 2020 Taxes and social security premiums 5,007 2,928 Other receivables 634 927 Other receivables 5,641 3,855 7 EQUITY For the movement schedule is referred to the consolidated statement of changes in group equity. The company only movement schedule for equity, excluding the movement of the non-controlling interests, is the same. Authorized capital 2021 2020 x1,000 € ‘000 € ‘000 The authorized capital consists of: Ordinary shares 59,984 Cumulative preference financing shares 10,000 Convertible cumulative preference financing shares 10,000 Cumulative preference protective shares 60,000 Each nominal € 0.25 139,984 34,996 34,996 Priority share 4 Each nominal € 1.00 4 4 4 Authorized capital 35,000 35,000 Of which not issued 24,446 24,291 Issued capital 1 10,554 10,709 1 Concerns 4,000 priority and 42,198,429 (depositary receipts of) shares. The issued capital was reduced with 623,334 ordinary shares on 23 November 2021 following the resolution on the Annual General Meeting on 6 May 2021. The number of shares that has been cancelled relate to the depositary receipts of shares that have been purchased under the share- buyback program initiated on November 18, 2020 with a value of € 25 million. The registered ordinary shares, with the exception of the register-shares in the company, have been transferred to Stichting Administratiekantoor TKH Group (‘Trust Foundation’), which issues depositary receipts of shares to the ultimate capital providers. Stichting Administratiekantoor is the party entitled to the shares and also exercises the voting right, unless it has granted power of attorney to the holders of the depositary receipts. The holders of depositary receipts are entitled to receive a power of attorney to cast a vote on the shares corresponding to the depositary receipts they own. Stichting Administratiekantoor remains entitled to vote for the shares for which the holders of depositary receipts are not present or represented at the meeting. The aforementioned power of attorney may be limited, excluded or revoked by the executive committee of Stichting Administratiekantoor in various situations specified in the law (see also Corporate Governance). In that case Stichting Administratiekantoor may (again) exercise the voting right for all shares for which depositary receipts have been issued. The relationship between Stichting Administratiekantoor and the holders of depositary receipts of shares is governed by the administrative conditions. The protection afforded by the use of depositary receipts is based on the 1% rule. The depositary receipts may be exchanged for ordinary shares but not for more than 1% of the total issued capital in the form of ordinary shares. This total includes shares owned indirectly as well as directly. However, this does not ap ply to the transfer of ordinary shares to the company itself. | TKH GROUP ANNUAL REPORT 2021 144 COMPANY FINANCIAL STATEMENTS Every transfer of preference financing shares, convertible preference financing shares and preference protective shares must be approved by the Executive Board. The Executive Board may only grant its approval with the approval of the Supervisory Board. Besides from what is mentioned in the ‘Other information’, no special rights are attached to the priority shares. The company has granted the Stichting Continuïteit TKH (‘Continuity Foundation’) an option to take preference protective shares for up to a maximum of 50% of the sum of the other outstanding shares at the time that the preference protective shares are issued or 100% of the sum of the other outstanding shares at the time that the preference protective shares are issued if the restriction on the cancellation option lapses, which will occur if and when the Executive Board of the company so decides and files a statement to that effect with the Chamber of Commerce. Share premium reserve The share premium reserve is fully exempt from Dutch taxes on distribution. Legal reserve The legal reserve relates to: in thousands of euros 2021 2020 Capitalized development costs 87,666 80,760 Legal reserve for participations 4,876 4,801 Legal reserve 92,542 85,561 The legal reserve is not available for distribution to the company’s shareholders. Revaluation reserves The revaluation reserves are not available for distribution to the company’s shareholders. Hedging and translation reserve The hedging and translation reserves are legal reserves and not available for distribution to the company’s shareholders. 8 DIVIDEND TKH recognizes a liability to pay a dividend when the distribution is no longer at the discretion of the company. A dividend payment is due under Dutch law if approved by the shareholders. At that moment, the amount is recognized directly in equity. At the General Meeting of shareholders in 2021 the dividend in thousands of euros Earn-out Put options of holders of non- con trolling interests Total Balance at 1 January 2021 7,342 357 7,699 Change in value through the profit and loss account 911 709 1,620 Payment for acquisitions from previous years -3,707 -278 -3,985 Balance at 31 December 2021 4,546 788 5,334 For more details about the financial liabilities see note 15 of the consolidated financial statements. for the year 2020 was declared at € 1.00 per (depositary receipt of) ordinary share. The dividend was paid in cash. The dividend on the priority shares was declared at € 0.05 per share. The total amount of dividends paid in 2021 was € 41,125,796 and this amount was charged to the retained earnings. After 31 December 2021, the Executive Board has proposed a dividend. With regard to Article 33 of the Articles of Association, the Executive Board proposes to the holders of (depositary receipts of) ordinary shares a dividend of € 1.50 per (depositary receipt of) ordinary share. The dividend proposal is subject to approval at the annual general meeting and has not been recognized in the balance sheet and does not impact the corporate income tax. 9 SHARE-BASED PAYMENTS The share-based payments are disclosed in note 25 of the consolidated financial statements. 10 OTHER PROVISIONS in thousands of euros 2021 2020 Liability for subsidiaries with negative equity 33,484 24,917 Other long-term provisions 505 342 Total of other long- and short-term provisions 33,989 25,259 For more background details about other long-term provisions see note 14 of the consolidated financial statements. 11 OTHER FINANCIAL LIABILITIES 145 TKH GROUP ANNUAL REPORT 2021 | COMPANY FINANCIAL STATEMENTS 12 NET INTEREST BEARING DEBT in thousands of euros 2021 2020 Bank loans reported under non-current liabilities 85 35 Borrowings reported under current liabilities 34 28 Cash and cash equivalents -3,372 -4,747 Net interest bearing debt -3,253 -4,684 For more details about the facilities, conditions and securities see notes 10, 18, 19 and 21 of the consolidated financial statements. 13 CONTINGENT LIABILITIES Under Article 2:403, paragraph 1 sub f of the Dutch Civil Code the company has assumed joint and several liability for debts arising from the legal actions for all Dutch subsidiaries of which TKH owns directly or indirectly 100% of the shares. The declarations to that effect have been deposited for inspection at the office of the Chamber of Commerce in the place where the legal entity for which the guarantee was given has its registered office. The company is formally a guarantor for a total sum of € 44.9 million (2020: € 45.4 million) for bank credit and bank guarantee facilities provided to a number of foreign subsidiaries. This facility was called on for a sum of € 14.1 million (2020: € 0.1 million) at the end of 2021. The company and the majority of its 100% owned Dutch subsidiaries form a ta x group for the corporate income tax. Consequently, the company is liable for the income taxes of these subsidiaries. 14 TURNOVER The turnover is related to the charged head office costs in the year for services provided to subsidiaries of the company. 15 OPERATING EXPENSES The share-based payments and remuneration of key management are included in notes 25 and 34 of the consolidated financial statements. 16 TAX in thousands of euros Notes 2021 2020 Current tax -703 -2,011 Adjustments for previous years -286 598 Deferred tax 5 -171 -256 Total tax on result -1,160 -1,669 The reconciliation of the tax expense in the year with the result before tax is as follow: in thousands of euros (unless stated otherwise) 2021 2020 Result before tax -11,574 -10,430 Tax calculated at the Dutch tax rate -2,894 25.0% -2,608 25.0% Correction due to tax effect for: Non-deductible expenses 2,060 -17.8% 597 -5.7% Settlement of income tax returns for previous years -286 2.5% 598 -5.7% Taxes on (un)distributed profits of foreign subsidiaries -15 0.1% -256 2.4% Change in statutory tax rate -25 0.2% 0.0 Effective tax rate -1,160 10.0% -1,669 16.0% 17 SIGNATURE OF THE FINANCIAL STATEMENTS Haaksbergen, 7 March 2022 Executive Board Supervisory Board J.M.A. van der Lof MBA, chairman A.J.P. De Proft, chairman E.D.H. de Lange MBA J.M. Kroon, vice-chairman H.J. Voortman MSc R.L. van Iperen C.W. Gorter A.M.H. Schöningh OTHER INFORMATION Profit appropriation 149 Proposal for profit appropriation 149 Independent auditor’s report 150 Assurance report of the independent auditor on non-financial KPIs 156 Stichting Administratiekantoor TKH Group 158 Stichting Continuïteit TKH 159 Consolidated entities 160 Non-financial reporting process and methods 164 Ten years overview 168 Alternative performance measures 170 OTHER INFORMATION 149 TKH GROUP ANNUAL REPORT 2021 | PROFIT APPROPRIATION Since no protection preference and financing preference shares were outstanding or issued, within the meaning of Ar- ticles 33.1, 3, 4, 5, 6, paragraphs b and c, 8, 9 and, 12 below, only the articles governing the profit appropriation in relation to the outstanding shares are included here. ARTICLE 33 OF THE ARTICLES OF ASSOCIATION READS AS FOLLOWS: 2. The company may make distributions to the shareholders and other persons entitled to distributable profits only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called-up part of the capital, plus the reserves that must be maintained pursuant to the law or the articles of association. 6a. From any profit remaining after application of the previous paragraphs, five percent (5%) of the nominal amount of the priority shares shall, if possible, be distributed on such priority shares. No further distribution shall be made on the priority shares. 7. If in any year the profit does not suffice to make the dis- tributions referred to above in paragraph 6 of this article, the provisions in paragraph 6 and in paragraph 10 shall not apply in the subsequent financial years until the deficit has been made up. Subject to the approval of the Super- visory Board, the Executive Board is authorised to resolve to distribute an amount equal to the deficit referred to in the previous sentence charged to the reserves. 10. Of the profit remaining thereafter, the Executive Board shall, subject to the approval of the Supervisory Board, reserve as much as it deems necessary. In so far as the profit is not reserved under application of the previous sentence, it shall be at the disposal of the general meet- ing, either fully or partially for reservation, or fully or par- tially for distribution to holders of ordinary shares propor- tionately to their holding of ordinary shares. For other provisions of the articles of association, please refer to TKH’s website: www.tkhgroup.com. PROPOSAL FOR PROFIT APPROPRIATION in thousands of euros Net profit attributable to shareholders € 95,212. In accordance with Article 33 of the articles of association, we propose paying the holders of (depositary receipts of) ordinary shares a dividend of € 1.50 per (depositary receipt of) ordinary share. The dividend will be made available for payment on May 3, 2022. The dividend for 4,000 priority shares has been set at € 0.05 per share of € 1.00. | TKH GROUP ANNUAL REPORT 2021 150 OTHER INFORMATION INDEPENDENT AUDITOR’S REPORT To: the shareholders and Supervisory Board of TKH Group N.V. REPORT ON THE AUDIT OF THE FINANCIAL STATE- MENTS 2021 INCLUDED IN THE ANNUAL REPORT OUR OPINION We have audited the financial statements 2021 of TKH Group N.V. based in Haaksbergen, the Netherlands. The financial statements comprise the consolidated and company financial statements. In our opinion: • the accompanying consolidated financial statements give a true and fair view of the financial position of TKH Group N.V. as at 31 December 2021 and of its result and its cash ﬂows for 2021 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code; • the accompanying company financial statements give a true and fair view of the financial position of TKH Group N.V. as at 31 December 2021 and of its result for 2021 in accordance with Part 9 of Book 2 of the Dutch Civil Code. The consolidated financial statements comprise: • the consolidated balance sheet as at 31 December 2021; • the following statements for 2021: the consolidated state- ment of profit and loss, the consolidated statement of comprehensive income, consolidated statement of changes in group equity and consolidated cash ﬂow state- ment; • the notes comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise: • the company balance sheet as at 31 December 2021; • the company statement of profit and loss for 2021; • the notes comprising a summary of the accounting poli- cies and other explanatory information. BASIS FOR OUR OPINION We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibili- ties under those standards are further described in the Our responsibilities for the audit of the financial statements sec- tion of our report. We are independent of TKH Group N.V. (hereinafter also referred to as the company or the group) in accordance with the EU Regulation on specific requirements regarding statu- tory audit of public-interest entities, the “Wet toezicht accountantsorganisaties” (Wta, Audit firms supervision act), the “Verordening inzake de onafhankelijkheid van accoun- tants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to inde- pendence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics). We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. INFORMATION IN SUPPORT OF OUR OPINION We designed our audit procedures in the con text of our audit of the financial statements as a whole and in forming our opinion thereon. The following information in support of our opinion and any findings were addressed in this context, and we do not provide a separate opinion or conclusion on these matters. Our understanding of the business TKH Group N.V. is an internationally operating technology company and heads a group of operating companies and we have tailored our group audit approach accordingly. We paid specific attention in our audit to a number of areas driven by the operations of the group and our risk assessment. We start by determining materiality and identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error in order to design audit proce - dures responsive to those risks and to obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Materiality Materiality EUR 7.6 million (2020: EUR 5.2 million) Benchmark applied 4% of Earnings before interest, taxes, im- pairments and amortization (EBITA) (2020: 4% of EBITA) Explanation Based on our professional judgment we consider an earnings-based measure as the most appropriate basis to determine materiality. TKH Group N.V. primarily uses earnings before interest, taxes, impairments and amortization (EBITA) to report on its financial performance. We have also taken into account misstatements and/or possi- ble misstatements that in our opinion are material for the users of the financial statements for qualitative reasons. We agreed with the supervisory board that misstatements in excess of EUR 340,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. OTHER INFORMATION 151 TKH GROUP ANNUAL REPORT 2021 | Scope of the group audit TKH Group N.V. is at the head of a group of entities. The financial information of this group is included in the consoli- dated financial statements. Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk pro- file of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items. Following our assessment of the risk of material misstatement to the consolidated financial statements, we have selected sixteen components which required an audit of the complete financial information (Full Scope components). Furthermore, we selected nine components requiring audit procedures on specific account balances or specified audit procedures on significant accounts that we considered had the potential for the greatest impact on the group financial statements, either because of the size of these accounts or their risk profile (Specific- or Limited Scope components). The audit of the Dutch operating companies within the scope of the group audit was performed by ourselves. With the exception of four operating companies in Germany and one in Finland, the audit of the foreign operating companies in scope of our audit were performed by EY component teams. We provided the foreign component teams with detailed instructions and the component teams performed their audit procedures on the basis of those instructions and reported the results of their audit procedures to us. Component performance materiality was determined using professional judgment, based on the relative size of the component and our risk assessment. Component performance materiality did not exceed EUR 2.4 million and the majority of our component auditors applied a performance materiality that is significantly less than this threshold. We performed audit procedures ourselves on cer- tain accounting areas managed centrally, such as goodwill and other intangibles of acquired companies, and valuation of deferred tax assets arising from unused tax losses. Because of the continuing (international) travel restrictions and social distancing due to the Covid-19 pandemic, we needed to limit the visits of local component management and component auditors to discuss, among others, the busi- ness activities and the identified significant risks or to review and evaluate relevant parts of the component auditor's audit documentation and to discuss significant matters arising from that evaluation on site. In these circumstances we pre- dominantly used communication technology and digital information exchange. We have had sessions with local management of components in Germany, France and Canada through video teleconferencing facilities. Additionally we interacted regularly with the component teams during various stages of the audit, through the use of video or tele- conferencing facilities. Furthermore we reviewed key working papers of EY component auditors in Canada, France and Germany using the EY electronic audit file platform, screen sharing or by the provision of copies of work papers direct to the group audit team. Also we have visited the non-EY com- ponent team in Germany where we reviewed key working papers. Of the remaining components, we performed selected other procedures, including analytical review and test of details to respond to potential risks of material misstatements to the financial statements that we identified. As a result of our scoping of the complete financial informa- tion, specific account balances and the performance of audit procedures at different levels in the organization, our actual coverage varies per financial statement account balance and the depth of our audit procedures per account balance varies depending on our risk assessment. Accordingly, our audit coverage, for selected account balances i ncluded in the key audit matters stated below, are summa- rized as follows: By performing the procedures mentioned above at compo- nents of the group, together with additional procedures at group level, we have been able to obtain sufficient and appro - priate audit evidence about the group’s financial information to provide an opinion on the consolidated financial statements. Teaming and use of specialists We ensured that the audit teams both at group and at compo- nent levels included the appropriate skills and competences which are needed for the audit of a listed client like TKH Group N.V. We included EY specialists in the areas of IT audit (in- cluding cybersecurity), corporate governance (including remu- neration), sustainability, IFRS accounting, valuation of goodwill and other intangible fixed assets of acquired companies, real estate, share based payments, taxes and forensics. Our focus on climate risks Climate objectives will be high on the public agenda in the next decades. Issues such as CO 2 reduction impact financial reporting, as these issues entail risks for the business EBITA OVER-TIME REVENUE CAPITALIZED DEVELOPMENT COST FULL SCOPE SPECIFIC SCOPE OTHER PROCEDURES 67% 7% 26% FULL SCOPE OTHER PROCEDURES FULL SCOPE SPECIFIC SCOPE OTHER PROCEDURES 85% 15% 80% 1% 19% | TKH GROUP ANNUAL REPORT 2021 152 OTHER INFORMATION operation, the valuation of assets ('stranded assets') and provi- sions or the sustainability of the business model and access to financial markets of companies with a larger CO 2 footprint. The Executive Board has reported in section ‘Being responsible and sustainability impact’ and section ‘Sustainable develop - ment goals’ on the Environmental, Social and Governance (ESG) factors directly and indirectly impacting TKH Group N.V.’s business, and their consideration of the impact of climate change including the potential impact of climate-related risks. As part of our audit of the financial statements, we evaluated the extent to which climate-related risks are materially impacting judgements, estimates and significant assumptions applied by TKH Group N.V. Furthermore, we read the manage - ment report and considered whether there is any material inconsistency between the non-financial information in section ‘Being responsible and sustainability impact’ and section ‘Risk Management’ and the financial statements. Based on the audit procedures performed, we do not deem climate-related risks to have a material impact on the financial reporting judgements, estimates or significant assumptions and as such we have not identified a key audit matter. Our focus on fraud and non-compliance with laws and regulations Our responsibility Although we are not responsible for preventing fraud or non-compliance and we cannot be expected to detect non-compliance with all laws and regulations, it is our responsibility to obtain reasonable assurance that the finan- cial statements, taken as a whole, are free from material mis- statement, whether caused by fraud or error. Our audit response related to fraud risks We identify and assess the risks of material misstatements of the financial statements due to fraud. During our audit we obtained an understanding of the company and its environ- ment and the components of the system of internal control, including the risk assessment process and the executive board’s process for responding to the risks of fraud and monitoring the system of internal control and how the super- visory board exercises oversight, as well as the outcomes. We refer to section ‘Risk Management’ of the management report for the executive board’s fraud risk assessment and section ‘Report of the Supervisory Board’ in which the super- visory board reﬂects on this fraud risk assessment. We evalu- ated the design and relevant aspects of the system of internal control and in particular the fraud risk assessment, as well as the code of conduct, whistle blower procedures and incident registration. We evaluated the design and the implementation of internal controls designed to mitigate fraud risks. As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud, misappropriation of assets and bribery and corruption in close co-operation with our forensic specialists. We evaluated whether these factors indicate that a risk of material misstate- ment due to fraud is present. We incorporated elements of unpredictability in our audit. We also considered the outcome of our other audit procedures and evaluated whether any findings were indicative of fraud or non-compliance. As in all of our audits, we addressed the risks related to management override of controls and we have performed procedures among others to evaluate k ey accounting estimates for management bias that may represent a risk of material misstatement due to fraud, in particular re- lating to important judgment areas and significant accounting estimates as disclosed in note ‘1. Accounting principles’ to the financial statements. We have also used data analytics to identify and address higher risk journal entries. These risks did however not require significant auditor’s attention in addition to the fraud risk identified below. We considered available information and made enquiries of relevant executive and management board members, direc- tors (including internal audit, legal advisor, compliance officer and regional directors) and the Supervisory Board. The fraud risks we identified, enquiries and other available information did not lead to specific indications for fraud or suspected fraud potentially materially impacting the view of the financial statements. Our audit response related to risks of non-compliance with laws and regulations We assessed factors related to the risks of non-compliance with laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general industry experience, through discussions with the Executive Board, the management board, the head of legal affairs, the compliance office and internal audit as well as reading minutes, inspection of internal audit reports perform- ing substantive tests of details of classes of transactions, account balances or disclosures. Given the company is a global organization, operating in multi- ple jurisdictions, in our assessment of the risk of non-compli- ance with laws and regulations, we also considered the poten- Fraud risk related to revenue recognition Fraud risk When identifying and assessing fraud risks we presume that there are risks of fraud in revenue recognition. We evaluated that the over-time revenue from contracts with customers in particular give rise to such risks, including the risk of management override of controls through inappropriate estimations around the percentage of completion and the cost to come. Our audit approach We describe the audit procedures responsive to the presumed risk of fraud in revenue recognition in the description of our audit approach for the key audit matter “Over-time revenue recognition, and related valuation of contract assets and contract liabilities”. OTHER INFORMATION 153 TKH GROUP ANNUAL REPORT 2021 | identify serious doubts on the company’s ability to continue as a going concern for the next 12 months. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern. Our key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the finan - cial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reﬂection of all matters discussed. The key audit matter related to the valuation of contract assets and contract liabilities which was included as a separate key audit matter in our last year’s auditor’s report, is now combined with the key audit matter relating to over-time revenue recogni - tion considering these matters are related. In addition the key audit matter related to the valuation of capitalized development costs related to new innovation projects in development does no longer include the risk of valuation of new businesses. Over-time revenue recognition, and related valuation of contract assets and contract liabilities Risk TKH Group N.V. manufactures products, which vary from subsea cable systems to integrated systems for the manufacturing of car and truck tires, whereby revenues have a fixed contract price and are recognized over-time. This results in the recognition of contract assets and liabilities per balance sheet date and prompting manage- ment to make estimates of the percentage of completion of the projects, as well as the cost to come and the expected result of the projects. This process involves relative complex estimations and requires judgment. There is a risk of management override of controls over accelerating revenues through inappropriate estimations around the percentage of completion and the cost to come. Based on the above mentioned risk factors we considered this a key audit matter. Further reference is made to note 1, Accounting principles, and note 23, Information by segment, to the consolidated financial statements. Our audit approach We have obtained and updated our understanding of the revenue recognition process within the different s egments. Over-time revenue is recognized in all three segments, being Smart Vision systems, Smart Connectivity systems and Smart Manufacturing systems. Our procedures included, among others, auditing the application of the revenue recognition standard (IFRS 15 ‘Revenue from Contracts with Customers’) and identification of control measures taken by the company with regard to revenue recognition and correspondingly the valuation of contract assets and contract liabilities. Furthermore, we have conducted the following substantive audit procedures with respect to the identified risks: • We evaluated management’s assessment in relation to over-time revenue recognition of projects recorded over-time, by challenging the assumptions, performing back-testing procedures on previous assessments, evaluating the percentage of completion and auditing the adequacy of capitalized costs on projects; • We have performed margin analyses per significant revenue stream and product line; • We have performed test of details on individual revenue transactions in which we tested the proper identification of contractual arrangements, allocation of revenue to the specific arrangements and cut-off; • We have evaluated the adequacy of revenue-related disclosures, including the disclosures related to contract assets and contract liabilities. Key observations We consider management’s assumptions relating to determine the percentage of completion of the projects, as well as the cost to come and the expected result of the projects to be within an acceptable range. In addition, we evaluated the revenue disclosures are reasonable. tial risk from TKH Group N.V.’s interactions with third-party distributors. We refer to section ‘Risk Management’ in the management board report. Our audit approach included the following steps: • Obtain an understanding of the environment and the Company to enable the detection of non-compliance with laws and regulations related to bribery and corruption; • Obtain an understanding of the internal control environ- ment and the measures for mitigating those risks (by the company) in the light of applicable anti-corruption laws and regulations; • Executed substantive audit procedures in order to obtain adequate evidence for the mitigation of the risk of non- compliance with laws and regulations related to bribery and corruption. We also inspected lawyers’ letters and correspondence with regulatory authorities and remained alert to any indication of (suspected) non-compliance throughout the audit. Finally we obtained written representations that all known instances of non-compliance with laws and regulations have been dis- closed to us. Our audit response related to going concern As disclosed in section ‘Going concern’ in note 1 to the finan- cial statements, the Executive Board made a specific assess- ment of the company’s ability to continue as a going concern and to continue its operations for at least the next 12 months. We discussed and evaluated the specific assessment with the Executive Board exercising professional judgment and main - taining professional skepticism. We considered whether the executive board’s going concern assessment, based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, contains all events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Based on our procedures performed, we did not | TKH GROUP ANNUAL REPORT 2021 154 OTHER INFORMATION Valuation of capitalized development costs related to new innovation projects in development Risk TKH Group N.V. is investing in the development of new technologies. At 31 December 2021, the total carrying value of capitalized product development cost amounted to EUR 119.7 million The related costs are capitalized in accordance with IAS 38 ‘Intangible assets’. Management is required, for projects which are in development, to test these capitalized development costs for impairment at least annually, or more frequently if there is an indication for impairment. We focused on development projects related to new innovation projects which are in development as these do not yet generate sales and therefore there is a higher level of judgement involved in setting the significant assumptions in determining the value in use to support the carrying value. Based on the above mentioned risk factors we considered this a key audit matter. Further reference is made to note 1, Accounting principles, and note 3, Intangible assets and goodwill, to the consolidated financial statements. Our audit approach As part of our audit we assessed and tested the assumptions, methodology (discounted cash ﬂow model) and data used by the company in calculating the value in use of the investments in new innovation projects in development. Our audit procedures included, among others, the following substantive audit procedures: • We performed a sensitivity analysis by stress testing key assumptions, among others, discount rate and ex- pected growth rates, to consider the degree to which the assumptions would need to change before an impairment would have to be recognized. Based on these sensitivity analysis, our main focus was on those development projects in new innovations with limited headroom; • We gained a more in-depth understanding of the development stage of these projects in new innovations as well as the projected financial information used in management’s assessment of whether the value in use exceeds the carrying value; • We assessed and tested the key assumptions with our main focus on discount rate, market size and share and expected development costs by comparing to historical or market information; • We performed backtesting procedures on previous impairment analysis on the key assumptions in manage- ment’s forecast; • We evaluated the adequacy of the company’s disclosures relating to capitalized development costs. Key observations We consider management’s assumptions to be within a reasonable range. We agree with management’s conclusion that the carrying value of the development cost related to new innovation projects in development is reasonable. In addition, we evaluated the disclosures of capitalized development costs and related impairments as included are reasonable. Report on other information included in the annual report The annual report contains other information in addition to the financial statements and our auditor’s report thereon. Based on the following procedures performed, we conclude that the other information: • Is consistent with the financial statements and does not contain material misstatements; We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By per- forming these procedures, we comply with the requirements of Part 9 of Book 2 and Section 2:135b sub-Section 7 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements. The executive board is responsible for the preparation of the other information, including the management report in accor- dance with Part 9 of Book 2 of the Dutch Civil Code and other information required by Part 9 of Book 2 of the Dutch Civil Code. The executive board and the supervisory board are responsible for ensuring that the remuneration report is drawn up and published in accordance with Sections 2:135b and 2:145 subsection 2 of the Dutch Civil Code. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS AND ESEF Engagement We were engaged by the general meeting as auditor of TKH Group N.V. on 14 May 2014, as of the audit for the year 2015 and have operated as statutory auditor ever since that date. No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audit of public-interest entities. European Single Electronic Reporting Format (ESEF) TKH Group N.V. has prepared the annual report in ESEF. The requirements for this are set out in the Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the specification of a single electronic reporting format (hereinafter: the RTS on ESEF). In our opinion, the annual report, prepared in the XHTML format, including the partially marked-up consolidated financial statements, as included in the reporting package by TKH Group • Contains the information as required by Part 9 of Book 2 for the management report and the other information as required by Part 9 of Book 2 of the Dutch Civil Code and as required by Sections 2:135b and 2:145 subsection 2 of the Dutch Civil Code for the remuneration report. OTHER INFORMATION 155 TKH GROUP ANNUAL REPORT 2021 | Executive Board is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Executive Board should prepare the financial statements using the going concern basis of accounting unless the Executive Board either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Executive Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements. The supervisory board is responsi - ble for overseeing the company’s financial reporting process. OUR RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all mate- ri al errors and fraud during our audit. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and indepen - dence requirements. The ‘Information in support of our opinion’ section above includes an informative summary of our responsi - bilities and the work performed as the basis for our opinion. Our audit further included among others: • Performing audit procedures responsive to the risks identi- fied, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion; • Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the com- pany’s internal control; • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the executive board; • Evaluating the overall presentation, structure and content of the financial statements, including the disclosures; • Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Communication We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public-interest enti - ties. The information included in this additional report is con- sistent with our audit opinion in this auditor’s report. We provide the supervisory board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relation- ships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the super- visory board, we determine the key audit matters: those mat- ters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not commu- nicating the matter is in the public interest. Amsterdam, 7 March 2022 Ernst & Young Accountants LLP signed by F.J. Blenderman N.V., complies in all material respects with the RTS on ESEF. The Executive Board is responsible for preparing the annual report, including the financial statements, in accordance with the RTS on ESEF, whereby the executive board combines the various components into a single reporting package. Our responsibility is to obtain reasonable assurance for our opinion whether the annual report in this reporting package complies with the RTS on ESEF. Our procedures, taking into account Alert 43 of the NBA (the Netherlands Institute of Chartered Accountants), included amongst others: • Obtaining an understanding of the company’s financial reporting process, including the preparation of the reporting package; • Obtaining the reporting package and performing validations to determine whether the reporting package containing the Inline XBRL instance document and the XBRL extension taxonomy files has been prepared in accordance with the technical specifications as included in the RTS on ESEF; • Examining the information related to the consolidated financial statements in the reporting package to determine whether all required mark-ups have been applied and whether these are in accordance with the RTS on ESEF. DESCRIPTION OF RESPONSIBILITIES REGARDING THE FINANCIAL STATEMENTS RESPONSIBILITIES OF THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD FOR THE FINANCIAL STATEMENTS The Executive Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such inter - nal control as the Executive Board determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. As part of the preparation of the financial statements, the | TKH GROUP ANNUAL REPORT 2021 156 OTHER INFORMATION ASSURANCE REPORT OF THE INDEPENDENT AUDITOR ON NON-FINANCIAL KPIs To: the shareholders and Supervisory Board of TKH Group N.V. OUR CONCLUSION We have performed a limited assurance engagement on selected non-financial key performance indicators (hereinafter: the selected non-financial KPIs) in the annual report for the year 2021 of TKH Group N.V. based in Haaksbergen. Based on our procedures performed and the evidence obtained, nothing has come to our attention that causes us to believe that the selected indicators are not prepared, in all material respects, in accordance with the reporting criteria as included in the ‘ Reporting criteria’ section of our report. The selected non-financial KPIs consist of the following KPIs as included in the table on page 28 of the Annual Report: • Carbon footprint (CO 2 emissions) • % waste of most relevant raw materials, compared to total relevant material consumption • Recycling most relevant raw materials • Customer satisfaction • Code of supply signed by suppliers • % of female members in Executive and Senior Management teams • Accident rate (LTIFR) • Illness rate • Employee satisfaction grade • Employees acting in accordance with Code of Conduct • Number of employees with disabilities and/or disadvan- tages on the labor market BASIS FOR OUR CONCLUSION We have conducted our limited assurance engagement on the selected non-financial KPIs in accordance with Dutch law, The absence of an established practice on which to draw, to evaluate and measure the selected non-financial KPIs allows for different, but acceptable, measurement techniques and can affect comparability between entities and over time. UNASSURED CORRESPONDING INFORMATION No assurance engagement has been performed on the selected non-financial KPIs for the period up to 2020. Consequently, the corresponding selected non-financial KPIs for the period 2020 are not assured. LIMITATIONS TO THE SCOPE OF OUR ASSURANCE ENGAGEMENT Our assurance engagement is restricted to the selected non-financial KPIs. We have not performed assurance proce- dures on any other information as included in the annual report in light of this engagement. The selected non-financial KPIs include prospective informa- tion such as ambitions, strategy, plans, expectations and estimates. Inherent to prospective information, the actual future results are uncertain. We do not provide any assurance on the assumptions and achievability of prospective informa- tion in the selected non-financial KPIs. References to external sources or websites are not part of our assurance engagement on the selected non-financial KPIs. We therefore do not provide assurance on this information. Our conclusion is not modified in respect to these matters. including Dutch Standard 3000A “Assurance-opdrachten anders dan opdrachten tot controle of beoordeling van historische financiële informatie (attest-opdrachten)’’ (Assurance engagements other than audits or reviews of historical financial information attestation engagements). Our responsibilities under this standard are further described in the ‘Our responsibilities for the assurance engagement on the selected non-financial KPIs’ section of our report. We are independent of TKH Group N.V. in accordance with the “Verordening inzake de onafhankelijkheid van accoun- tants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. This includes that we do not perform any activities that could result in a conﬂict of interest with our independent assurance engagement. Furthermore, we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics). We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. REPORTING CRITERIA The selected non-financial KPIs need to be read and under- stood together with the reporting criteria. TKH Group N.V. is solely responsible for selecting and applying these reporting criteria, taking into account applicable law and regulations related to reporting. The reporting criteria used for the preparation of the selected non-financial KPIs include topic specific disclosures of the Global Reporting Initiative (GRI) and own developed supple - mental reporting criteria as disclosed in chapter ‘Non-financial reporting process and methods’ of the annual report. OTHER INFORMATION 157 TKH GROUP ANNUAL REPORT 2021 | RESPONSIBILITIES OF THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD FOR THE SELECTED NON-FINANCIAL KPIs The Executive Board is responsible for the preparation of reli- able and adequate selected non-financial KPIs in accordance with the reporting criteria as included in the ‘Reporting crite- ria’ section of our report. In this context, the Executive Board is responsible for the identification of the intended users and the criteria being applicable for their purposes. The choices made by the Executive Board regarding the scope of the selected non-financial KPIs and the reporting policy are sum- marized in chapter ‘Non-financial reporting process and methods’ of the annual report. Furthermore, the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the selected non-financial KPIs that are free from material misstatement, whether due to fraud or errors. The supervisory board is responsible for overseeing the reporting process of TKH Group N.V. OUR RESPONSIBILITIES FOR THE ASSURANCE ENGAGEMENT ON THE SELECTED NON-FINAN- CIAL KPIs Our responsibility is to plan and perform our limited assurance engagement in a manner that allows us to obtain sufficient and appropriate assurance evidence for our conclusion. Procedures performed to obtain a limited level of assurance are aimed to determine the plausibility of information and vary in nature and timing from, and are less in extent, than for a reasonable assurance engagement. The level of assurance obtained in a limited assurance engagement is therefore sub- stantially less than the assurance obtained in a reasonable assurance engagement. We apply the “Nadere voorschriften kwaliteitssystemen” (NVKS, Regulations for Quality management systems) and accordingly maintain a comprehensive system of quality con- trol including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. The procedures of our limited assurance engagement included amongst others: • Performing an analysis of the external environment and obtaining an understanding of the sector, insight into relevant social themes and issues, relevant laws and regulations and the characteristics of the company as far as relevant to the selected non-financial KPIs. • Evaluating the appropriateness of the reporting criteria used, their consistent application and related disclosures on the selected non-financial KPIs. This includes the eval- uation of the reasonableness of estimates made by the executive board. • Obtaining an understanding of the reporting processes for the selected non-financial KPIs, including obtaining a general understanding of internal control relevant to our assurance engagement. • Identifying areas of the selected non-financial KPIs with a higher risk of misleading or unbalanced information or material misstatements, whether due to fraud or errors. Designing and performing further assurance procedures aimed at determining the plausibility of the selected non- financial KPIs responsive to this risk analysis. These further assurance procedures consisted amongst others of: • Interviewing management and relevant staff at corpo- rate and business level responsible for the strategy, policy and results relating to the selected non-financial KPIs. • Interviewing relevant staff responsible for providing the information for, carrying out internal control procedures on, and consolidating the data in the selected non- financial KPIs • Obtaining assurance information that the selected non-financial KPIs reconcile with underlying records of the company. • Reviewing, on a limited test basis, relevant internal and external documentation. • Performing an analytical review of the data and trends in the information submitted for consolidation at corporate level. • Evaluating the consistency of the selected non-financial KPIs with the information in the annual report which is not included in the scope of our assurance engagement. Amsterdam, 7 March 2022 Ernst & Young Accountants LLP signed by J. Niewold | TKH GROUP ANNUAL REPORT 2021 158 OTHER INFORMATION REPORT OF STICHTING ADMINISTRATIEKANTOOR TKH GROUP The objective of the Stichting Administratiekantoor TKH Group (“TKH Trust Foundation Office”) is to acquire and hold in trust ordinary shares in TKH Group N.V. (“TKH”), a public company with its registered office in Haaksbergen (the Netherlands), in exchange for the allocation of convertible, registered deposi - tary receipts for shares. In accordance with the provisions of article 7.1.3 of the Terms and Conditions of the TKH Trust Foundation Office governing the shares of TKH, the TKH Trust Foundation Office reports on the activities during the year under review, 2021, exclusively in relation to the administra - tion of shares for which depositary receipts were issued. The total nominal value of the ordinary shares of TKH held in administration amounted to € 10,521,554.25 on December 31, 2021, in exchange for which 42,086,217 depositary receipts for shares 1 ,with a nominal value of € 0.25 each, were issued. MEETINGS OF THE BOARD The Board of TKH Trust Foundation Office met three times during the financial year. Due to COVID-19 restrictions, some of these meetings took place virtually. The topics discussed in the meeting of March 29, 2021 were the Annual General Meeting of Shareholders (“General Meeting”) 2021 and the TKH Annual Report 2020. The agenda items of the General Meeting were discussed in the meeting of May 6. Due to the special circumstances under which the General Meeting took place on May 6, 2021, with ongoing COVID-19 restriction still limiting in-person meetings, it was decided that no discussion at the General Meeting would be possible regarding the provisional voting determination by the Board of TKH Trust Foundation Office. Because of this, the Board decided to definitively determine its voting behavior in its meeting on May 5, 2021. Those who hold depositary receipts for shares in the capital of the company were given the opportunity to vote inde- pendently on the agenda items voted on in the General Meeting, regarding the shares corresponding with their depositary receipts and subject to the relevant statutory provisions. Holders of depositary receipts of shares collec- tively representing 63.8% of the capital entitled to vote, requested a proxy from the TKH Trust Foundation Office to vote independently on the shares in question by giving voting instructions to the TKH Trust Foundation Office. TKH Trust Foundation Office voted for the remaining 35.9% of the capital entitled to vote. In doing so, the Board voted in favor of the agenda items in the General Meeting. In the meeting of September 20, 2021, the company gave an explanation of the published interim figures in 2021. The retirement schedule for 2022 was discussed, as well as the procedure to be followed in respect of the vacancy due to arise in mid-2022, following Mr. H.L.J. Noy’s end of term (who is not available for reappointment). Following the implementation of the “Bestuur en Toezicht Rechtspersonen Act” in July 2021, the articles of association of the Foundation Trust office were amended as per Decem- ber 1, 2021. BOARD OF TKH TRUST FOUNDATION OFFICE The board of TKH Trust Foundation Office has currently three independent members: • Mr. H.L.J. Noy, Chairman • Mr. J.S.T. Tiemstra • Mr. G.W.Ch. Visser Personal details of the members of the Board and the retirement schedule can be found on the TKH Trust Foundation Office website. CONTACT DETAILS Address: Spinnerstraat 15, 7481 KJ Haaksbergen (the Netherlands) Website: www.stichtingadministratiekantoortkh.com Email: [email protected] Haaksbergen, March 4, 2022 TKH Trust Foundation Office The Board STATEMENT OF INDEPENDENCE The Executive Board of TKH Group N.V. and the Board of the TKH Trust Foundation Office hereby state that, jointly and severally, they are of the opinion that the TKH Trust Founda- tion Office is a legal entity that is independent of TKH Group N.V. within the meaning of Section 5.71(1)(d) of the Financial Supervision Act. Haaksbergen, March 4, 2022 TKH Group N.V. The Executive Board Haaksbergen, March 4, 2022 TKH Trust Foundation Office The Board 1 The number of depositary receipts for shares has decreased by 624,648 compared to December 31, 2020, due to the cancellation of 623,334 ordinary shares and conversion of on balance 1,314 depositary receipts for shares into ordinary shares. OTHER INFORMATION 159 TKH GROUP ANNUAL REPORT 2021 | STICHTING CONTINUÏTEIT TKH The objective of Stichting Continuïteit TKH (“Continuity Foundation”) is to look after the interests of TKH Group N.V. (“TKH”) and all the businesses associated with it, in such a way that those interests are secured as far as possible. In addition, it should resist any inﬂuences which could affect the independence, continuity, or identity of TKH and its affiliated companies in conﬂict with those interests are resisted as far as possible, as well as avoid any activities related to or conducive to the above. By means of a call option TKH has conferred on the Continu- ity Foundation the right to acquire cumulative protective preference shares in TKH, subject to a maximum of 50% of the amount of the other shares outstanding at the time of placement of the protective shares, or 100% should the limitation on conversion of depositary receipts cease to apply. The protective shares should not be left on issue longer than is strictly necessary. In the event that TKH shareholders acquire a degree of control that is seen as undesirable, and is not in the interests of TKH and its affiliated companies, or there is a danger of them doing so, TKH’s Executive and Supervisory Board will be at liberty - among other things - to determine their degree of control, to consider and explore possible alternatives, and to elaborate on these if necessary. The Continuity Foundation did not acquire any cumulative protective preference shares in TKH in 2021. TKH has also conferred on the Continuity Foundation the right to initiate an inquiry procedure in the event that the Continuity Foundation believes there are grounds to doubt the policy pursued by, and state of affairs prevailing in, TKH and by invoking this right it would be acting in the interests of TKH and the businesses associated with it. THE BOARD OF THE CONTINUITY FOUNDATION The Board of the Continuity Foundation consists of: • Mr. M.P. Nieuwe Weme, chairman • Ms. S. Drion • Mr. A. Nühn MBA • Mr. A.J.M. van der Ven Haaksbergen, March 4, 2022 Continuity Foundation The Board STATEMENT OF INDEPENDENCE The Executive Board of TKH Group N.V. and the Board of the C ontinuity Foundation state that, jointly and severally, they are of the opinion that the Continuity Foundation is a legal entity that is independent of TKH Group N.V. within the meaning of Section 5.71(1)(c) of the Financial Supervision Act. Haaksbergen, March 4, 2022 TKH Group N.V. The Executive Board Haaksbergen, March 4, 2022 Continuity Foundation The Board | TKH GROUP ANNUAL REPORT 2021 160 OTHER INFORMATION CONSOLIDATED ENTITIES The following directly or indirectly held subsidiaries are included in the consolidation: NEW SEGMENT REPORTING OLD SEGMENT REPORTING Name Place Country Ownership 31-12-2021 1 Ownership 31-12-2020 1 Smart Vision systems Smart Manufacturing systems Smart Connectivity systems Telecom Solutions Building Solutions Industrial Solutions Alphatronics B.V. Nijkerk Netherlands 100.0% 100.0% • • BB Lightpipe B.V. Doetinchem Netherlands 100.0% 100.0% • • B.V. Twentsche Kabelfabriek Haaksbergen Netherlands 100.0% 100.0% • • • • Commend Benelux B.V. Prinsenbeek Netherlands 100.0% 100.0% • • EKB Groep B.V. Beverwijk Netherlands 100.0% 100.0% • • Eldra B.V. Ittervoort Netherlands 100.0% 100.0% • • • Heerlen Parkeerexploitatie B.V. Haaksbergen Netherlands 100.0% 100.0% • • IC Intracom Nederland B.V. Barneveld Netherlands 100.0% 100.0% • • • • Intronics B.V. Barneveld Netherlands 100.0% 100.0% • • • • Isolectra B.V. Capelle a/d IJssel Netherlands 100.0% 100.0% • • LMI Technologies B.V. Kerkrade Netherlands 100.0% 100.0% • • Mextal B.V. 2 Nuenen Netherlands 100.0% 95.0% • • Siqura B.V. 5 Gouda Netherlands 100.0% • • Texim Europe B.V. Haaksbergen Netherlands 100.0% 100.0% • • • • TKH Airport Solutions B.V. 2 Haaksbergen Netherlands 75.0% 75.0% • • TKH Finance B.V. Haaksbergen Netherlands 100.0% 100.0% TKH Logistics B.V. Haaksbergen Netherlands 100.0% 100.0% • • • TKH Logistics Vastgoed B.V. Haaksbergen Netherlands 100.0% 100.0% • • • TKH Security B.V. Amsterdam Netherlands 100.0% 100.0% • • VMI Holland B.V. Epe Netherlands 100.0% 100.0% • • INEC N.V. Herentals Belgium 100.0% 100.0% • • • • Techno Specials N.V. Gent Belgium 100.0% 100.0% • • • Texim Europe BVBA Brüssel Belgium 100.0% 100.0% • • • • EFB Nordics A/S Ballerup Denmark 90.0% 90.0% • • • TKH Airport Solutions A/S Nykøbing Falster Denmark 100.0% 100.0% • • TKH Security GmbH 3 Erkrath Germany 100.0% 100.0% • • Allied Vision Technologies GmbH 3 Stadtroda Germany 100.0% 100.0% • • ASP GmbH 3 Erkrath Germany 100.0% 100.0% • • Augusta Technologie GmbH i.L. Bielefeld Germany 100.0% 100.0% • Chromasens GmbH 3 Konstanz Germany 100.0% 100.0% • • Dewetron Deutschland GmbH 3 Wernau Germany 100.0% 100.0% • • EEB Kabeltechnik GmbH 3 Forst Germany 100.0% 100.0% • • EFB Elektronik GmbH 3) Bielefeld Germany 100.0% 100.0% • • • • OTHER INFORMATION 161 TKH GROUP ANNUAL REPORT 2021 | NEW SEGMENT REPORTING OLD SEGMENT REPORTING Name Place Country Ownership 31-12-2021 1 Ownership 31-12-2020 1 Smart Vision systems Smart Manufacturing systems Smart Connectivity systems Telecom Solutions Building Solutions Industrial Solutions EFB Elektronik Real Estate B.V. & Co KG 3 Bielefeld Germany 100.0% 100.0% • • • • Ernst & Engbring GmbH 3 Oer-Erkenschwick Germany 100.0% 100.0% • • FocalSpec GmbH i.L. Berlin Germany 100.0% • • HE System Electronic GmbH 3 Veitsbronn Germany 100.0% 100.0% • • IV-Tec GmbH 3 Freiburg Germany 100.0% 100.0% • • Lakesight Technologies Holding GmbH 3 Unterschleissheim Germany 100.0% 100.0% • Lakesight Technologies German Holding GmbH 3 Unterschleissheim Germany 100.0% 100.0% • LMI Technologies GmbH 3 Teltow Germany 100.0% 100.0% • • Mikrotron GmbH 3 Unterschleissheim Germany 100.0% 100.0% • • New Electronic Technology GmbH 3 Finning Germany 100.0% 100.0% • • Profipatch GmbH Herford Germany 100.0% 100.0% • • Schneider Intercom GmbH 3 Erkrath Germany 100.0% 100.0% • • SVS-Vistek GmbH 3 Gilching Germany 100.0% 100.0% • • Texim Europe GmbH 3 Quickborn Germany 100.0% 100.0% • • • TKD Immobilien GmbH 3 Bielefeld Germany 100.0% 100.0% • TKD Kabel Real Estate B.V. & Co KG 3 Bielefeld Germany 100.0% 100.0% • TKF GmbH 3 Bielefeld Germany 100.0% 100.0% • • TKH Airport Solutions GmbH 3 Bielefeld Germany 100.0% 100.0% • • TKH Deutschland GmbH 3 Bielefeld Germany 100.0% 100.0% TKH Deutschland Verwaltungs GmbH 3 Bielefeld Germany 100.0% 100.0% TKH Grundstücksverwaltungs B.V. & Co KG 3 Bielefeld Germany 100.0% 100.0% • • TKH Deutschland Service GmbH 3 Erkrath Germany 100.0% 100.0% • • TKH Technologie Deutschland AG 3 Bielefeld Germany 100.0% 100.0% TKH Security SAS Argenteuil France 100.0% 100.0% • • CAE Data SAS Wissous France 100.0% 100.0% • • • • ID Cables SAS Wissous France 100.0% 100.0% • • • • MAN SAS Wissous France 100.0% 100.0% • • • • TKF SAS Wissous France 100.0% 100.0% • • TKH France SAS Wissous France 100.0% 100.0% • • Commend France SAS Saint Ouen France 100.0% 100.0% • • Dewetron France SARL Chilly Mazarin France 100.0% 100.0% • • LMI Finland Oy Oulu Finland 100.0% 100.0% • • TKH Finland Holding Oy Riihimäki Finland 100.0% 100.0% • TKH Finland Oy Riihimäki Finland 100.0% 100.0% • • Lakesight Technologies Holding Srl. Mairano (Brescia) Italy 100.0% 100.0% • TKH Vision Italy Srl. Mairano (Brescia) Italy 100.0% 100.0% • • | TKH GROUP ANNUAL REPORT 2021 162 OTHER INFORMATION NEW SEGMENT REPORTING OLD SEGMENT REPORTING Name Place Country Ownership 31-12-2021 1 Ownership 31-12-2020 1 Smart Vision systems Smart Manufacturing systems Smart Connectivity systems Telecom Solutions Building Solutions Industrial Solutions TKH Security Srl. Conegliano Italy 100.0% 100.0% • • Commend Italia Srl. Carobbio Degli Angeli (BG) Italy 100.0% 100.0% • • Tattille Srl. Mairano (Brescia) Italy 100.0% 100.0% • • E&E Cable Solutions (Ukraine) Kiev Ukraine 100.0% 100.0% • • Commend International GmbH Salzburg Austria 100.0% 100.0% • • Dewetron Elektronische Messgeräte GmbH Graz Austria 100.0% 100.0% • • EFB Elektronik Austria GmbH Wien Austria 100.0% 100.0% • • • • Texim Austria GmbH Salzburg Austria 100.0% 100.0% • • • • C&C Partners Sp. z.o.o Leszno Poland 100.0% 100.0% • • • TKH Technology Sp. z.o.o Leszno Poland 100.0% 100.0% • • VMI Poland Sp. z.o.o Leszno Poland 100.0% 100.0% • JOHRAmont s.r.o Svidník Slovakia 95.0% 95.0% • • Commend Iberica SL Barcelona Spain 100.0% 100.0% • • TKH Security SL Malaga Spain 100.0% 100.0% • • INEC Espana SA Malaga Spain 100.0% 100.0% • • • • ParkEyes SL 5 Malaga Spain 100.0% • • Siqura SL 5 Madrid Spain 100.0% • • EFB Elektronik Ltd. Istanbul Turkey 90.0% 90.0% • • Comm end Güvenlik ve İletişim Sistemleri Ltd. Şti 5 Istanbul Turkey 85.0% • • Commend UK Ltd. 4 Stansted UK 100.0% 100.0% • • TKH Security UK Ltd. 4 Rotherham UK 100.0% 100.0% • • Siqura Ltd. 4 Rotherham UK 100.0% • • TKH Security Ltd. 4 London UK 100.0% 100.0% • • Commend Scandinavia AB Tierp Sweden 100.0% 100.0% • • VMC Elteknik AB Strängnäs Sweden 100.0% 100.0% • • • Commend AG Fehraltorf Switzerland 100.0% 100.0% • • Multi Media Connect (Aust) Pty Ltd. Tuggerah Australia 100.0% 100.0% • • Park Assist Holdings Pty Ltd. Sydney Australia 100.0% 100.0% • • TKH Security Pty Ltd. Sydney Australia 100.0% 100.0% • • Jacques Technologies Pty Ltd. Brisbane Australia 100.0% 100.0% • • VMI South America Ltda. Itatiaia Brazil 100.0% 100.0% • • Allied Vision Technologies Inc. Burnaby Canada 100.0% 100.0% • • LMI Technologies Inc. Vancouver Canada 100.0% 100.0% • • Allied Vision Technologies (Shanghai) Co, Ltd. Shanghai China 100.0% 100.0% • • Dewetron Test and Measurement Equipment (Beijing) Co. Ltd Beijing China 100.0% 100.0% • • Dewetron Test and Measurement Equipment (Shanghai) Co. Ltd Shanghai China 100.0% 100.0% • • OTHER INFORMATION 163 TKH GROUP ANNUAL REPORT 2021 | NEW SEGMENT REPORTING OLD SEGMENT REPORTING Name Place Country Ownership 31-12-2021 1 Ownership 31-12-2020 1 Smart Vision systems Smart Manufacturing systems Smart Connectivity systems Telecom Solutions Building Solutions Industrial Solutions E&E Cable (Zhangjiagang) Co, Ltd Zhangjiagang China 100.0% 100.0% • • FocalSpec Asia Ltd. Hong Kong China 100.0% 100.0% • • FocalSpec China Co, Ltd. Suzhou China 100.0% 100.0% • • LMI (Shanghai) Trading Co, Ltd. Shanghai China 100.0% 100.0% • • TKH Building Solutions Shanghai Co, Ltd. Shanghai China 100.0% 100.0% • • Twentsche (Nanjing) Fibre Optics Co, Ltd. Nanjing China 100.0% 100.0% • • VMI Yantai Ltd. Yantai China 100.0% 100.0% • • VMI Ltd. Yantai China 100.0% 100.0% • • Isolectra Communications Technology Sdn Bhd Shah Alam Malaysia 100.0% 100.0% • • • VMI SEA Office Sdn Bhd Shah Alam Malaysia 100.0% 100.0% • • Ithaca SA Casablanca Morocco 100.0% 100.0% • • LMI Technologies Co. Ltd. Tokyo Japan 100.0% 100.0% • • NET Japan Co. Ltd. Yokohama Japan 90.0% 90.0% • • SVS-Vistek K.K. Yokohama Japan 100.0% 100.0% • • Multi Media Connect (N.Z.) Pty Ltd. Paraparaumu New Zealand 100.0% 100.0% • • Allied Vision Technologies Pte Ltd. Singapore Singapore 100.0% 100.0% • • Commend South East Asia Pte Ltd. Singapore Singapore 100.0% 100.0% • • TKH Security & Airport Solutions Pte Ltd. Singapore Singapore 100.0% 100.0% • • • LMI Technologies yuhan hoesa South Korea South Korea 100.0% 100.0% • • VMI Thailand Ltd. Thailand Thailand 100.0% 100.0% • • Commend Middle East FZE Dubai United Arab Emirates 100.0% 100.0% • • Allied Vision Technologies Inc Boston USA 100.0% 100.0% • • Commend Inc. New York USA 100.0% 100.0% • • Dewetron America Inc. Wakefield USA 100.0% 100.0% • • FocalSpec Inc. Santa Clara USA 100.0% • • Fringe AI Ltd. Boston USA 100.0% • • LMI Technologies Inc. Detroit USA 100.0% 100.0% • • NET USA Inc. Highland USA 100.0% 100.0% • • TKH Security LLC New York USA 100.0% 100.0% • • SVS-Vistek Inc. Carrolton USA 100.0% 100.0% • • Siqura Inc. 5 Germantown USA 100.0% • • TKH USA Holding Inc. 5 Wilmington USA 100.0% • • VMI Americas Inc. Stow USA 100.0% 100.0% • • 1 Economic ownership is equal to the legal ownership, unless mentioned differently. 2 Economic ownership is 100%. 3 The aforementioned German subsidiaries included in TKH’s consolidated financial statements make use of the exemption in § 264 (3), § 264 (b) HGB to prepare, audit and publish individual annual accounts. TKH Deutschland GmbH is not required to draw up consolidated annual accounts pursuant to § 291 HGB. 4 The listed subsidiaries above based in the UK are controlled and consolidated by the group, where the Directors have taken the exemption from having an audit of its financial statements for the years ended 31 December 2020 and 31 December 2021. This exemption is taken in accordance with the UK Companies Act, S479A. 5 Merged within the group. | TKH GROUP ANNUAL REPORT 2021 164 OTHER INFORMATION NON-FINANCIAL REPORTING PROCESS AND METHODS REPORTING PROCESS The Annual Report 2021, including all material aspects, is com- piled by the Executive Board and discussed with the Super- visory Board. TKH uses the reporting system Cognos for non- financial information (including CO 2 , waste, safety, and HR), which is the same system used for the financial reporting. The reporting processes and definitions used by TKH have been formalized in our Sustainability Reporting Manual, which pro - vides guidance on how to collect, consolidate, and report data. SCOPE AND CHANGES COMPARED TO LAST YEAR The ESG policy was adjusted in 2021. The policy changes, which are related to HR KPIs and our CO 2 footprint calculation, are described below for each specific topic. Compared to past reporting, there are no material changes in the system of measuring. For some sustainability criteria, the divestment of activities or the integration of companies has impacted our sustainability performance. Where relevant, these effects are explained. There have been no changes in structure or owner - ship either. Unless stated otherwise, the data are based on all our domestic and foreign operating companies. We explicitly mention it when this is not the case. The acquired operating companies will start reporting on ESG in accordance with the TKH reporting structure in the year following acquisition. Com- panies in which TKH has a minority ownership interest are not included in the report. We consolidated data for the non-finan - cial report using the same system used to consolidate financial data. Any estimates are based on historical information. REPORTING NON-FINANCIAL KEY PERFORMANCE INDICATORS This chapter provides further information on TKH’s main non-financial key performance indicators. Other quantitative indicators, disclosures on the reporting scope, and methods used are given elsewhere in this report. CO 2 EMISSIONS To measure and report the CO 2 emissions, we use the dif- ferent scopes of the Greenhouse Gas (GHG) protocol. • Sc ope 1 covers the direct CO 2 emissions caused by fuels that we purchase and consume ourselves, and mainly con - cerns gas, gasoline, and diesel (including company cars). • Scope 2 covers indirect CO 2 emissions from electricity consumption. • Scope 3 covers indirect CO 2 emissions from our ﬂeet (commuting), waste generated from operations, and the transportation of goods. Our focus remains primarily on scopes 1 and 2 because most of our emissions occur within those scopes. We have expanded our internal dashboard with components from scope 3 but have not yet implemented a scope extension for CO 2 emissions in our calculation model. TKH calculates the energy consumption and CO 2 emissions associated with our energy consumption using conversion factors from reputable and authoritative sources. TKH uses tank-to-wheel emission factors. All conver - sion factors are reviewed annually and updated if necessary. The energy consumed by forklifts is considered negligible and is therefore not included in TKH’s overall energy consumption and related CO 2 emissions. The basis for consolidated energy consumption and CO 2 emissions is activity data, which in turn are based mostly on meter readings, invoices, and data pro - vided by suppliers. Where reliable data are not available, TKH uses calculations or estimations using reliable methods and input data. TKH is satisfied that the estimates are reliable in all material respects. The reported CO 2 emissions reduction is com- pared to the reference year 2019 (2020: reference year 2015). The EU Energy Efficiency Directi ve (2012/27/EU) obliges member states to ensure that large companies undergo an energy audit. The energy audit is a systematic, four-yearly REPORTING CRITERIA: GRI STANDARDS – CORE This report has been prepared in accordance with the GRI standards: Core option. We focus on topics that have been an integral part of our Environmental, Social, and Governance (ESG) policy. Our GRI index is available on TKH’s website (www.tkhgroup.com/en/csr). In this overview, more informa- tion is disclosed on the nature and coverage of reporting per non-financial KPI (e.g. quantitatively or qualitatively). The content and definition of the report are based on the materi- ality analysis whereby TKH focuses on the topics that are most material and that have a strong connection with TKH’s strategy and business operations. The GRI standards were used to define and set our KPIs. These standards stress the need to make an accurate assessment of issues that are suf- ficiently important for a company to report. The significance (materiality) of the issues that are ultimately selected is deter- mined by analyzing the impact of the key data on people, the environment, and society, in relation to the value stakeholders attach to those issues. We monitor our objectives based on a dashboard in our internal reporting system and evaluate the results every quarter during meetings with our operating com- panies. ESG is also part of the annual budgeting process. REPORTING PERIOD AND REPORTING FREQUENCY In the Report of the Executive Board (which is part of the TKH Annual Report 2021), we provide an overview of, among other things, our sustainability performance during the year under review from 1 December 2020 up to and including 30 November 2021. KPIs related to HR data are based on the calendar year 2021. This report presents both quantitative and qualitative data. TKH uses a different reporting period for part of the KPIs because the process requires more time as a result of the operating and reporting structure. This ensures that the reported data are reliable and adequate. OTHER INFORMATION 165 TKH GROUP ANNUAL REPORT 2021 | approach that aims to gather information about a company’s current energy consumption. We use input from those TKH operating companies that fall under the defined scope and must carry out a mandatory energy audit for our reporting on energy reduction and future improvement plans. WASTE AND RECYCLING The reporting scope of waste and recycling includes the main raw materials leaving TKH’s production sites, mainly based on waste tickets and data provided by suppliers. We use reliable methods to either measure, calculate, or estimate waste in our reporting. The main raw materials we use are copper, plastics, and aluminum. SUPPLIERS The products delivered by TKH comply with the European REAC H (Registration, Evaluation, Authorization and Restriction of Chemicals) regulation and RoHS (Restriction of Hazardous Substances in Electrical and Electronic Equipment) directive. REACH is a European system for registering, evaluating (risks to people and the environment), and authorizing chemical sub - stances in Europe. RoHS is a European directive that prohibits certain hazardous substances from being used in electrical and electronic devices. TKH reports the percentage of stra- tegic suppliers agreeing with TKH’s Code of Supply. Strategic suppliers are defined as external suppliers with an annual purchase volume of over € 1 million on a yearly basis. CUSTOMERS The customer satisfaction grade reported is based on the outcome of the most recent customer satisfaction surveys conducted by an external research company. A survey is rep- resentative for the customer base of the operating company concerned. The reported customer satisfaction grade in 2021 represents surveys from the period 2019-2021. HUMAN RIGHTS In the context of human rights, TKH conducts business activi- ties according to the Universal Declaration of Human Rights. We refer readers to our Code of Conduct and the Code of Supply (both of which can be downloaded from our website www.tkhgroup.com). We rely on the OECD guidelines for guidance regarding issues such as supply chain responsi- bility, human rights, child labor, and the environment. We sub- mitted input on the Transparency Benchmark information platform, an initiative of the Ministry of Economic Affairs and Climate Policy. The Dutch government asks companies to be transparent about their ESG policies and activities. Through the Transparency Benchmark, the ministry sheds light on how the largest Dutch companies report on their ESG activities. We also consult the “spearhead letters” from advocates on issues related to sustainability and governance, such as those from VBDO, Eumedion, and VEB, as a guideline for further transparency. BUSINESS CONDUCT AND TRANSPARENCY TKH has selected the number of reported breaches of the Code of Conduct as a KPI for business conduct and trans- parency. The scope includes all employees on TKH’s payroll. The Code of Conduct is published on our website. We have established a procedure that enables employees to report any suspicion of conduct that is unlawful and/or contrary to the Code of Conduct. Reports are reviewed and investigated by the local Confidential Officer and/or the group Compliance Officer. If deemed necessary, disciplinary and mitigating mea- sures are taken. External parties can also report to the group Compliance Officer. HUMAN RESOURCES (HR) HR data are obtained every quarter. HR data are derived from the HR accounts held by TKH’s operating companies. TKH’s illness rate is calculated by the number of days of absence (for at least one day) divided by the number of total working hours. All cases of absence are included except pregnancy leave. The number of working hours is matched with the working hours recorded by the HR department and includes overtime. If data is not available, the number of working hours is calculated based on the average FTE on the payroll during the year times the average working hours per person. The illness rate reported covers all employees on TKH’s payroll excluding the third party contractors and joint ventures employees. The illness rate is reported at a total group level and not specified by region or gender. TKH reports on the number of employees with a disability and/or disadvantage in the labor market. Disability is an umbrella term, covering illnesses/disorders, activity limita- tions, and participation restrictions. An illness/disorder is a problem in body function or structure. An activity limitation is a difficulty encountered by an individual in executing a task or action. A participation restriction is a problem experienced by an individual in involvement in life situations resulting in a disadvantage on the labor market. The 2021 employee satisfaction grade is based on the out- come of the most recent employee satisfaction surveys exe- cuted by an external research company from 2018 to 2021 among 3,144 FTEs representing 54% of total FTEs. The sustainability report contains data on the gender balance in executive and senior management positions. These posi- tions are defined as follows: • Executive management: statutory management director level (direct reports to the Executive Board). • Senior management: managers who are members of the management team within your organization and respon- sible for specific business units or departments (e.g. finance, marketing, and production). • Middle management: link between the senior management and the lower operational levels of the organization. • Operational workforce: other workforce. | TKH GROUP ANNUAL REPORT 2021 166 OTHER INFORMATION SAFETY TKH defi nes its Lost Time Injury Frequency Rate (LTIFR) as the number of reported incidents leading to absence from work for at least one working day, without the possibility of any replace - ment, per million hours worked. Reportable incidents are based on actual occurrences and are never extrapolated or estimated. Despite a range of measures and an open safety culture, there is an inherent risk of incomplete accident reporting. Reported hours are measured, calculated, or estimated. The absolute number of serious accidents reported covers all employees on TKH’s payroll excluding the third party contractors and joint ventures employees. The LTIFR is reported at a total group level and not specified by region or gender. VERIFICATION AND INTERNAL CONTROL The data have been audited by the responsible company offi- cers as to plausibility and progress using the Cognos financial reporting model. Data were verified by TKH’s financial depart - ment. All reported differences greater than 10% compared with the previous year have been explicitly investigated. TKH's Internal Audit Department carries out internal audits on the processes to be performed and the accuracy of the data as a permanent part of its work program. Internal Audit has spent specific attention during its audit work on compliance with the Code of Conduct within our operating companies and the implementation of the Code of Supply at strategic suppliers. For specific sustainability issues, external expertise is hired. TKH appointed Ernst & Young Accountants LLP (EY) to provide independent assurance on non-financial KPIs to provide TKH’s stakeholders with reassurance about TKH’s non-financial information. TKH has obtained limited assurance for the KPIs included in the ‘Sustainability performance’ section on page 28 of the Annual Report 2021. TRENDS In our business operations, we focus on external and internal environmental factors, analyzing trends that can affect our activ ities and operations. We then make an assessment of the oppor tunities and threats and see how we can provide added value for our stakeholders and society in general. The table ‘Trends in CSR’ shows our added value in the field of CSR for each trend and how we steer this internally by setting concrete goals. STAKEHOLDER DIALOGUES AND MATERIALITY MATRIX TKH regularly enters into dialogue with various stakeholders on topical and social issues. Our stakeholders’ varied bacgrounds and their knowledge of TKH and the environment in which we operate is a good starting point for engaging in dialogue. It provides useful insights into stakeholders' interpretations of current topics that affect TKH. We also use the dialogue to broaden our understanding of our stakeholders’ needs and expectations. In addition, stakeholder engagement helps us to make better use of opportunities and identify risks in a timely manner. The dialogue is also useful to clearly explain specific issues and thus increase support for them or, in certain cases, to create understanding when an issue is given less priority in our business operations. The results of the dialogues are also included in the review of the materiality matrix. The Executive Board is closely involved in determining material themes and how much weight they are ultimately given by TKH. Because of COVID-19, the dialogue with stakeholders mainly took place online. We conducted a survey to determine material themes, from stakeholders’ perspective as well from TKH’s perspective. The results of the survey are included in the materiality matrix included in the section stakeholder analysis of this annual report. We have ranked topics that have been deemed important for all stakeholder groups (vertical axis) and which have the most impact on TKH (horizontal axis) and are priorities in our strategic roadmap. We measure and report on material issues. The subjects that are designated as less or non-material are managed in our organization without further numerical substantiation in the annual report. The sources we consult to identify and review material aspects each year include: • Dialogues with strategic stakeholders • Investor relations meetings about ESGs • General governance assumptions • Topics suggested by civil society organizations such as VBDO, VEB, and Eumedion • G uidelines from the Global Reporting Initiative (GRI) and inter- national guidelines such as the OECD’s guidelines for multi- national enterprises and the Sustainable Development Goals • Sustainability rating agencies such as the Carbon Disclosure Project (CDP), Vigeo, MSCI, and EcoVadis TKH Group is an active member of industrial and branch organizations. • The FTTH Council in Europe, North America, the Middle East, North Africa, Latin America, and Asia-Pacific. This non-profit organization was established to accelerate Fibre to the Home (FTTH) technology. Members are manufac- turers, system designers, consultancies, and academic institutions. • The International Cablemakers Federation (ICF) represents most of the global manufacturing capacity of the wire and cable industry. As the federation of the world's leading wire and cable producers, ICF provides a global forum for members to increase the visibility of the industry by high- lighting the relevance of its products and technologies, as well as its contribution to building a sustainable society. • The European Machine Vision Association (EMVA) is repre- sented by organizations in more than 20 countries. It aims to promote the development and use of machine vision technology and to support the interests of its members. • The Retread Tire Association (RTA) represents suppliers in the renewal and tire repair industry. EXTERNAL REPORTING We have provid ed input to the CDP, MSCI, EcoVadis, Vigeo, and the S&P Dow Jones Indices. In terms of the circular OTHER INFORMATION 167 TKH GROUP ANNUAL REPORT 2021 | economy, we endorse the objectives set by the Netherlands in the circular innovation program called “Plastic and rubber in the underground infrastructure,” as well as the “Mission Statement Fair Infra” issued by Dutch infrastructure companies. DILEMMAS Various groups are developing an increasing number of sus- tainability initiatives that require an increased contribution from industry. We take responsibility in this, but we continue to relate it to our business operations so we can also make a material contribution to the sustainability initiatives and thus create the necessary support. In some cases, this leads to a conscious choice not to focus on certain issues or not to collaborate, even though we are asked to. In certain markets, the price factor is still decisive, and there may be implicit reasons for reducing ESG efforts. In such situations, it is a challenge to convince the stakeholder of the importance of sustainability, which may drive the price up. Reducing our energy consumption calls for the thorough coordination of our manufacturing processes, and these processes, in turn, are dictated by current demand. Over the past few years, we have focused strongly on reducing energy consumption, which has resulted in the successful implementation of many savings plans. Coming up with new reduction plans to make major savings is therefore becoming increasingly challenging. Furthermore, the expansion of our production facilities and the integration of activities into one location have further increased our energy consumption compared to the output produced, as this consumption cannot yet be fully compared with the return that these investments will yield. The amount of waste we pro - duce is also subject to a ‘learning curve’ as our production equipment needs to be properly aligned with the production of innovative, high-quality new cable types. The quality require - ment of the product is a priority in that respect, and this can tip the balance away from our waste reduction targets. Increasingly, we are being asked to provide data on external information platforms and portals. Due to price-sensitive (inside) information and competition-sensitive information, it is not always possible to honor all requests. We take a selective approach to lending our cooperation and make considered choices regarding the information posted. In the case of external ratings on sustainability, TKH is often rated by peers in the production/manufacturing industry. TKH's activities focus increasingly on in-house technology development, in which the software component plays an increasingly important part. For this reason, the ratings give a distorted picture and call for additional communication by our organization. ESG IN THE ORGANIZATION To safeguard the ESG policy, the Executive Board is directly involved in ESG developments in the TKH organization, and executive compensation is linked to ESG performance (see also ‘Remuneration Report’). TKH's Director Sustainability is responsible for developing and implementing the ESG strategy and policies for the TKH Group. ESG is a standard item on the agenda at meetings of the Management Board of TKH, on which the Director Sustainability has a seat. There is close collaboration with the Director Finance & Control, who is also a member of the Management Board. There is also close cooperation with TKH’s Internal Audit Department in relation to the auditing of ESG issues during the internal audits. New ESG initiatives are preferably developed in working groups. This expedites the building of support within the TKH Group and makes implementation more efficient and effective. Initiatives in the value chain are always attended by commercial managers to guarantee a pragmatic approach. In conducting the stakeholder dialogues, we work with exec- utives from our operating companies, business line man- agers, account managers, and HR. Contact persons of the Confidential Officers rely on the operation of the TKH Code of Conduct and the associated whistleblower regulations. If a report is made to an operating company that identifies inad- missible behavior, the Confidential Officer of the operating company will promptly notify the Compliance Officer of TKH Group, who is the central point of referral for integrity issues. The latter, acting together with the Executive Board, will deal with the report and, if desired, will consult the company Confidential Officer of the subsidiary in question. After the report has been investigated, the Executive Board will make a decision in consultation with the board of the operating com- pany in question or a representative of that board. The whis- tleblower scheme can be downloaded from the TKH website. We discuss issues concerning the Code of Supply with pur- chasing managers. If a supplier fails to meet one or more of the requirements in the code, action has to be taken to ensure that the supplier will become compliant in an effective and efficient way as soon as possible. If the supplier refuses to cooperate or fails to make sufficient progress toward com- plying with the code, TKH will reconsider its partnership with that supplier. In certain cases, local conditions may prevent the supplier from meeting particular requirements of the code. In such a case, we enter into dialogue to work towards a satisfactory solution. In such conversations, best practices are shared with the supplier in question to help them make improvements and share ideas. The purchase manager has a pioneering role in this. The Code of Supply and the assess- ment form can be downloaded via the TKH website. The Executive Board discusses progress in ESG at least every quarter with the various operating companies. This is based on financial and non-financial reports, both of which cover ESG. We have embedded the KPIs concerning ESG in our Cognos financial reporting system so that it is an integral part of our information system. At least once a year, progress in the field of ESG is also discussed with the Supervisory Board, and future developments and the appropriate follow-up steps are explained. For more information about TKH’s sustainability program, please contact TKH’s Director Sustainability Derk Postma ([email protected]). Please feel free to send any feed- back you may have on this report to this e-mail address. For up-to-date information on sustainability, you can also consult our website: www.tkhgroup.com/csr. | TKH GROUP ANNUAL REPORT 2021 168 OTHER INFORMATION 10 YEARS OVERVIEW In millions of euros 2021 2020 2019 1 2018 2 2017 2016 2015 2014 2013 2012 Consolidated statement of profit and loss Turnover 1,524 1,289 1,490 1,458 1,485 1,341 1,375 1,346 1,198 1,102 Raw materials, consumables, trade products and subcontracted work 787 655 771 768 817 710 743 770 699 652 Added value 737 634 718 690 668 631 632 576 499 450 Personnel expenses 378 345 369 352 347 331 326 296 277 234 Other operating expenses 124 108 133 137 147 131 133 124 103 113 EBITDA 235 181 216 201 174 169 173 156 119 103 Depreciation 3 45 46 45 26 25 22 22 20 19 17 EBITA before one-off income and expenses 190 136 171 175 149 147 151 136 100 86 One-off income and expenses 7 18 4 6 9 -7 -12 EBITA 190 129 154 171 143 147 151 145 93 74 Impairments 2 4 5 2 2 1 1 1 Amortization 51 54 50 40 37 33 32 26 26 21 Operating result 137 71 99 129 104 113 118 118 67 53 Financial result -6 -14 -10 -4 -7 -7 -10 -13 -12 Fair value changes of financial liability for earn-out and put options of holders of non-controlling interests -2 0 4 1 Result on ordinary activities before taxes 129 57 89 125 108 107 111 108 54 41 Taxes 34 15 20 27 20 20 23 22 12 10 Net result for the period from continued operations 95 42 69 98 88 87 88 86 42 31 Result after tax from discontinued operations 45 11 Non-controlling interests 1 1 2 3 5 3 Attributable to shareholders 95 42 114 109 87 86 86 83 37 28 Key figures 2021 2020 2019 1 2018 2 2017 2016 2015 2014 2013 2012 EBITA/Turnover (ROS) 3 4 12.4 10.5 11.6 12.0 10.1 10.9 11.0 10.0 8.3 7.8 Net result before amortization and one-off income and expenses/Group equity 3 4 15.8 10.6 14.9 17.6 16.1 16.5 19.3 17.8 13.7 11.7 EBITA/Average capital employed (ROCE) 20.5 14.0 17.4 21.3 19.7 20.1 22.1 21.2 15.9 15.9 Net debt/EBITDA ratio 3 4 0.9 1.6 1.5 1.4 0.9 1.0 0.9 1.0 1.5 1.6 Net result before amortization and one-off income and expenses/Turnover 3 4 7.5 5.5 7.1 7.8 6.5 7.2 7.4 6.6 5.0 4.5 1 The comparative figures for 2018 have been restated due to discontnued operations. 2 The comparative figures for 2017 have been restated due to retrospective application of IFRS 15 ‘Revenue from contracts with customers’. 3 After restatement as a result of change in accounting principles for land and buildings and prior period restatements (see Accounting Principles) for the years 2014 up to 2016. The years 2012 up to 2013 have not been restated. 4 Before one-off income and expenses. The one-off income and expenses in 2020 mainly concern restructuring costs and integrations of € 8.9 million, book profit and sale of buildings of € 2.0 million and impairment losses of € 4.0 million. The one-off income and expenses in 2019 were restructuring and acquisition costs of € 18.3 million, impairments of € 1.5 million and impairment losses of € 5.0 million. OTHER INFORMATION 169 TKH GROUP ANNUAL REPORT 2021 | In millions of euros 2021 2020 2019 1 2018 2 2017 2016 2015 2014 2013 2012 Consolidated balance sheet Intangible assets and goodwill 537 577 596 544 392 395 400 352 349 343 Property, plant and equipment 3 222 220 231 246 229 215 196 176 199 195 Right-of-use assets 69 77 81 Financial non-current assets 45 42 52 31 28 46 34 28 30 31 Total non-current assets 873 916 960 821 649 656 630 556 578 569 Inventories 295 237 239 267 219 207 194 202 185 197 Trade and other receivables 341 286 300 356 327 295 248 288 234 201 Cash and Cash equivalents 100 122 79 83 88 88 179 145 80 66 Total current assets 736 645 618 706 634 590 621 635 499 464 Assets held for sale 88 5 39 3 7 Total assets 1,697 1,566 1,617 1,527 1,283 1,246 1,251 1,194 1,077 1,040 Shareholders' equity 3 722 662 705 647 594 574 521 483 378 364 Non-controlling interests 1 9 9 9 17 61 60 Group Equity 722 662 705 648 603 583 530 500 439 424 Provisions 3 90 86 97 86 69 74 71 68 112 105 Non-current interest-bearing loans and borrowings 334 410 416 239 187 214 223 259 259 202 Current interest-bearing loans and borrowings 48 57 58 171 57 52 126 59 15 60 Other financial liabilities 7 8 9 5 15 23 27 14 Other current liabilities 459 343 319 378 352 300 274 294 252 249 Liabilities directly associated with assets held for sale 37 13 Total equity and liabilities 1,697 1,566 1,617 1,527 1,283 1,246 1,251 1,194 1,077 1,040 Other information in euros (unless stated otherwise) 2021 2020 2019 1 2018 2 2017 2016 2015 2014 2013 2012 Solvency (in %) 43 42 44 42 47 47 42 42 41 41 Investments in property, plant and equipment 30 28 32 42 41 46 38 34 19 25 Depreciations of property, plant and equipment 30 30 29 28 24 23 23 20 19 17 Cash ﬂow from operating activities 199 188 182 127 160 103 182 95 79 75 Number of shares outstanding and held by third parties at year end (x 1,000) 41,178 41,487 41,999 42,003 42,045 42,161 41,724 41,400 37,985 37,658 Net result per ordinary share of € 0.25 2.31 1.14 2.72 2.58 2.05 2.04 2.07 2.14 0.98 0.76 Net profit before amortization and one-off income and expenses from continued operations attributable to shareholders 2.77 1.69 2.51 2.72 2.27 2.25 2.40 2.23 1.48 1.27 Dividend per share 1.50 1.00 1.50 1.40 1.20 1.10 1.10 1.00 0.75 0.65 Highest share price 56.15 51.30 55.05 60.15 56.68 38.14 40.50 27.18 26.40 20.86 Lowest share price 37.88 23.42 38.82 38.36 36.45 28.47 25.35 22.13 18.55 15.41 Share price at year-end 55.50 39.54 49.90 40.70 52.93 37.59 37.44 26.36 25.40 19.50 1 The comparative figures for 2018 have been restated due to discontnued operations. 2 The comparative figures for 2017 have been restated due to retrospective application of IFRS 15 ‘Revenue from contracts with customers’. 3 After restatement as a result of change in accounting principles for land and buildings and prior period restatements (see Accounting Principles) for the years 2014 up to 2016. The years 2012 up to 2013 have not been restated. | TKH GROUP ANNUAL REPORT 2021 170 OTHER INFORMATION ALTERNATIVE PERFORMANCE MEASURES TKH uses alternative performance measures to measure and monitor its operational performance. These measures are used in this Annual Report but are not defined in any law, nor in the International Financial Reporting Standards (IFRS). The European Securities and Markets Authority (ESMA) has is- sued guidelines for the use and disclosure of alternative per- formance measures. The terms TKH believes are relevant to alternative performance measures are included in this chapter of the Annual Report. It also includes a definition, as required by the ESMA guidelines. ADDED VALUE Added value is calculated by deducting Raw materials, con- sumables, trade products and subcontracted work from Total turnover CAPEX (CAPITAL EXPENDITURE) Investments in Property, plant and equipment and intangible assets and goodwill. Capex spending is a one-time invest- ment. CAPITAL EMPLOYED Group equity plus long-term debt plus short-term borrowings less cash and cash equivalents. DEBT LEVERAGE RATIO (NET DEBT/EBITDA) Long-term debt plus short-term borrowings minus cash and cash equivalents divided by EBITDA. DIVIDEND PAYOUT RATIO This ratio indicates what portion of the net profit is paid out to shareholders ((dividend/net profit after tax) times 100). EBITA Result before interest, taxes, impairments, and amortization. EBITDA Result before interest, taxes, impairments, depreciation, and amortization. INNOVATIONS TKH At least 15% of turnover realized from innovations introduced in the previous two years. NET RESULT PER SHARE Net result/weighted average shares outstanding. This ratio indicates how much profit a company has available per share. OPEX (OPERATING EXPENSES) Operating expenses are the recurring costs of a product or system. ROCE (RETURN ON CAPITAL EMPLOYED) Return on capital employed is the EBITA for the last twelve months divided by the capital employed at the beginning of the period plus capital employed at the end of the period divided by two. ROS (RETURN ON SALES) EBITA divided by total turnover as a percentage. SOLVENCY Percentage of the equity relative to the total liabilities. TCO (TOTAL COST OF OWNERSHIP) The sum of Capex and Opex. The Capex expenditure is often high initially, but over the life of a system, the Opex will even- tually be the largest cost component of TCO. OTHER INFORMATION 171 TKH GROUP ANNUAL REPORT 2021 | Editor and text TKH Group NV, Haaksbergen Design Monter, Amsterdam Photography Maarten de Kok (page 4, 53) For actual information about TKH Group and our sustainability developments please visit our website: www.tkhgroup.com. 15 March 2022 7245008G22FOV7TYYJ342021-01-012021-12-317245008G22FOV7TYYJ342020-01-012020-12-317245008G22FOV7TYYJ342021-12-317245008G22FOV7TYYJ342020-12-317245008G22FOV7TYYJ342019-12-31ifrs-full:IssuedCapitalMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:IssuedCapitalMember7245008G22FOV7TYYJ342020-12-31ifrs-full:IssuedCapitalMember7245008G22FOV7TYYJ342019-12-31ifrs-full:SharePremiumMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:SharePremiumMember7245008G22FOV7TYYJ342020-12-31ifrs-full:SharePremiumMember7245008G22FOV7TYYJ342019-12-31ifrs-full:StatutoryReserveMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:StatutoryReserveMember7245008G22FOV7TYYJ342020-12-31ifrs-full:StatutoryReserveMember7245008G22FOV7TYYJ342019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember7245008G22FOV7TYYJ342020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember7245008G22FOV7TYYJ342019-12-31ifrs-full:ReserveOfCashFlowHedgesMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:ReserveOfCashFlowHedgesMember7245008G22FOV7TYYJ342020-12-31ifrs-full:ReserveOfCashFlowHedgesMember7245008G22FOV7TYYJ342019-12-31TKH:RetainedEarningsExcludingProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342020-01-012020-12-31TKH:RetainedEarningsExcludingProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342020-12-31TKH:RetainedEarningsExcludingProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342019-12-31TKH:RetainedEarningsProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342020-01-012020-12-31TKH:RetainedEarningsProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342020-12-31TKH:RetainedEarningsProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember7245008G22FOV7TYYJ342020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember7245008G22FOV7TYYJ342019-12-31ifrs-full:NoncontrollingInterestsMember7245008G22FOV7TYYJ342020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember7245008G22FOV7TYYJ342020-12-31ifrs-full:NoncontrollingInterestsMember7245008G22FOV7TYYJ342019-12-317245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:IssuedCapitalMember7245008G22FOV7TYYJ342021-12-31ifrs-full:IssuedCapitalMember7245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:SharePremiumMember7245008G22FOV7TYYJ342021-12-31ifrs-full:SharePremiumMember7245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:StatutoryReserveMember7245008G22FOV7TYYJ342021-12-31ifrs-full:StatutoryReserveMember7245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember7245008G22FOV7TYYJ342021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember7245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:ReserveOfCashFlowHedgesMember7245008G22FOV7TYYJ342021-12-31ifrs-full:ReserveOfCashFlowHedgesMember7245008G22FOV7TYYJ342021-01-012021-12-31TKH:RetainedEarningsExcludingProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342021-12-31TKH:RetainedEarningsExcludingProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342021-01-012021-12-31TKH:RetainedEarningsProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342021-12-31TKH:RetainedEarningsProfitLossForReportingPeriodMember7245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember7245008G22FOV7TYYJ342021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember7245008G22FOV7TYYJ342021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember7245008G22FOV7TYYJ342021-12-31ifrs-full:NoncontrollingInterestsMemberiso4217:EURiso4217:EURxbrli:shares

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