Novem Group S.A.

Novem Group S.A. 222100KIY63U7PV8N251 2022-03-31 222100KIY63U7PV8N251 2021-03-31 222100KIY63U7PV8N251 2020-04-01 2021-03-31 222100KIY63U7PV8N251 2021-03-31 222100KIY63U7PV8N251 2020-03-31 222100KIY63U7PV8N251 2020-03-31 novem:OtherRetainedEarningsAccumulatedLossesMember 222100KIY63U7PV8N251 2021-03-31 novem:OtherRetainedEarningsAccumulatedLossesMember 222100KIY63U7PV8N251 2020-03-31 ifrs-full:CapitalReserveMember 222100KIY63U7PV8N251 2021-03-31 ifrs-full:CapitalReserveMember 222100KIY63U7PV8N251 2020-03-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 222100KIY63U7PV8N251 2021-03-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 222100KIY63U7PV8N251 2021-03-31 ifrs-full:IssuedCapitalMember 222100KIY63U7PV8N251 2020-03-31 ifrs-full:IssuedCapitalMember 222100KIY63U7PV8N251 2020-04-01 2021-03-31 novem:OtherRetainedEarningsAccumulatedLossesMember 222100KIY63U7PV8N251 2021-04-01 2022-03-31 novem:OtherRetainedEarningsAccumulatedLossesMember 222100KIY63U7PV8N251 2020-04-01 2021-03-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 222100KIY63U7PV8N251 2021-04-01 2022-03-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 222100KIY63U7PV8N251 2021-04-01 2022-03-31 ifrs-full:IssuedCapitalMember 222100KIY63U7PV8N251 2021-04-01 2022-03-31 ifrs-full:CapitalReserveMember 222100KIY63U7PV8N251 2021-03-31 novem:OtherRetainedEarningsAccumulatedLossesMember 222100KIY63U7PV8N251 2022-03-31 novem:OtherRetainedEarningsAccumulatedLossesMember 222100KIY63U7PV8N251 2021-03-31 ifrs-full:CapitalReserveMember 222100KIY63U7PV8N251 2022-03-31 ifrs-full:CapitalReserveMember 222100KIY63U7PV8N251 2021-03-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 222100KIY63U7PV8N251 2022-03-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 222100KIY63U7PV8N251 2022-03-31 ifrs-full:IssuedCapitalMember 222100KIY63U7PV8N251 2021-03-31 ifrs-full:IssuedCapitalMember 222100KIY63U7PV8N251 2021-04-01 2022-03-31 iso4217:EUR iso4217:EUR xbrli:shares xbrli:pure iso4217:EUR xbrli:shares . false NOVEM ANNUAL REPORT 2021/22 Established in 1947 5,540 employees worldwide 12 locations worldwide NOVEM AT A GLANCE 2021 IPO The Novem Group is based in the German town of Vorbach and is the world leader in high-quality trim elements and decorative function elements in car interiors. The customers include all major premium carmakers worldwide. They appreciate the innovative technology, ex- clusivity and exquisite design of Novem’s products. NOVEM ANNUAL REPORT 2021/22 2 KEY RESULTS in € million FY 2020/21 FY 2021/22 Income statement Revenue1 602.8 86.4 614.5 80.9 Adj. EBIT Adj. EBIT margin (%) Adj. EBITDA 14.3% 117.3 19.5% 13.2% 111.7 18.2% Adj. EBITDA margin (%) Cash ﬂow Capital expenditure Capital expenditure as % of revenue Free cash ﬂow 15.9 2.6% 89.7 18.6 3.0% 65.0 1ꢀIncluding revenue-related adjustments in € million 31 Mar 21 31 Mar 22 Balance sheet Trade working capital Total working capital Net ﬁnancial debt Net leverage (x Adj. EBITDA) 50.1 125.0 258.3 2.2x 41.0 127.3 165.6 1.5x NOVEM ANNUAL REPORT 2021/22 3 ABOUT THIS REPORT Novem Group publishes the ﬁrst Annual Report following the initial public offering (“IPO”) on 19 July 2021. The ﬁnancial year of Novem Group S.A. ends on 31 March and therefore covers the period from 1 April 2021 to 31 March 2022. This Annual Report includes a Non-ﬁnancial Report in accordance with the European Directive and Luxembourg Law and fulﬁls the Core option of the Global Reporting Initiative Standards. The consolidated ﬁnancial statements of Novem Group S.A. and the stand-alone ﬁnancial statements of Novem Group S.A. were audited by Ernst & Young (“EY”). The sustainability report was written in accordance with the Non- Financial Reporting Directive (“NFRD”) and in orientation to the GRI standards. EDITORIAL NOTE The report is only available in English and solely pub- lished in digital form. All references to people such as employees, shareholders, etc. in this report apply equally to all identities. NOVEM ANNUAL REPORT 2021/22 4 TABLE OF CONTENTS CONTENTS 1 TO OUR SHAREHOLDERS 4 CONSOLIDATED FINANCIAL STATEMENTS Letter from the CEO _______7 Report of the Supervisory Board_____9 Novem and the capital market____11 Consolidated statement of comprehensive income _62 Consolidated statement of ﬁnancial position __63 Consolidated statement of cash ﬂows____64 Consolidated statement of changes in equity___65 Notes to consolidated ﬁnancial statements__66 Responsibility statement _________ 114 Setup and organisation of the Management Board _ 115 Independent auditor‘s report ____ 116 1 2 NON-FINANCIAL REPORT TO OUR SHAREHOLDERS Organisation _______________________________________________14 Compliance ________________________________________________20 Supply chain _______________________________________________23 Employees and society_____________________________________25 Energy and emissions______________________________________29 2 NON-FINANCIAL REPORT 5 ANNUAL ACCOUNTS 3 Proﬁt and loss account___________________________________ 121 Balance sheet____________________________________________ 122 Notes to the accounts____________________________________ 123 Responsibility statement _________________________________ 131 Independent auditor‘s report _____________________________ 132 GROUP MANAGEMENT REPORT 3 GROUP MANAGEMENT REPORT Corporate structure and business activities_________________33 Key events _________________________________________________34 Business and general environment _________________________35 Financial performance _____________________________________37 Financial position __________________________________________41 Cash ﬂows_________________________________________________44 Segment reporting _________________________________________45 Stand-alone results of operations and ﬁnancial position of Novem Group S.A. _________________________________________46 Risks and opportunities ____________________________________47 Corporate governance statement___________________________56 Subsequent events_________________________________________59 Outlook ____________________________________________________60 4 CONSOLIDATED FINANCIAL STATEMENTS 6 ADDITIONAL INFORMATION 5 Financial calendar________________________________________ 136 Contact __________________________________________________ 136 Imprint___________________________________________________ 136 Glossary _________________________________________________ 137 Disclaimer _______________________________________________ 138 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 5 To our 1 shareholders LETTER FROM THE CEO CONTENTS Ladies and gentlemen, looking back at the past two ﬁnancial years so strongly impacted by Covid- 19, we are thankful for our shared success in overcoming the special chal- lenges of this period. At the same time, we are aware that the effects of the global pandemic will continue to be felt in the future, as will those from the changed geopolitical situation in Europe due to the war in Ukraine. I am pleased that Novem has been able to ﬁnish the ﬁnancial year 2021/22 successfully despite the diﬃcult circumstances. In addition to the pan- demic, we also had to deal with the chip crisis, the disruption to global supply chains and the associated rise in the volatility of our customers’ production, higher prices for materials and considerable increases in trans- port and energy costs. The fact that we were still able to deliver a solid performance is the result of a ﬁrm trend. We grew our consolidated turnover by 2% to €615 million. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT In spite of the adverse conditions, the ﬁnancial year was marked by growth and was positive for Novem overall, with forward-looking decisions in relevant areas proving crucial. A highlight of the year under review was Novem’s initial public offering in July 2021, which has unlocked potential for further growth and more ﬂexible ﬁnancing options. 3 GROUP MANAGEMENT REPORT In terms of strategy, we are maintaining our strong focus on the premium carmaker market, with an emphasis on both winning new customers and growing our business with premium brands. This approach has resulted in positive developments in orders on hand and customer acquisition. 4 CONSOLIDATED FINANCIAL STATEMENTS We have considerably enhanced our engineering expertise in China by establishing a technical centre. With a stronger local presence there, we have laid an essential foundation that will enable us to effectively serve Asia’s dynamically growing market. Lastly, we were able to gain an addi- tional growth boost at short notice by successfully acquiring the aluminium business of a competitor; this business involves platforms for four different customers. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION Günter Brenner Chief Executive Oﬃcer Günter Brenner Chief Executive Oﬃcer NOVEM ANNUAL REPORT 2021/22 7 CONTENTS We are aware of Novem’s social and environmental responsibility. In the context of our corporate strategy, we are deeply committed to acting sustainably in the long term, thus ensuring our future success. Other elements of our sustainability strategy include our supplier management and health and safety man- agement programmes. When selecting suppliers, we expect them to focus on environmental and sustain- ability aspects. We systematically integrate them into our value chain for maximum positive impact. We consistently adhere to workplace safety standards worldwide, and we pay great attention to the health of our staff. We began the process of ISO 45001 occupa- tional health and safety certiﬁcation in March 2022 and plan to complete it for the ﬁrst six sites by the end of the ﬁnancial year 2022/23. We view Novem’s future business prospects with cau- tious optimism. Depending on how the general eco- nomic environment develops, we aim to continue our proﬁtable growth, with an Adj. EBIT margin of 14% to 15%. We remain committed to these objectives, and we associate sustainable growth with economic success. For us, success means innovation, proﬁtable growth and a reputation as a strong partner and a depend- able employer. In our eyes, responsible management at Novem requires more than ever taking actions that beneﬁt people and the environment in order to provide stability and a positive perspective for the future. On behalf of the Management Board, I would like to thank you all very much for your support in the ﬁnan- cial year 2021/22. You have delivered an outstanding performance in challenging times. Your dedication is helping to keep Novem safely on track. We appreciate your efforts and your trust. 1 TO OUR SHAREHOLDERS Novem is an empathic supporter of the Paris climate goals and has set ambitious milestones on its path to greater sustainability. We are committed to green- house gas neutrality in Germany by 2025, in Europe by 2030 and worldwide by 2035. As an example, for some time we have been conducting research into the materials for our trim elements to make the varnishes, substrates and intermediate layers even more environ- mentally compatible. As the fruit of the labour of all those involved in the process, the ultimate prospect is the production of carbon-neutral cars. We launched further sustainability initiatives in the ﬁnancial year 2021/22 and are measuring their pro- gress with a substantial number of performance indi- cators. These measures and activities are summarised in our Non-ﬁnancial Report, which is part of this Annual Report. As you will see, the positive impact of our sus- tainability efforts is reﬂected in our mid-range strategy and planning. 2 I look forward to working with you in the coming ﬁnan- cial year and to a constructive and productive dialogue with Novem’s best interests in mind. NON-FINANCIAL REPORT Kind regards, 3 GROUP MANAGEMENT REPORT Günter Brenner Chief Executive Oﬃcer 4 CONSOLIDATED FINANCIAL STATEMENTS “ In our eyes, responsible management at Novem requires more than ever taking actions that beneﬁt people and the environment in order to provide 5 ANNUAL ACCOUNTS stability and a positive perspective for the future. “ 6 ADDITIONAL INFORMATION — Günter Brenner (CEO) NOVEM ANNUAL REPORT 2021/22 8 REPORT OF THE CONTENTS SUPERVISORY BOARD Dear shareholders, the ﬁnancial year ended 31 March 2022 was still signiﬁcantly affected by the worldwide Covid-19 pandemic, which impeded Novem also mainly during the ﬁrst half of calendar year 2021. State-imposed plant closures and supply chain disruptions in a globally networked industry had to be overcome. The aim was to safeguard the Group‘s ability to act economically and to improve costs as far as possible. However, the top priority was to protect Novem’s employees from Covid-19 infec- tions by imposing appropriate hygiene requirements and measures to limit contact wherever possible. Shortly before the end of the ﬁnancial year, the Russian acts of war within the Ukrainian territory additionally affected the automotive industry sector signiﬁcantly. Depending on the further outcome, the consequences are still mainly unforeseeable regarding their effect on Novem’s business. So far, as a result of excel- lent management, Novem Group has come through the ongoing crisis better than initially expected. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT In the ﬁnancial year ended 31 March 2022, the Supervisory Board of Novem Group S.A. diligently fulﬁlled its tasks in accordance with the statutory requirements and the Articles of Association of Novem Group S.A. The Supervisory Board regularly advised on and con- tinuously monitored the work of the Management Board regarding strategic and operational decisions as well as governance topics and compliance. When required by the Articles of Association, the Super- visory Board approved the actions of the Management Board after carefully reviewing them. In the ﬁnancial year ended 31 March 2022, the members of the Supervisory Board were Dr. Stephan Kessel (Chair- man), Mark Wilhelms (Deputy Chairman), Natalie C. Hayday, Florian Schick and Philipp Struth. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS The Supervisory Board held a total of three meetings in the ﬁnancial year ending 31 March 2022. In all of the Supervisory Board meetings, all members were present. To comply with the social distancing require- ments, some of the meetings were held partly via conference calls. In the meetings, the Management Board informed the Supervisory Dr. Stephan Kessel Chairman of the Supervisory Board 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 9 CONTENTS Board regularly and completely on the status and per- formance of the Novem Group including opportunities and risks, its market position, its course of business as well as its relevant ﬁnancial data. The discussions were based on regular and extensive reports in verbal and written form presented by the Management Board. The Management Board and the Supervisory Board maintained close contact also outside of the regular meetings to exchange all important information related to the Novem Group. This close collaboration also included strategy discussions as well as information on organisational development. Kessel (Chairman), Mark Wilhelms and Natalie C. Hay- day. The Committee discussed all remuneration and nomination related topics. It prepared the Remunera- tion Report in accordance with the Luxembourg law of 1 August 2020, the Second Shareholders’ Rights Direc- tive (“SRD II”, Directive (EU) 2017/828). The Remunera- tion and Nomination Committee held two meetings. In all meetings, all members of the Remuneration and Nomination Committee were present. On behalf of the Supervisory Board, I would like to thank the Management Board of Novem Group S.A. for excel- lent achievements throughout the past ﬁnancial year and the open and effective collaboration. I also would like to thank all employees for their remarkable con- tributions to the Group’s success during challenging times and last but not least our shareholders for their continuous support. We all highly value your trust in Novem Group. 1 TO OUR SHAREHOLDERS The Supervisory Board examined the Company’s annual accounts, the consolidated ﬁnancial statements and the Group Management Report for the ﬁnancial year ending 31 March 2022. Representatives of the auditor Ernst & Young S.A. Luxembourg attended the meetings of the Audit and Risk Committee on 17 Febru- ary 2022 and 25 May 2022 at which the ﬁnancial state- ment primaries were examined. The representatives of the auditor reported extensively on their ﬁndings, pro- vided a written presentation and were available to give additional explanations and opinions. The Supervisory Board did not raise objections to the Company’s annual accounts or to the consolidated ﬁnancial statements drawn up by the Management Board for the ﬁnancial year ending 31 March 2022 and to the auditors’ pres- entation. Furthermore, the Supervisory Board approved the Non-ﬁnancial Report of Novem Group S.A. Luxembourg, 27 June 2022 On behalf of the Supervisory Board of Novem Group S.A. During the reporting period, the members of the Audit and Risk Committee were Mark Wilhelms (Chairman), Dr. Stephan Kessel and Natalie C. Hayday. Signiﬁcant questions related to auditing, accounting, risk man- agement, compliance and internal control systems were especially reviewed by the Audit and Risk Com- mittee. The Audit and Risk Committee monitored the effectiveness of the internal control system, the risk management system, the internal auditing system and the compliance management system. The Audit and Risk Committee discussed in particular the quarterly reports, the relationship with investors and the audit assignment to Ernst & Young S.A. Luxembourg includ- ing the focus areas of the audit. One main focus area of the Audit and Risk Committee was monitoring the tender process regarding the selection of the future auditing ﬁrm to be proposed to the Annual General Meeting on 25 August 2022. The Committee held three meetings in the ﬁnancial year ending 31 March 2022. In the meetings, all members were present. In the meet- ings, all members were present. One meeting was held in person, while two were held via conference calls. Yours sincerely, 2 NON-FINANCIAL REPORT Dr. Stephan Kessel Chairman of the Supervisory Board 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS The Supervisory Board agreed to the proposal of the Management Board, recommended by the Audit and Risk Committee, and approved the Company’s annual accounts and the consolidated ﬁnancial statements for the ﬁnancial year 2021/22. The auditor issued unquali- ﬁed audit opinions on 27 June 2022. 5 ANNUAL ACCOUNTS During the ﬁnancial year ended 31 March 2022, there were no conﬂicts of interest between the members of the Supervisory Board and the Company. 6 In the reporting period, the members of the Remu- neration and Nomination Committee were Dr. Stephan ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 10 NOVEM AND THE CAPITAL MARKET CONTENTS Stock market during the same period. The volatility of call-offs, in particular, made it diﬃcult to manage the situation conﬁdently and blocked foresight. In 2021, the stock exchange was characterised by tur- bulent conditions. Above all, persistently high Covid-19 infection ﬁgures, the resulting restrictions and world- wide supply bottlenecks shaped the market. During the reporting period (1 April 2021 to 31 March 2022), the broad MSCI World index recorded a price increase of around 7.5%. Meanwhile, the S&P500 index achieved a gain of about 14.3% in the same period. Looking at Europe as the largest market by rev- enue for Novem, the EURO STOXX 50 posted a slight year-on-year increase of 0.8%. The DAX (-4.6%) and SDAX (-9.5%) showed a different picture for the overall German market. The benchmark index DAXsubsector Auto Parts & Equipment recorded a decline of -29.0% in the period under review. Despite all Covid-19 and supply chain worries, major indices such as MSCI World, S&P 500, Eurostoxx and the DAX reached new highs in 2021. One reason for this could be that despite low interest rates, investors still saw few alternatives to the stock market to protect their money from the loss in value caused by high inﬂation. 1 TO OUR SHAREHOLDERS 2 However, the rapid spread of the Omicron variant of Covid-19 dampened the stock market’s euphoria to some extent towards the end of the year and into 2022. Shortly after the turn of the year, the ﬁrst inter- est rate hikes were announced due to persistently high inﬂation rates in the USA and the same is expected for Europe. This led to a partial rotation from growth to value stocks. What also clouded the markets at the beginning and into 2022 were the terrible acts of war unfolding on 24 February 2022 in Ukraine. Russia’s invasion of Ukraine fuelled the surge in energy prices and further ampliﬁed inﬂationary pressures in basically all areas of life. NON-FINANCIAL REPORT Stock performance 3 The development of the share price echoed the challenging market conditions with volatile call-offs, increased material costs as well as tensions on the supply side. The issue price of the Novem share at the time of listing on 19 July 2021 was €16.50. The share closed the ﬁrst trading day precisely at the level of the issue price (XETRA closing price), after having risen to €16.80 during the course of the day. On 17 August 2021, the share reached its high for the period under review at €18.10. While the stock hit its low on 28 January 2022 at €10.01, it closed at €10.35 on 31 March 2022. GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS Another issue for the automotive industry in 2021 and beyond was the shortage of chips. As a missing core component, this has brought entire productions to a standstill. The premium segment, which is vital for Novem, was less affected than the mass market. In addition, customer demand remained high despite dif- ﬁcult circumstances, so original equipment manufac- turers (“OEMs”) were still able to achieve good results by prioritising higher-priced models. While things went well for the OEMs, it was not as easy for suppliers 5 ANNUAL ACCOUNTS IPO process In July 2021, Novem completed its IPO on the regulated market of the Frankfurt Stock Exchange and, simulta- neously, to the sub-segment thereof with additional Dr. Johannes Burtscher Chief Financial Oﬃcer 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 11 CONTENTS post-admission obligations (Prime Standard). On 19 July 2021, trading commenced with an opening price of €16.50 per share. Dividend IPO, the Management Board and IR Team have main- tained a constant dialogue with the ﬁnancial market, characterised by numerous one-on-one meetings and conference calls in addition to the quarterly investor and analyst conferences. In the ﬁnancial year 2021/22, Novem was represented at three conferences held in a virtual format. Furthermore, it is in the Company’s particular interest to bring investors and analysts to its headquarters to make the production processes, business model and its potential even more tangible. In agreement with the Supervisory Board, the Manage- ment Board will propose the distribution of a dividend of €0.40 per share at the Annual General Meeting to be held on 25 August 2022. This corresponds to a payout of 39.1% of net income and shares Novem’s success with the shareholders. The proposed dividend exceeds the targeted payout ratio of approx. 35% due to the solid balance sheet and strong cash ﬂow development of the Group. In the course of the initial public offering, 3,030,303 new ordinary shares in a dematerialised form with no nominal value have been issued from a cash capital increase. The share capital of the Company amounts to €430,303.03 and is divided into 43,030,303 ordinary shares in a dematerialised form with no nominal value. Each share of the Company represents a par value of €0.01 in the Company’s share capital. All shares are fully paid up. The total offering size amounts to €247.2 million including an over-allotment of 2,254,545 shares. J.P. Morgan, Berenberg and Commerzbank acted as Joint Global Coordinators, while Jefferies and UniCredit acted as Joint Bookrunners for the transaction. 1 TO OUR SHAREHOLDERS In addition, the Company offers a newsletter to which interested capital market participants can subscribe to stay up to date. Investor Relations activities 2 NON-FINANCIAL REPORT Our Investor Relations (“IR”) work aims to ensure open and transparent communication with our capital market stakeholders. The focus is on equal treatment, timely information and continuity in reporting. Through open and reliable communication, we aim to build long-term trust in the capital market and sustainably increase market awareness of the Novem Group. Since the SHARE DATA 3 as of 31 March 2022 GROUP MANAGEMENT REPORT • Ticker symbol: NVM • ISIN: LU2356314745 4 “ Despite continued headwinds, Novem was able to further strengthen its balance sheet. Based on its strong cash ﬂow performance, the proposed dividend even CONSOLIDATED FINANCIAL STATEMENTS • WKN: A3CSWZ • Frankfurt Stock Exchange • Market segment: Prime Standard • Number of shares: 43,030,303 • Dematerialised shares with no nominal value • Market capitalisation: €445,363,636 • Highest price FY 2021/22: €18.10 • Lowest price FY 2021/22: €10.01 • Closing price: €10.35 5 ANNUAL ACCOUNTS exceeds the targeted payout ratio. “ 6 ADDITIONAL — Dr. Johannes Burtscher (CFO) INFORMATION NOVEM ANNUAL REPORT 2021/22 12 Non-ﬁnancial 2 Report INNOVATIONS FOR FUNCTIONALITY AND SUSTAINABILITY ORGANISATION CONTENTS Business model Companies of the Novem Group Novem demonstrates with the application Function in Authentic Materials (FIAM) how the company combines functionality and sustainability. The production procedures of screen printing, high-pressure forming and injection moulding are combined in the manufacture of function elements for the car interior. This reduces the production and assembly steps and integrates func- tions in the materials. As a result, Novem saves materials and energy and reduces the assembly space taken up by the func- tion trim. Founded in 1947, Novem can look back on a success story lasting several decades. Since that time, Novem has constantly been growing and has entered new markets and extended its product and material port- folio. We have thus become the global market leader for high-quality trim parts such as centre consoles, beltlines or dashboards as well as decorative functional elements in car interiors – with around 28.8 million components produced in 2021. These can be found in numerous vehicles in a variety of forms – especially in the premium car segment. We manufacture our prod- ucts for a growing customer base that includes all the world’s leading premium car manufacturers. • • • • • • • • • • • • • • Novem Group S.A. Novem Group GmbH Novem Beteiligungs GmbH Novem Deutschland GmbH Novem Car Interior Design GmbH Novem Car Interior Design Vorbach GmbH Novem Car Interior Design Metalltechnologie GmbH Novem Car Interior Design S.p.A. Bergamo Novem Car Interior Design k.s. Novem Car Interior Design d.o.o. Novem Car Interior Design, Inc. Novem Car Interior Design Mexico S.A. de C.V. Novem Car Interior Design S. de R.L. Novem Car Interiors Design (China) Co., Ltd. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Novem Group S.A. has been listed on the Frankfurt Stock Exchange since 19 July 2021. Economic stability and capacity for transformation 3 GROUP MANAGEMENT REPORT The Novem locations worldwide The automotive industry is undergoing a fundamental transformation. Electriﬁcation, autonomation and digi- talisation are changing the way vehicles are thought about, manufactured and used. Along with these developments, the concept of the vehicle interior is also changing. New surfaces and spaces are emerging and with them, the opportunity to redesign the interior. Autonomous driving is also making this space increas- ingly experienceable, and consumers are placing even higher demands on functionality and comfort. • • • Americas: 1,842 employees | Honduras, Mexico, USA Europe: 2,969 employees | Czech Republic, Ger- many, Italy, Slovenia 4 CONSOLIDATED FINANCIAL Asia: 729 employees | China STATEMENTS Centre console with ﬁne wood panelling and integrated switch and lighting elements (smart surface) We manage our global network of production, logistics and sales locations from our headquarters in Vorbach in the Upper Palatinate. The parent company Novem Group S.A. is located in Contern, Luxembourg. Today, we have twelve locations worldwide in Europe, Asia and the Americas, where we employ a total of around 5,540 people. Our international presence allows us to be close to our customers and to distribute our prod- ucts worldwide. 5 ANNUAL ACCOUNTS As the global industry leader, Novem wants to actively shape this change. We are responding to the trans- formation of the industry with targeted investments in order to prepare our employees and our locations for the challenges ahead and to drive forward the development of new technologies and innovations. Sustainability plays a key role here: with renewable and recycled raw materials, we are reducing our eco- logical footprint and creating sustainable values for our customers. For example, we are already researching alternative materials such as bio-based plastics, vegan 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 14 CONTENTS adhesives and sustainable substrates. We are also developing new designs that cater to our customers’ increasing demands for functionality, sustainability and quality. Our spirit of research is reﬂected in the large number of patents and utility models held by Novem. environmental objectives. The mandatory disclosure applies to turnover, capital expenditures (capex) and operational expenditures (opex). portion of the taxonomy-eligible operating costs was determined using an allocation process. The analysis of the capital expenditures showed that no investments made by Novem fall under the EU taxonomy. A working group initiated at Group level, consisting of specialists and executives from the Finance, Control- ling, Investor Relations and Central Quality & EHS (Envi- ronment, Health and Safety) Departments, analysed all business activities together with a consultancy with regard to the requirements of the EU taxonomy. The working group compared the business activities of the Novem Group with those published in the delegated acts of the EU taxonomy. A solid economic foundation enables us to make invest- ments that secure our future viability as a company. In the ﬁnancial year 2021/22, the Novem Group achieved sales of €614.6 million (PY: €602.7 million). Proportion of turnover, opex and capex of taxonomy-eligible activities 1 TO OUR in € thousand Absolute Proportion SHAREHOLDERS Turnover of taxonomy-eligible activities 33,864 5.5% Addressing the EU taxonomy Opex of taxonomy-eligible activities 660 5.5% - 2 In accordance with the European Non-ﬁnancial Report- ing Directive (NFRD), as of ﬁnancial year 2021/22, companies that are subject to reporting are required to include taxonomy disclosures in their non-ﬁnancial reporting. This also applies to Novem. The EU taxon- omy is a classiﬁcation system for economic activities aimed at achieving the goals of the Paris Agreement by means of transparency in the capital market. The in-depth analysis found that a part of the busi- ness activities falls under economic activity 3.3. of the regulations (Manufacture of low carbon technologies for transport). These are primarily the manufacture of interior or trim components and other parts intended for the use in electric vehicles. For these products, we mainly use materials like carbon, rattan, linen or ﬁbre- glass. These materials are speciﬁcally selected accord- ing to the criteria of sustainability, reduced weight and economy. NON-FINANCIAL REPORT Capex of taxonomy-eligible activities As only one business activity has been identiﬁed as taxonomy-eligible, there is no risk of double counting. Further information on turnover, opex and capex can be found in chapter Consolidated ﬁnancial statements of the Annual Report. 3 GROUP MANAGEMENT REPORT The Taxonomy Regulation with its corresponding del- egated acts sets threshold values for economic activi- ties in CO2-intensive sectors in particular. These relate to the six environmental objectives of the European Union (EU). Under the Regulation, an economic activ- ity contributes substantially to the achievement of an environmental objective (taxonomy alignment) if the threshold values for this environmental objective are not exceeded, none of the other environmental objec- tives is negatively affected by the economic activity and the minimum social standards are met. This year, companies are only required to show the extent of eligibility or the possibility of being eligible in order to make a substantial contribution to two (climate change mitigation and climate change adaptation) of the six 4 Consequently, the related turnover, capex and opex are to be reported. By allocating the revenue, it was possible to determine that 5.5% of the total sales are generated by economic activity 3.3. and are thus taxonomy-eligible. Product safety and quality CONSOLIDATED FINANCIAL STATEMENTS Our products are not components relevant to safety in the vehicle. Nevertheless, we are committed to high quality and safety standards along the entire value chain – from planning and manufacture to delivery to our customers. We link our quality aspiration to the use of high-end materials and modern produc- tion processes. Novem uses the Quality Management System certiﬁed in conformity with IATF 16949 at all its locations. This is how we consistently improve our processes and ensure that our products are in compli- ance with the high quality standards. 5 The analysis also revealed that 5.5% of the operating costs associated with the above-mentioned turnover are also considered taxonomy-eligible. Here, it should be noted that only the operating costs from research and development could be directly allocated to the business activities under activity 3.3. For all other oper- ating costs within the scope of the EU taxonomy, the ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 15 CONTENTS All safety and quality aspects are controlled by Central Quality Management; this department deﬁnes guide- lines applicable to all locations in the Group. Each loca- tion has a dedicated Quality Manager who implements all of the central regulations. In keeping with our high aspiration for quality, we pro- cess many of our products to a relatively high degree by hand, thereby lending them particular exclusivity. By combining different materials such as wood, alu- minium, carbon and premium synthetics, and by using renewable raw materials such as ﬂax (linen) and bam- boo, we create highly individual, innovative products. In addition, at our Novem Interior World design centre, we work on ideas for new and sustainable surfaces. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 16 CONTENTS Sustainability management Sustainability organisation of the Novem Group Social, environmental and also sustainable economic responsibility will empower Novem and the entire auto- mobile industry to move forward into the future. The benchmark for this at Novem is provided by customer goals and consumer aspirations, alongside key social developments. Sustainability Board Executive Board of the Novem Group Responsibility for sustainability 1 The strategic responsibility for sustainability at Novem lies with the Executive Board, which heads the Sustain- ability Board of the Novem Group. This body, compris- ing representatives from the central divisions, decides on the strategic direction in matters of sustainability. For this purpose, it is in constant exchange with the relevant specialist departments and is informed by all departments about sustainability-relevant matters on a monthly basis. TO OUR SHAREHOLDERS Legal & Compliance Quality Management Human Recources 2 Procurement NON-FINANCIAL REPORT Coordination of group-wide sustainability activities Responsibility for social and environ- mental standards in the supply chain Responsibility for compliance Responsibility for employee concerns 3 In the operating business, the sustainability agenda is managed by various departments: the EHS & Sustain- ability team, which is part of Central Quality Manage- ment, is responsible for coordinating global activities on the topics of environment, health and safety. The Human Resources Department deals with all concerns and requirements that affect the employees. Compli- ance with social and environmental standards in the supply chain is the responsibility of Purchasing. GROUP MANAGEMENT REPORT 4 EHS & Sustainability CONSOLIDATED FINANCIAL Operational controlling of sustainability and coordination of sustainability activities of the Group STATEMENTS 5 ANNUAL ACCOUNTS reports on aspects relating to sustainability 6 EHS coordination of the plants ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 17 CONTENTS Integration of stakeholders Suppliers and partners: Supplier portal, membership in various networks, trade fairs and exhibitions • • Lüdenscheid Plastics Institute (Kunststoff-Institut Lüdenscheid) Partner Circle of the University of Applied Sciences (OTH) Amberg-Weiden As a globally active enterprise, we are in continuous communication with numerous stakeholder groups. These include our existing and potential employees, customers and consumers, suppliers and partners, as well as policymakers and members of the general pub- lic. We keep our employees constantly informed about all important developments in the Group. We also seek close cooperation with customers, consumers and our suppliers and partners. Along with digital and analogue communication media, we also make use of direct contact at events such as trade fairs and exhibitions to facilitate communication. We conduct dialogue with politicians and business leaders, especially within the scope of our membership in numerous associations and initiatives, and we engage in direct communication at a local level. Politics: Associations, direct communication with local representatives Press and media: Reports, website, press releases, social media Determination of material sustainability topics To identify material topics in the area of sustainability, we carried out an analysis in 2020. In this context, we evaluated a total of thirteen topics in terms of their impact on people and the environment (inside-out perspective), also taking into account the views of our stakeholders. We extended this analysis in 2021 to include the perspective of business relevance (out- side-in perspective). For this purpose, we conducted an online survey among managers who are familiar with sustainability issues at Novem. We combined the results of these two analyses to obtain an initial assessment of the material topics. 1 Investors and analysts: Investor relations website, pub- lications, capital market presentations, conferences, investor relations newsletter, roadshows TO OUR SHAREHOLDERS Memberships in associations and initiatives (selection) 2 NON-FINANCIAL REPORT • • German Association of the Automotive Industry (Verband der Automobilindustrie (VDA)) Association of the Wood Industry and Plastics Processing Bavaria/Thuringia (Verband der Holz- wirtschaft und Kunststoffverarbeitung Bayern/ Thüringen e.V.) 3 Our formats for dialogue with stakeholders GROUP MANAGEMENT REPORT Employees: Employee newspaper inside, intranet NovemNET, Family Day, Open Day, website, social media, employee portal In a ﬁnal stage, the results were discussed, validated and partially adapted by the managers involved. From this, we derived a total of eight topics that are to be classiﬁed as material both in terms of our impact on the environment and society and in terms of their rel- evance to our business. • • BF/M Research Centre on Business Management for Questions of Medium-sized Companies (BF/M Betriebswirtschaftliches Forschungszentrum für Fragen der Mittelständischen Wirtschaft e.V. (BF/M Bayreuth)) Federal Association for Supply Chain Management, Procurement and Logistics (Bundesverband Materi- alwirtschaft, Einkauf und Logistik e.V. (BME)) Plastics Information Europe (Kunststoff Informa- tion Verlagsgesellschaft mbH) 4 Applicants: Cooperation with universities (e.g. OTH Amberg-Weiden, University of Bayreuth), Code of Conduct, job advertisements, website, social media, regional career fairs at institutes of higher education or as organised by supra-regional associations CONSOLIDATED FINANCIAL STATEMENTS • • • 5 Customers and consumers: Brochures, website, company presentations, corporate videos, roadshows (attendance or digital), personal customer appoint- ments, dispatch of design samples and catalogues, trade fairs and exhibitions (e.g. with other suppliers or partners), presentations at international specialist conferences ANNUAL ACCOUNTS German-speaking SAP User Group (Deutschspra- chige SAP Anwendergruppe e.V. (DSAG)) VOICE – Federal Association of IT Users (VOICE – Bundesverband der IT-Anwender e.V.) 6 • • ISELED (Intelligent Smart Embedded LED) Alliance Driving Vision News (DVN) ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 18 CONTENTS Material non-ﬁnancial topics Non-ﬁnancial aspects according to the Non-Financial Reporting Directive Material non-ﬁnancial topics Chapter High-quality Products and Customer Satisfaction Business model Business model Economic Stability 1 Transformation Capability TO OUR SHAREHOLDERS Combating corruption and bribery Compliance Responsible corporate governance Procurement and Supply Chain Management Supplier management and sustainable procurement Human rights 2 Human rights Employee matters Social issues Supplier management and sustainable procurement Employees and society Decent Working Conditions and Human Rights NON-FINANCIAL REPORT Occupational Health and Safety Employees and society Energy and Emissions Climate protection Employee matters Environmental concerns 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 19 COMPLIANCE CONTENTS Responsible corporate governance companies. We also expect our business partners, suppliers and sub-suppliers to act in accordance with the principles deﬁned therein. In the reporting year, we supplemented the Code of Conduct with information on our new, web-based whistleblower system, which can be used to submit reports anonymously and in encrypted form. These are then examined by the Cor- porate Legal & Compliance Department and, where necessary, result in corrective measures being taken in close coordination with the specialist units and the management while ensuring conﬁdentiality. No viola- tions of the principles of the Code of Conduct became known during the reporting year. • • • • • • Dealings with business partners and third parties Competition and corruption Protection of property Data privacy and data security Protection of the environment Value-based action is the foundation for our global business activities. One of our four core values is responsibility. In concrete terms, this means that we take responsibility for the impact of our business and always take into account the expectations our stake- holders place in us. Conscious and ethically correct behaviour towards employees, colleagues, business partners, society and the environment is an essential component of the system of values at the Novem Group. Each and every individual is therefore required to act responsibly, fairly and in accordance with the rules. Communication and ﬁnancial responsibility Compliance 1 TO OUR SHAREHOLDERS Conduct in accordance with integrity and statutory leg- islation forms the basis for the business operations of Novem. We have clearly formulated the ground rules for this behaviour in our Code of Conduct. We uphold fair and undistorted competition involving compliance with the relevant competition and antitrust regulations. Each and every employee at Novem is responsible for acting in accordance with these principles. Our employees are supported and advised by the relevant supervisors. 2 Our commitment to universally valid human rights and recognised social standards constitutes the basis of our own corporate actions and cooperation with sup- pliers and partners. Therefore, the Code of Conduct reﬂects the principles relating to human rights and decent working conditions in accordance with the United Nations Charter of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work. Furthermore, the Code of Conduct adopts the content of various national regulations on conﬂict minerals as its guideline for a responsible procurement policy. The protection of the environment is likewise part of our Code of Conduct. As a result of recent changes, our entire value chain is committed to ensur- ing compliance with all environmental regulations and further measures to improve environmental and energy eﬃciency continuously. NON-FINANCIAL REPORT The foundation of our actions As a global player and a partner of leading automo- tive manufacturers in the premium segment, we are subject to many different statutory regulations and the high standards prevailing in the automobile industry. We are committed to complying with the regulations in place, and we take responsibility for our actions. Our Quality Management has been certiﬁed in conformity with IATF 16949. This international standard based on EN ISO 9001 combines existing general requirements for Quality Management Systems in the automobile industry. 3 GROUP MANAGEMENT REPORT Novem manages the issue of compliance through the Corporate Legal and Compliance Department, which reports directly to the Management Board. Compliance Management provides support for adherence to ethical conduct in conformity with statutory regulations in the course of routine day-to-day business and also ensures integrity at the organisational level. For this purpose, Compliance Management works closely together with the specialist departments and operational business units. Furthermore, local compliance partners are avail- able to provide advice at all locations throughout the world. Employees and external business partners alike can report any breaches or infringements of these prin- ciples by telephone, email or via the web-based whistle- blower system that was introduced in the course of the reporting year. 4 CONSOLIDATED FINANCIAL STATEMENTS We have deﬁned how we live up to our responsibility throughout the Group in our Code of Conduct, which deﬁnes key statutory regulations, ethical principles, values and ideals, along with internal and external guidelines for integrity of conduct. It applies equally to all the employees, management staff and execu- tive managers working at the Novem Group as well as to the Supervisory Boards elected at the individual 5 ANNUAL ACCOUNTS Elements of the Novem Code of Conduct • Compliance with applicable laws on a local, national and international level 6 • • General principles of conduct Working conditions and human rights ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 20 CONTENTS With the Compliance Policy, we provide each and every employee with a concrete guideline for acting in accordance with the rules and regulations. This docu- ment can be accessed at any time on the intranet. In the reporting year, training was also given once more both on the content of the Code of Conduct and on the issue of anti-corruption.1 In the future, we shall continue to provide all relevant employees with training on these topics once a year. Risk management remit of the Director Financial Audit and Tax. Continu- ous communication and consultation take place with all the stakeholder groups with an interest in this mat- ter. Novem is regularly audited by the tax authorities in various jurisdictions. There is a regular exchange of information with the responsible local and national tax authorities. Within the Group, we constantly identify and assess tax risks on the basis of management and controlling systems. The Director Financial Audit and Tax reports to the Management Board on important tax issues and projects on a monthly basis. If complex decisions have to be made, expert reports and opinions are obtained from outside the Group. We shall make the area of Corporate Tax even more eﬃcient by further developing process-oriented checks and balances. Novem deals with any and all risks that may exist or arise from and for its business activities within the framework of its central risk management in the Controlling Department. We intend to continuously improve this risk management to match the growth of the Group, for example, by also integrating sustain- ability aspects. This involves analysing matters such as transitory risks resulting from new statutory legisla- tion and regulations on climate protection, such as the introduction of a CO2 tax or a ban on diesel vehicles in large cities. We also take technological innovations into account. From today’s perspective, there are no ESG-related (Environmental, Social, Governance) risks or opportunities associated with Novem’s own busi- ness activities, business relationships or products and services that could have a signiﬁcant negative impact on the non-ﬁnancial aspects in accordance with the NFRD. For the ﬁnancial year 2022/23, we are planning to introduce EcoVadis IQ, a tool for ESG risks that we intend to use in future for our own business area as well as for the downstream value chain. 1 TO OUR SHAREHOLDERS At regular intervals, we conduct workshops with the specialised departments to provide ongoing training on selected compliance-relevant topics. This busi- ness year, for example, we held training sessions on antitrust and competition law, which reached the relevant employees of the Purchasing, Sales, Quota- tion Management and Research and Development Departments. In this way, we sensitise our employees with regard to dealing with partners and suppliers with integrity and in compliance with the law. 2 NON-FINANCIAL REPORT Data protection and information security 3 Data protection and the conﬁdentiality of information GROUP MANAGEMENT REPORT are ﬁxed elements of our corporate principles. We con - As a matter of principle, we record potential corrup- tion risks as part of our compliance risk management and assess them in terms of probability and damage consequences. Further risk workshops and analyses are currently planned and will be integrated into the group-wide compliance risk management process in the future. sistently comply with the relevant laws and regulations on data protection whenever we collect, store, process or transfer personal data and information. 4 Taxes The protection of conﬁdential and secret data is abso- lutely essential, particularly in cooperation with our business partners. When we exchange conﬁdential information with customers and suppliers of Novem, we conclude appropriate non-disclosure agreements in order to protect the secrecy of this information. In order to live up to its responsibility, Novem has a dedicated IT and information security team that is made up of repre- sentatives from IT Security and Compliance. We have also established a central notiﬁcation oﬃce at Novem for IT issues and malfunctions relevant to security. The Novem Group is also supported by an external Data Protection Oﬃcer. CONSOLIDATED FINANCIAL STATEMENTS As a company operating on the global stage, Novem carries out its business in countries with complex tax regulations. The Novem Group and its companies have both unrestricted and restricted tax liability in various countries. Complying with the applicable tax laws and meeting the associated tax obligations is part of our fundamental principles. 5 ANNUAL 1ꢀ88% of employees had received training on the Code of Conduct by 31 March 2022. Due to the local Covid-19 measures, training at the Tegucigalpa plant had not yet been completed by the editorial deadline. As of 31 March 2022, 87% of relevant employees had re- ceived training on corruption prevention. Due to the local Covid-19 measures, the training at the Langfang location had not yet been completed by the editorial deadline. Disregarding the training ele- ments that had not yet been completed due to the Covid-19 pande- mic, the training quotas are well above 90%. ACCOUNTS The Management Board at Novem is responsible for compliance with tax obligations. Based on the alloca- tion of business activity, this responsibility is part of the 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 21 CONTENTS To safeguard the necessary IT and information security, Novem has established a certiﬁed information security management system in accordance with the TISAX Standard (Trusted Information Security Assessment Exchange). This is based on the DIN EN ISO 27001 standard. In this context, we have implemented and tested technical and organisational measures. These are reviewed, improved and renewed continuously. In 2021, we successfully carried out the planned recerti- ﬁcation in Vorbach in conformity with TISAX; this will remain valid until February 2024. We also introduced an internal audit programme to assess IT and information security. The ﬁrst audits have already been carried out at selected locations. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Each and every employee has an obligation to deal responsibly with personal data in compliance with the relevant statutory regulations and to protect con- ﬁdential information. We have therefore summarised all provisions under data protection legislation and regulations on IT and information security in relevant guidelines. Online training sessions are used to pro- vide our employees with information on the topics of data protection and IT and information security at regular intervals. In the reporting year, more than 97% of employees with PC workstations at the European locations took part in online training on data protection. 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 22 SUPPLY CHAIN CONTENTS Supplier management and sustainable procurement materials in the same country as the respective Novem production site; the ﬁgure is 66% in the case of auxiliary and process materials. Environmental and social standards The Novem supplier network extends across many countries, which often have differing requirements in environmental and social matters. Naturally, we always comply with national legislation in these areas. Wherever our internal rules transcend the relevant statutory regulations, we apply our higher standards. We have established the social and environmental requirements applicable to our suppliers in the group- wide Novem procurement conditions, the Supplier Manual and the Code of Conduct. In view of the wide variety of materials we use, our value chain is highly diverse. It is therefore all the more important that we build stable, trusting and long-term relationships with our partners. This is the basis for purchasing materials that meet our demanding qual- ity requirements. Close partnerships also enable us to respond rapidly to changing and more stringent requirements. Guidelines for procurement The Novem Code of Conduct deﬁnes basic require- ments that we apply to cooperation with our suppliers, e.g. prohibition of child labour, respect for human rights, commitment to freedom of association and compli- ance with environmental regulations. In the reporting year, we did not become aware of any infringements of these requirements throughout the Novem supplier network. In the course of supplier management, we review compliance with the Code of Conduct on a ran- dom basis. Suspected breaches can be reported to our Central Compliance Management either by internal per- sonnel or external parties. Business partners, suppliers and third parties can also submit reports via our newly established whistleblower system. If infringements of the Code of Conduct are substantiated, Novem requires immediate compliance and reserves the right to apply sanctions as appropriate (e.g. new business on hold), even including termination of the business relationship. 1 TO OUR SHAREHOLDERS The supply chain at Novem Novem requires all new suppliers of series materials to conﬁrm compliance with the Code of Conduct and the Supplier Manual. In line with these requirements, new suppliers can only be integrated into the system if they have made a commitment to compliance with the Code of Conduct. Environmental management is also an important aspect when selecting new suppliers. Certiﬁcation of speciﬁc suppliers in conformity with ISO 14001 and ISO 50001 has therefore been deﬁned as an objective. Relevant suppliers are determined each year on the basis of an assessment of the manufacturing processes for the supplied products. 2 NON-FINANCIAL REPORT Novem maintains a global network of around 400 sup- pliers for the procurement of production materials. This includes small family-run companies as well as large corporations. During the reporting year, we purchased goods and services valued at around €328 million for production. The largest product groups in terms of sales include untreated, galvanised and painted plastic parts, electrical components, surface materials, granu- lates, aluminium panels and veneers. These account for around 75% of the total procurement volume. 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS Purchasing at Novem is carried out centrally on the basis of product groups. In addition, local Purchasing Departments provide support in the procurement of goods. The procurement strategy at Novem provides for sourcing the necessary materials for series produc- tion from national suppliers wherever possible. This enables us to reduce the risk of delivery bottlenecks, avoid long transport routes and promote the local economy. However, the high requirements placed on our products by our customers mean that this is only feasible to a certain extent in some countries. Novem currently sources an average of 40% of its series We describe concrete, group-wide standards for our supplier relationships in our Supplier Manual. These include quality, environmental and health protection and compliance with the principles set out in our Code of Conduct. Against this background, we expect our suppliers to have an energy management system in place, implement the EU Chemicals Regulation (REACH), conﬁrm the exclusion of conﬂict minerals and use reusable packaging The certiﬁcation is included in the annual supplier assessment. Currently, 82% of the largest suppliers of series materials in terms of purchasing volume comply with the ISO 14001 standard, and 34% comply with the ISO 50001 standard. Failure on the part of a supplier to comply with this requirement has a negative impact on the supplier assessment in accordance with IATF 16949. As of this ﬁnancial year, the evaluation of sup- pliers of relevant product groups will also take into account whether they have a certiﬁed occupational health and safety management system in place in accordance with the ISO 45001 standard. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 23 CONTENTS On the basis of the CSR (Corporate Social Responsi- bility) self-disclosure carried out last year, we decided in the ﬁnancial year 2021/22 to have most suppliers externally assessed in future via the EcoVadis platform. Speciﬁcally, we plan to successively assess and where necessary develop around 90% of our direct suppliers – measured by purchasing volume – by June 2024; the quota already amounted to 52% in this ﬁnancial year. In parallel, the CSR assessment will be incorporated into the general supplier assessment in the future. 1 TO OUR SHAREHOLDERS We shall also use EcoVadis in future to implement the risk-based approach required by the German Supply Chain Due Diligence Act (LkSG). We consider the risk of human rights violations in our supply chains to be very low since the majority of our suppliers are renowned and globally active certiﬁed companies in the automo- tive industry. 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 24 EMPLOYEES AND SOCIETY CONTENTS Decent working conditions Employees by region and gender at the Novem Group Economics Committee. Potential changes for the work- force are always discussed with the Works Council. We inform our employees in good time of any operational changes that affect them by posting notiﬁcations on the bulletin board and on our intranet NovemNET. In the case of time-limited collective bargaining agreements and company agreements, we approach the respective contractual party in good time so as to initiate conclu- sion of new agreements as necessary. Our most important asset is our employees with their knowledge, their motivation and their commitment. The health and safety of our employees is our top priority. Our commitment to this objective is anchored in our corporate policy. We offer all our employees at Novem a working environment based on fairness and trust, regardless of the location. Our overarching human resources strategy is therefore based on the universally applicable corporate values of the Novem Group: Responsibility, Excellence, Innovation and Commitment. FY 2019/20 FY 2020/21 FY 2021/22 Total for Europe 3,158 42% 3,010 43% 2,969 44% Of which female Of which male 58% 57% 56% 1 Total for Americas Of which female Of which male 1,953 41% 1,958 42% 1,842 44% TO OUR SHAREHOLDERS We are also committed to cooperation with employee representatives at our international locations, for example, with the local trade unions in Žalec (Slovenia), Querétaro (Mexico) and Bergamo (Italy). Our approach is guided by mutual respect and trust, and we work towards arriving at solutions to issues and challenges that adequately accommodate the interests of all par- ties involved. 59% 58% 56% Total for Asia 705 749 729 Of which female Of which male 38% 37% 35% 2 Our way of working together across all locations is deﬁned in our Code of Conduct. To safeguard the stand- ards and principles for personnel work in the interest of the Group, human resources at Novem are organised both centrally at headquarters and decentrally so that all employees can be offered the best possible support and development at a local level. Every employee has a deﬁned local contact who takes care of all their issues and concerns. We promote international communi- cation through an annual worldwide HR Conference, which is now planned once more for 2022. 62% 63% 65% NON-FINANCIAL REPORT Total worldwide 5,816 5,717 5,540 3 Dialogue and communication GROUP MANAGEMENT REPORT Attractive employer Our common purpose includes our commitment to col- lective freedom of association. We therefore promote close cooperation with employee representatives at the various levels. Taking account of employees’ interests is anchored in our Code of Conduct and applies equally across all our locations. Over the reporting period, there were no business locations where the right to freedom of association and collective bargaining was infringed or put at risk. We offer our employees a working environment that also rewards their performance in ﬁnancial terms. We provide performance-based compensation systems worldwide through bonus systems that we have estab- lished in the individual countries. In Germany, about 90% of all employees are remunerated according to collective bargaining agreements. Furthermore, there are non-payscale components that take into account the individual operational situation in the various departments. 4 CONSOLIDATED FINANCIAL At our locations across the world, a total of 5,540 people were employed at the end of the ﬁnancial year 2021/22. During this period, we were able to recruit a total of 889 new employees. STATEMENTS 5 The undesired ﬂuctuation rate among employees was around 3.2% for headquarters in Vorbach in the report- ing year (PY: 2.9%). To keep this undesired ﬂuctuation at a low level, we are orienting ourselves even more strongly towards the prospects of development for up- and-coming junior staff and are focusing our human resources work on further training for managers. The form of direct and indirect participation of employ- ees at Novem varies depending on country and loca- tion. In Germany, the Works Constitution Act regulates the corporate co-determination of employees. We also have trusting cooperation with the individual local Works Councils at each of the locations. The economic situation of the business is regularly discussed in the ANNUAL ACCOUNTS Our compensation package is complemented by addi- tional beneﬁts. In Germany, we fund the company pen- sion plan for our employees. In addition, we offer them capital-forming beneﬁts under the collective bargain- ing agreement. We also take account of the changing 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 25 CONTENTS needs of our employees and promote a good work-life balance for combining career and family. We therefore support ﬂexible working models and offer individual solutions in exchange with our employees. these conditions, we are extending our personnel mar- keting activities to social media in a pilot project. In the future, we would like to use Instagram, for instance, as a platform, to even better reach younger target groups in particular, such as trainees, participants in dual study degree programmes and career starters. Health and safety We protect the health and safety of our employees through a comprehensive health and safety manage- ment system. The topics of workplace safety and health protection throughout the Novem Group are managed by the central EHS Team, which is integrated within Central Quality Management. In addition, each site has an EHS Oﬃcer who implements the central objectives and goals. At our international locations, we likewise provide our employees with remuneration packages that fre- quently extend beyond the local statutory regulations. For example, Novem enables numerous employees in Mexico and Honduras to obtain a health and life insurance. Novem also provides employees in these two countries with ﬁnancial beneﬁts such as vacation and Christmas bonuses in addition to the statutory requirements. 1 TO OUR SHAREHOLDERS Novem has deﬁned multilocational processes in the guideline for health and safety in order to comply with statutory requirements for health and safety. Novem is planning to introduce a certiﬁed occupational health and safety management system in conformity with ISO 45001. By 2023, the German locations in Vorbach and Eschenbach as well as the production sites in Langfang (China), Pilsen (Czech Republic), Querétaro (Mexico) and Žalec (Slovenia) are to be successively certiﬁed; all production sites worldwide are scheduled to follow by 2025. 2 NON-FINANCIAL REPORT Number of employees on parental leave FY 2019/20 FY 2020/21 FY 2021/22 3 GROUP MANAGEMENT REPORT Number of employees in Germany 1,360 12 1,309 12 1,329 14 Of which female on parental leave Safety in the workplace 4 Of which male on parental leave 25 25 40 CONSOLIDATED FINANCIAL STATEMENTS We aim to comply with the legal requirements for health and safety. Furthermore, we want to make a contribution to improving systems and taking appropri- ate action to prevent accidents from occurring at all. At Novem, we focus in particular on the correct handling of hazardous substances such as paints, coatings and ﬁnishes. Total 37 37 54 With our attractive framework conditions, we aim to retain our staff and attract new employees. This is increasingly important in view of the challenges on the labour market: demographic change and the asso- ciated shortage of skilled workers are also having an impact on Novem – for example when it comes to ﬁlling vacant positions. Particularly specialists, e.g. in the ﬁelds of engineering and IT, are becoming increas- ingly hard to ﬁnd. In order to address new talents under 5 ANNUAL ACCOUNTS The basis for hazard- and accident-free work is our risk assessment process. This is holistically designed and thus covers all the key steps: hazards are determined, the level of risk is assessed and protective measures 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 26 CONTENTS are deﬁned on this basis. The method is strictly regu- lated and takes national, international and Novem- speciﬁc requirements into account. This ensures an overall view of the workplace while at the same time guaranteeing the highest possible level of safety. It can therefore be applied to all Novem locations and is cor- respondingly implemented at all of them. We review and update the risk assessments at regular intervals, for example, when new work equipment is introduced, new conditions in the workplace come into force in response to accidents or to evaluate existing protec- tive measures. We also provide our employees with training on occu- pational safety matters regularly. We make use of digital training methods and practical instruction ses- sions at relevant potential hazard points. The training sessions are prepared and carried out by the relevant EHS Departments, partly in cooperation with the spe- cialist departments. Our employees in administration at the Company’s headquarters receive annual safety brieﬁngs. sites and many locations abroad, ﬂu and Covid-19 vac- cinations are also offered directly on-site through the occupational healthcare service. During the Covid-19 pandemic, we implemented vari- ous measures at all our locations in order to protect our employees against infection. We published internal hygiene regulations, adjusted our workﬂows to mini- mise risk and ensured maximum physical distancing at the workplace. 1 TO OUR SHAREHOLDERS We ensure that all third-party subcontractors are able to work as safely as possible at Novem sites. A leaﬂet pro- vides them with information about all applicable plant- speciﬁc regulations, with instructions on workplace and plant safety, ﬁre prevention and environmental protection. At the same time, we expect our suppliers to comply with all the statutory and country-speciﬁc regulations and plant-speciﬁc rules at Novem. We consistently integrate all our employees in matters related to workplace safety. Employees must imme- diately inform their supervisors of work-related risks or hazardous situations. As part of the occupational safety committee meetings held on a quarterly basis at our German locations, we provide an opportunity for employee and employer representatives to discuss current issues relating to health and safety. Similar meetings are also held at our international locations. 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT Health promotion In addition to workplace safety, we also actively pro- mote the health of our employees. A central component of this is our integrated Company Healthcare Manage- ment (CHM), which extends beyond the statutory requirements. It comprises numerous measures for basic medical care and preventive health care. Indicators for health and safety at the Novem Group2 4 CONSOLIDATED FINANCIAL STATEMENTS FY FY FY 2019/20 2020/21 2021/22 All Novem employees have access to an occupational health service. Each of our locations has its own com- pany doctor, for example, who carries out all functions under the workplace safety laws and also participates in tours of inspection to assess ergonomic conditions. The locations of Querétaro (Mexico) and Tegucigalpa (Honduras) have a medical service that also carries out the functions of basic medical care. At the German Number of occupa- tional accidents with a period of absence 132 92 72 5 ANNUAL ACCOUNTS LTIF (Lost Time Injury Frequency) 11.3 0 8.1 0 6.8 0 Number of fatal oc- cupational accidents 6 ADDITIONAL INFORMATION 2ꢀPer 1 million hours worked NOVEM ANNUAL REPORT 2021/22 27 CONTENTS Equal opportunity and diversity Inclusion also plays an important role at Novem. During the year under review, we exceeded the statutory quota in Germany for employing people with disabilities by around 20% (PY: around 33%). In Vorbach, we continue to enable cooperation with the social services organisa- tion Lebenswerk in Bayreuth. People with disabilities are employed at our plant, which promotes their social participation. Commitment to society We support a work environment that permits diversity and guarantees equal opportunities and equal treat- ment, irrespective of ethnic background, skin colour, gender, disability, beliefs, religion, nationality, sexual orientation or social origin. These principles are deﬁned in our Code of Conduct. Novem sees itself as part of society. Consequently, we also want to shoulder responsibility beyond the bound- aries of our Group and play our part in contributing to the sustainable development of the communities at our locations in the future. We make our contribution to a sustainable society above all in the form of cash and in-kind donations, but we also become actively involved with the communities we operate in. The donation and sponsoring volume for the ﬁnancial year 2021/22 amounted to around €42 thousand. In accordance with our business principles, all activities were evaluated and approved by the Management Board. 1 The Novem Group is opposed to all forms of discrimi- nation. Every superior is urged to be the ﬁrst point of contact for possible cases of discrimination. Internal and external notiﬁcations and infringements can also be reported in conﬁdence using the newly installed whistleblower system or by email to Corporate Legal and Compliance. Furthermore, any employee affected can consult the relevant Works Council. No cases of discrimination became known at Novem in the report- ing year 2021/22. TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Our donations and sponsoring focus on the promo- tion of local and regional facilities, associations and organisations at the individual sites where the Group is located. Our mission is to strengthen social, cultural and community life. The donations are typically carried out as ﬁnancial payments. The supported institutions include the SOS Children’s Village, the Red Cross, hospi- tals and public organisations in the local communities, such as nurseries, ﬁre brigades and football clubs. In the ﬁnancial year 2021/22, for example, we supported the outdoor youth facility Waldjugend Eschenbach in reforesting a piece of forest near Eschenbach, where 3,500 trees were newly planted on an area of more than 8,000 sqm. 3 GROUP MANAGEMENT REPORT We support the principle of equal opportunities and equal treatment. We pay our employees the same remuneration for equivalent work, irrespective of gen- der. Across the world in 2021/22, the proportion of women on the highest level of management at Novem, which reports directly to the Management Board, was around 29% (PY: 28%). The share of women on the Management Board is 25% and on the Supervisory Board 20%. 4 CONSOLIDATED FINANCIAL STATEMENTS We are also committed to enthusing young women for technical vocations and study courses, for example, in wood technology or mechanical engineering. As part of this initiative, Novem once again participated in Girls’ Day in 2022. We are pleased that there is a balanced gender ratio among the participants in our dual study degree programmes. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 28 ENERGY AND EMISSIONS CONTENTS Climate protection furthermore all relevant regulatory environmental risks the installation of energy-eﬃcient heating systems, air-heating pumps and LED lighting. We also imple- mented numerous new measures in the ﬁnancial year 2021/22: at the Žalec plant, for example, optimisation of the differential pressure of the ventilation system in production saved 110,715 kWh; at our plant in Pilsen, we reduced energy consumption by 502,104 kWh by converting the entire plant lighting system to the latest LED technology. Both measures also brought signiﬁ- cant emission savings. that impact our business. We monitor international and national environmental legislation as well as customer- speciﬁc requirements, for example, along with other regulations in order to preclude possible violations (Sustainability organisation of Novem). In our corporate policy, we deﬁne environmental protec- tion, energy-saving and careful use of resources as part of our self-image. For us, the eﬃcient use of energy in combination with the reduction of our greenhouse gas emissions is essential. Group-wide responsibility for environmental concerns rests with the EHS Team, which is integrated within the Quality and EHS Department. Each location also has one or more EHS coordinators responsible for implementing and monitoring central regulations and site-speciﬁc measures. They are appointed by the facil- ity management and in agreement with the central EHS Management at the Novem Group. Group-wide targets are also set annually by the central EHS Department in cooperation with the Management Board on the basis of which the Novem locations deﬁne their own environ- mental targets and action plans. Energy consumption 1 TO OUR SHAREHOLDERS As a manufacturing company, the various stages in our production processes consume a considerable amount of energy. Most energy is used in surface manufacture, injection moulding, pressing and milling operations. Electricity and natural gas are the main energy sources used. 2 NON-FINANCIAL REPORT All energy management systems at our German facilities are certiﬁed in conformity with the ISO 50001 standard. To further extend our management system, we included our plant in Žalec (Slovenia) in the ISO 50001 certiﬁcation in the course of the reporting year. Novem also has an energy audit system at all European sites in conformity with ISO 16247. 3 GROUP MANAGEMENT REPORT All Novem production sites worldwide have certiﬁed environmental management systems in conformity with ISO 14001. This also extends to the identiﬁca- tion of potential negative impacts. To record these throughout the individual stages, we have carried out a mandatory impact assessment at all our sites every year since 2009 in order to derive appropriate group-wide targets and measures. For each individual category of relevant environmental impact – including emissions, for example – the severity and probability of occurrence are assessed along with the applicable legal framework. 4 In cooperation with the EHS coordinators at the plants, our central energy manager constantly reviews our overall energy consumption and the associated sav- ings potential. At our sites in Vorbach, Eschenbach and Pilsen (Czech Republic), we use an external energy data recording system for this purpose. In the course of implementing the ISO 50001 standard, this system was also installed at our location in Žalec. Further extension is planned in all plants for the coming business year. CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS The respective EHS coordinator reports environmental impacts to the respective plant manager and the cen- tral EHS manager on a regular basis. We also actively monitor all ESG-related risks and opportunities and When any new infrastructure is put in place or the man- ufacturing process is upgraded, modern and eﬃcient technology is a top priority. This includes, for example, 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 29 CONTENTS Energy consumption within the Novem Group by energy source Scope 2 emissions compared to the previous year – to a total of 63,761.97 t CO2e – due to the normalisation of the pandemic situation. in kWh FY 2019/20 28,651,092 FY 2020/21 30,470,022 FY 2021/22 28,904,293 Our efforts are intended to meet the increasing require- ments of our customers that are to be expected in future. In view of this situation, Novem is currently reviewing the various opportunities for effectively reducing its emissions. These include, amongst oth- ers, sourcing green electricity and using more eﬃcient transport routes in our logistics chain. For the ﬁnancial year 2021/22, we set ourselves the target of reducing relative and energy-related greenhouse gas emissions (Scope 1 and Scope 2, excluding refrigerants) per com- ponent by 2% compared to the ﬁnancial year 2020/21. We exceeded this goal by around 2.3%. Consumption of non-renewable fuels (oil and gas) Electricity, heat and cooling energy, and steam purchased for consumption, individually (electricity and district heating) 117,064,005 110,972,929 116,629,474 Total energy consumption 145,715,097 141,442,951 145,533,767 1 TO OUR SHAREHOLDERS Energy intensity at the Novem Group to determine CO2 equivalent values (CO2e). This cal- culation is based on the requirements of the Green- house Gas (GHG) Protocol. A distinction is drawn here between direct (Scope 1), indirect (Scope 2) and other indirect greenhouse gas emissions (Scope 3). Scope 1 emissions at Novem result, for example, from the combustion of fuels at our sites and from the fuel consumption of our own ﬂeet of company cars. The overwhelming proportion of Scope 1 emissions at our own production facilities is due to the use of natural gas and heating oil. Our Scope 2 emissions are attribut- able to energy production at our electricity suppliers. The other indirect emissions – in the category of Scope 3 – are due to activities in the supply chain related to activities such as the production of raw materials or the manufacture of intermediate products. Currently, we systematically record only Scope 1 and Scope 2 emissions from our prioritised emission sources. 2 FY 2019/20 FY 2020/21 FY 2021/22 NON-FINANCIAL REPORT Total consump- 145,715,097 141,442,951 145,533,767 tion (in kWh) In order to continuously reduce our emissions, we are reviewing effective climate protection measures are our locations. These measures could include con- verting our heating systems to renewable energy and installing photovoltaic power plants. We also intend to offset greenhouse gas emissions by promoting regional and supraregional environmental projects. We used the reporting period to examine the global market of environmental and green power projects for suitable cooperation partners. Produced com- ponents 28,006,495 26,822,984 28,562,299 3 Energy inten- sity ratio (kWh/ component) GROUP MANAGEMENT REPORT 5.2 5.3 5.1 Greenhouse gas emissions 4 CONSOLIDATED FINANCIAL We cause greenhouse gas emissions as a result of energy consumption at our production facilities. Emis- sions are also generated within our value chain in the course of our upstream and downstream activities. By continuously reducing our emissions, we aim to help protect the environment. STATEMENTS In the reporting year, the Scope 1 emissions of the Novem Group amounted to 9,803.14 t CO2e – and were thus above the level of the previous ﬁnancial year. This absolute increase is due to the increased production and the business travelling undertaken as well as to more precise data and the extended recording of emis- sions data. There was also a slight absolute increase in 5 ANNUAL ACCOUNTS Since 2019, we have been using environmental foot- print software from Sphera to determine our annual emissions. We input all the relevant climate gases3 6 ADDITIONAL INFORMATION 3ꢀThese include CO2, CH4, N2O, HFCs, PFCs, SF6, NF3 and all other volatile compounds from their chemical constituents. NOVEM ANNUAL REPORT 2021/22 30 CONTENTS Scope 1 – direct GHG emissions at the Novem Group in tonnes FY 2019/20 4,953 FY 2020/21 5,598 FY 2021/22 5,484 2,193 391 Natural gas Heating oil 2,816 2,575 LPG Refrigerants 577 1 TO OUR SHAREHOLDERS Fuels (company car ﬂeet) incl. ﬂights Total Scope 1 emissions 1,530 533 1,159 9,803 9,298 8,705 2 Scope 2 – indirect GHG emissions at the Novem Group NON-FINANCIAL REPORT in tonnes of CO2 equivalents Power1 FY 2019/20 66,038 FY 2020/21 61,255 FY 2021/22 63,762 3 63,7622 GROUP MANAGEMENT REPORT Total Scope 2 emissions 66,038 61,255 1ꢀThe market-based method was applied for this calculation. 2ꢀValue for FY 2021/22 by location-based method: 69,743 t CO2 equivalents Scope 3 – Greenhouse gas emission intensity at the Novem Group 4 CONSOLIDATED FINANCIAL STATEMENTS FY 2019/20 75,336 FY 2020/21 69,960 FY 2021/22 73,565 Total GHG emissions (in tonnes) Produced components 28,006,495 0.00269 26,822,984 0.00261 28,562,299 0.00258 5 GHG emission intensity (t CO2 equivalent/component) ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 31 Group Management Report 3 CORPORATE STRUCTURE AND BUSINESS ACTIVITIES CONTENTS Novem Group S.A., Luxembourg, formerly Car Interior Design (Luxembourg) S.à r.l., hereafter also referred to as the “Company” is a public limited liability company (Société Anonyme) incorporated in Luxembourg and governed by Luxembourg law. The registered oﬃce is 19, rue Edmond Reuter, L-5326 Contern, Grand Duchy of Luxembourg. surface ﬁnishes, there is steady and consistent reﬁne- ment of the processing of this raw material. Trims made of veneers are synonymous with exclusivity, as the natural growth and individual grain of the wood as raw material are unique. The special material properties not only have a direct inﬂuence on the design and atmosphere of the interior, but they are also speciﬁcally selected according to the criteria of sustainability, reduced weight and economy. Due to expert knowledge in the handling of different materials, the Group is able to meet customer require- ments at the desired level, as in the past. In order to continuously evolve further in terms of interior design, the Group always uses materials in an innovative man- ner. This is also underlined by the certiﬁcation of the Group plants according to IATF 16949 as well as DIN EN ISO 14001 and DIN EN ISO 5001. This ensures environmentally friendly production for the customer, combined with up-to-date quality and environmental requirements. The processing of lightweight metal aluminium is carried out through production processes that pre- serve the feel of this material. The trims are printed, painted, brushed, polished, galvanised or anodised using advanced processes. This creates surfaces that convey a feeling of sporty elegance and modernity in the vehicle interior. Novem Group S.A. is the parent company of the Novem Group (hereinafter also referred to as “Novem” or the “Group”). To ensure and maintain proximity to custom- ers, the Group has a global presence with 12 locations in China, Czech Republic, Germany, Honduras, Italy, Luxembourg, Mexico, Slovenia and USA. The ﬁnancial year of the Group is a 12-month period from 1 April until 31 March of the following year. 1 TO OUR SHAREHOLDERS 2 Carbon is seen as the material of the future. Due to its lightweight, it is particularly suitable for fast, dynamic and energy-eﬃcient driving. Furthermore, as a mate- rial made of carbon ﬁbres, carbon entails the attrib- utes of impact resistance and temperature resistance. Through high quality lacquering, priming and polishing processes, its premium ﬁnishing creates special 3D effects giving an impression of depth. NON-FINANCIAL REPORT As the global market leader in high-end interiors, the Company and its subsidiaries operate as developer, 3 supplier and system supplier for trim parts and decora - GROUP MANAGEMENT REPORT tive functional elements in vehicle interiors. The prod- ucts combine valuable raw materials with the latest technology and processing. The customers include all major premium carmakers worldwide. The Group has an extensive exclusive product portfolio of instru- ment panels, impact-resistant trim parts in the centre console, door trims, beltlines and decorative functional elements in the car interior. Premium materials are used to ensure high quality standards. The surfaces are versatile, ranging from ﬁne woods, aluminium, carbon to premium synthetics or leather, and present a differ- ent feel depending on the selection. Premium synthetics enable versatile design and pro- cessing options. A variety of optical effects can be achieved through creative processing techniques. Modern injection moulding processes such as 2K technology ensure excellent proﬁling and customer- oriented adjustment. 4 CONSOLIDATED FINANCIAL STATEMENTS Using novel materials such as rattan, linen or ﬁbreglass, the Group creates a new atmosphere in the vehicle inte- rior. In combination with light, this is how the Group trendsetting designs are created. 5 ANNUAL ACCOUNTS For more than 70 years, the Group has successfully used wood as raw material, which has helped the Group to become the world leader in the ﬁeld of ﬁne woods through high quality and natural processing. With the help of new technologies, material combinations and 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 33 KEY EVENTS CONTENTS On 19 July 2021, Novem Group S.A. was listed on the Frankfurt Stock Exchange for the ﬁrst time. The Group’s compelling business model and strong market position contributed to the success of the IPO, which aimed to expand growth opportunities. Despite that historical highlight in the Group’s history, the market momentum was impacted by an unpredictable and volatile trading environment with Covid-19 and the war in Ukraine adding multiple risks to an industry already challenged. Under these conditions, Novem is unable to foresee how long these uncertainties will last. ineﬃciencies in managing personnel costs and leased workers. Additionally, price increases for transporta- tion rates and increased freight expenses weighed on the ﬁnancial year margin. The scarcity of raw materials was one of the main reasons for the ongoing delivery diﬃculties for a wide variety of materials and purchased parts. Market prices reached record levels worldwide, which triggered signiﬁcant ﬂuctuations in the demand behaviour of the OEMs and made planning signiﬁcantly more challenging. Novem was directly affected as prices for certain raw materials such as aluminium, granulates, surface materials and adhesive ﬁlms rose sharply, which was due to temporarily limited availability on the market as suppliers limited material allocation per customer. Long-term relationships with key suppliers and a stable supply base helped Novem to avoid delays or stops due to material availability and achieve better prices com- pared to the market average. Lotus, which are now amongst the ﬁrst Chinese direct customers. A ﬂagship above all was the award-winning from Hyundai, which honoured Novem as Supplier of the Year. Depending on the regulations related to Covid-19, Novem continued having a global presence at customer sites or taking the opportunity of virtual roadshows, design exhibitions and technology forums. We seized the opportunity of digitalisation to be able to guarantee end-to-end customer support worldwide. 1 TO OUR SHAREHOLDERS By monitoring the market, the Group was able to react to market developments and future trends at an early stage. In addition to electronics, sustainability is a particularly important topic for vehicle manufacturers. Through continuous adjustments of production processes, Novem actively contributes to reducing the footprint of CO2-neutral production. Sustainability is also reﬂected in product innovations and concepts for wood, aluminium and plastics, partly bio-based polymers and lightweight design combined with bio-based, recycled or upcycled decors. For Novem, this development creates a competi- tive advantage with customers in awarding new projects. Novem demonstrated its strengths of operational ﬂex- ibility and its adaptability to changing conditions. The global economy and the automotive industry were burdened with the consequences and indirect effects of the Covid-19 pandemic. After a conﬁdent development in the summer months of 2021, Covid-19 cases in many countries increased signiﬁcantly again during autumn and winter, especially due to the spread of the Omicron variant. The government responded with intensiﬁed vac- cination campaigns, but also found itself increasingly compelled to impose temporary restrictions on public life again in order to continue to ensure a functioning healthcare system. 2 NON-FINANCIAL REPORT 3 The Covid-19 pandemic led to new challenges, also with regard to the working environment at Novem’s locations. Maintaining a functioning hygiene concept to keep the spread of the pandemic at a low level was a new part of daily business, centrally monitored by a crisis manage- ment team, also coping with different strategies from government and municipal authorities locally. Working from home, virtual collaboration and distance leadership have changed the internal communication processes and showed new possibilities. During this new normal, the focus was and still is on the well-being and health of all employees. Through vaccination campaigns, Novem met its responsibility to protect its employees. GROUP MANAGEMENT REPORT Novem’s business requires a high level of technical expertise for the design, development and manufacture of its products. Investments in technology, new materials and innovation are critical for long-term growth, which results in a continuous adaption of expertise in response to technological innovations, industry standards and customer requirements or preferences. To achieve this gain in expertise, Novem invested in a prototype shop for technology and innovation, including 3D printers, material processing laser, 3D ﬁller machine, laser scan- ning microscope and a digital printer. It is especially our design competence concerning surface materials, including veneer, aluminium, soft and hard-woven sur- faces, stone and premium synthetics, that makes Novem the preferred partner for OEM design centres. 4 CONSOLIDATED FINANCIAL Automotive manufacturers were confronted with sup- ply shortages and inﬂationary pressures for certain raw materials and components, in particular semiconduc- tors, which repeatedly led to temporary plant closures and subsequently to call-off reductions at suppliers. The short-term nature of demand adjustments made both short-term and medium-term planning considerably more challenging. The mitigation of these uncertainties was at the top of the agenda, translated into targeted planning of strategic safety stocks, forward-looking long- term demand planning and well-proven active conges- tion management. Nonetheless, the high volatility led to STATEMENTS 5 ANNUAL ACCOUNTS Despite all these challenges, the growth strategy con- tinued to be pursued. As part of that, Novem continued to strengthen its market presence in Asia and, in addi- tion to OEMs such as Hyundai and Geely, succeeded in acquiring projects with Hongqi (China FAW Group) and 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 34 BUSINESS AND GENERAL ENVIRONMENT CONTENTS Global economy in the spring in the face of a dramatic Covid-19 wave. In the rest of the world, economic activity weakened noticeably after the middle of the calendar year. The European market contracted further from the already weak level of the previous calendar year, but there was a slight growth in the USA and especially in China. Worldwide around 76.9 million cars were pro- duced in calendar year 2021, which marks an increase of 2.9% compared to 2020.1 In addition to the ongoing Covid-19 pandemic, the cur- rent situation in Ukraine since the Russian invasion on 24 February 2022, is having a noticeable impact on the global economy and in particular the European vehicle market. The disruption of supply chains and rapidly rising energy prices as well as production stops at customers in Europe and the cessation of exports to Russia are the result of this and prevent further expan- sion of global industrial production. The weakness in the manufacturing sector is probably largely attributable to increasing supply bottlenecks. Capacity problems in the logistics system, especially in maritime transport, have contributed to this. They are reﬂected not only in drastically increased freight rates but also in the fact that since the beginning of the calendar year the share of freight on ships not in ser- vice has risen sharply. Also of concern is the signiﬁcant increase in global container ship congestion, which can also be attributed to the lockdowns in China due to the zero-Covid policy. At the beginning of 2022, we are again facing supply diﬃculties and rising energy prices as a result of the ongoing war between Russia and Ukraine. Cable har- nesses, some of which are manufactured in Ukraine, cannot be delivered, which means that production is once again at a standstill for some automotive manu- facturer and their suppliers. 1 TO OUR SHAREHOLDERS In 2021, nevertheless, the global gross domestic prod- uct (GDP) increased by 5.8% in comparison to the previ- ous calendar year. In the Eurozone, GDP increased by 5.3%, in Japan by 1.7% and in the USA by 5.7%. Thanks to many exports, China even recorded growth of 8.1%. 2 NON-FINANCIAL REPORT Additionally, another big problem for the automotive industry is the current zero-Covid policy in China. Due to the spread of the highly contagious Omicron vari- ant, China is currently facing the worst Covid-outbreak since the peak of the ﬁrst wave in early 2020. Numerous European corporations are increasingly producing and selling in China, German carmakers are also affected. Various OEMs had to temporarily halt production at their Chinese plants due to the lockdown. Especially the automotive industry is increasingly suffering from supply bottlenecks, for example, for semiconductors and cable harnesses, whose manu- facturers are currently unable to meet all orders within the usual deadlines. The slight recovery is attributable to the measures taken by governments to contain the coronavirus. Because the waves of infection are becoming less synchronised, the economic impact is also very differ- ent. Especially in countries with high vaccination rates, higher incidences are now tolerated without contain- ment measures, severely affecting economic activity. 3 GROUP MANAGEMENT REPORT Meanwhile, the core rate of inﬂation has also risen sharply over the course of this calendar year, which is calculated excluding volatile components like energy and food prices. It is now higher than the central bank’s inﬂation target almost everywhere. 4 CONSOLIDATED FINANCIAL In the summer months, an increased incidence of infections, particularly in many Asian countries, led to signiﬁcant slowdowns in economic activity. By con- trast, the impact on production in the United States and Eurozone was mostly minor. Forecast for global economic development in 2022/2023 STATEMENTS Automotive markets The war between Russia and Ukraine weighs on the outlook for the global economy and brings with it great political uncertainty. Persistently high prices for energy and raw materials and the loss of food and fertiliser exports from Ukraine and Russia are the conse- quences. In the European Union economic growth will weaken signiﬁcantly. Delivery stops or even an import 5 The calendar year 2021 may be recorded as another crisis year in the history of automotive industry, with further disruptions to global supply chains thanks to the ongoing Covid-19 pandemic and semiconductor shortages. As a result, production was curtailed or even stopped in some areas. ANNUAL ACCOUNTS World output calculated on a purchasing power parity basis actually increased and rose quite strongly overall in the third quarter as economic activity in India recov- ered from the effects of a massive lockdown imposed 6 ADDITIONAL INFORMATION 1ꢀAccording to LMC data as per May 2022 NOVEM ANNUAL REPORT 2021/22 35 CONTENTS embargo for Russian energy sources are still being dis- cussed as sanctions against Russia. In the Eurozone, the high dependence on Russian energy imports poses a considerable risk for some member states. The world market prices of many raw materials have risen dramatically. Contrary to expectations, the inﬂa- tion rate has not decreased since the beginning of the calendar year. On the contrary, consumer prices and especially energy and food prices have continued to rise at strong rates. This is reducing the purchasing power of many households and dampening the recov- ery in consumer spending. 1 TO OUR SHAREHOLDERS 2 The German Council of Economic Experts forecasts a growth of the gross domestic product (GDP) of 3.3% in 2022 and 3.1% in 2023 while global trade is expected to grow by 1.8% in 2022 and 3.1% in 2023. In the Euro- zone, gross domestic product (GDP) is forecast to grow by 2.9% in both 2022 and 2023. NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT For 2022, the experts expect an overall inﬂation rate of 6.2%. However, the annual rate will decline from the 4th quarter of 2022, mainly due to a lower contribu- tion from energy prices. The inﬂation rate in 2023 is expected to be 2.9%, well below the 2022 rate but signiﬁcantly higher than the ECB’s 2% target. This is likely to be due to the pass-through of higher producer prices and higher wages, which will increase the core inﬂation rate. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 36 FINANCIAL PERFORMANCE CONTENTS in € million FY 2020/21 602.7 -12.7 590.0 17.9 FY 2021/22 614.6 29.5 Change 11.9 42.2 54.1 2.2 % change 2.0% Revenue Increase or decrease in ﬁnished goods and work in process Total operating performance Other operating income Cost of materials <-100.0% 9.2% 644.1 20.1 12.4% 15.5% 9.7% 284.0 144.4 30.9 328.0 158.5 31.4 44.0 14.0 0.4 Personnel expenses Depreciation, amortisation and impairment Other operating expenses Operating result (EBIT) Finance income 1.4% 1 76.2 73.5 -2.7 -3.5% TO OUR SHAREHOLDERS 72.3 8.2 72.9 3.4 0.6 0.8% -4.8 -58.9% -49.7% -47.9% -23.6% >100.0% -66.9% >100.0% Finance costs 51.3 25.8 -25.5 20.6 -5.0 2 Financial result -43.1 21.1 -22.4 16.1 NON-FINANCIAL REPORT Income taxes Deferred taxes -1.6 -9.7 -8.0 Income tax result 19.5 9.7 6.5 -13.0 34.2 Proﬁt for the period attributable to the shareholders 44.0 3 GROUP MANAGEMENT REPORT Differences from currency translation -2.1 -2.1 -2.1 0.6 9.2 9.2 11.3 11.3 4.1 <-100.0% <-100.0% <-100.0% <-100.0% <-100.0% <-100.0% >100.0% Items that may subsequently be reclassiﬁed to consolidated proﬁt or loss Actuarial gains and losses from pensions and similar obligations (before taxes) Taxes on actuarial gains and losses from pensions and similar obligations Items that will not subsequently be reclassiﬁed to consolidated proﬁt or loss Other comprehensive income/loss, net of tax 2.0 -0.5 1.5 -1.1 3.0 4 CONSOLIDATED FINANCIAL -1.5 -3.7 6.1 10.7 54.6 14.3 48.6 STATEMENTS Total comprehensive income/loss for the period attributable to the shareholders Earnings per share attributable to the equity holders of the parent (in €) 5 basic 1.02 1.02 ANNUAL ACCOUNTS diluted 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 37 CONTENTS Revenue Revenue Tooling the recovery of the production volumes. The cost of materials to output (total operating performance) ratio increased by 2.8 percentage points to 50.9% as a result of the negative inﬂuence of higher material prices and freight expenses. Total revenue of €614.6 million in the ﬁnancial year 2021/22 increased by €11.9 million or 2.0% compared to last year. Based on prior year (constant) exchange rates, revenue would have been lower by -1.1%. This currency impact was primarily inﬂuenced by the strong Chinese Renminbi and US Dollar. On a segmental basis, revenue in 2021/22 was generated in Europe (€317.9 million), followed by Americas (€221.7 million) and Asia (€75.0 million). Revenue Tooling contributed €49.6 million to total revenue in the ﬁnancial year 2021/22 (2020/21: €57.8 million). This lead to a year-on-year decrease of -14.1% or €-8.2 million due to a different project phasing. Personnel expenses Increase in ﬁnished goods and work in process 1 Personnel expenses amounted to €158.5 million in the ﬁnancial year 2021/22, up €14.0 million or 9.7% com- pared to last year. Personnel expenses as a percentage of total operating performance slightly increased by 0.1 percentage points year-on-year to 24.6% (PY: 24.5%). Lower personnel costs in the prior year resulting from temporary shutdowns and production stoppages as well as short-time work as a consequence of Covid-19. TO OUR SHAREHOLDERS Change of ﬁnished goods and work in process rose by €42.2 million (>100.0%) from €-12.7 in the ﬁnancial year 2020/21 to €29.5 million in the ﬁnancial year 2021/22 due to higher tooling inventories (€+28.5 mil- lion), stock of ﬁnished goods (€+8.2 million), work in process (€+1.7 million) and proﬁt in stock elimination (€+3.7 million). Revenue development 2 NON-FINANCIAL REPORT in € million FY 2020/21 FY 2021/22 % change Revenue Series Revenue Tooling Revenue 544.9 57.8 565.0 49.6 3.7% -14.1% 2.0% 602.7 614.6 3 Depreciation, amortisation and impairment GROUP MANAGEMENT REPORT Other operating income Novem reported depreciation and amortisation of €31.4 million in the ﬁnancial year 2021/22, a slight increase of 1.4% or €0.4 million compared to previous year. The increase was attributable to accelerated depreciation (€+0.5m) resulting from impairment in connection with the property in Kulmbach as well as depreciation on buildings (€+0.5m), on intangible assets (€+0.3m) and on other equipment (€+0.1m), partly offset by lower depreciation on machinery (€-0.9m) and depreciation on low value assets (€-0.1m). Revenue Series Other income increased by €2.2 million from €17.9 million in the ﬁnancial year 2020/21 to €20.1 million in the ﬁnancial year 2021/22. The deviation was mainly caused by higher income from release of accruals of €2.9 million and other income of €0.2 million, negatively affected by lower currency translation gains of €-0.9 million. Notwithstanding the diﬃcult trading conditions, rev- enue Series developed favourably in the ﬁnancial year 2021/22. Revenue Series recorded at €565.0 million in the current ﬁnancial year, up 3.7% compared to the same reporting period last year. Revenue Series accounted for 91.9% of total revenue and remained the key pillar of the business. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 Cost of materials ANNUAL ACCOUNTS Cost of materials increased from €284.0 million in the ﬁnancial year 2020/21 to €328.0 million in the ﬁnan- cial year 2021/22, resulting in a year-on-year change of 15.5%. This development was primarily attribut- able to the ﬁrst quarter of 2021/22, which included Other operating expenses Other operating expenses declined from €76.2 million in the ﬁnancial year 2020/21 by €-2.7 million to €73.5 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 38 CONTENTS million in the current ﬁnancial year. This decrease was mainly due to lower personnel related expenses, com- pensated by loss allowances on receivables. Finance income and costs The ﬁnancial result amounted to €-22.4 million for the ﬁnancial year 2021/22, compared to last year’s amount of €-43.1 million. 1 TO OUR SHAREHOLDERS Finance income decreased from €8.2 million in the ﬁnancial year 2020/21 by €-4.8 million to €3.4 million in the current ﬁnancial year. The decrease was solely attributable to foreign currency translation. 2 NON-FINANCIAL REPORT Finance costs primarily related to interest expenses and amounted to €25.8 million in 2021/22 (2020/21: €51.3 million), a decrease of -49.7% or €-25.5 million. This change is mainly due to the setup of the post- IPO reﬁnancing, which led to an improved interest rate structure. 3 GROUP MANAGEMENT REPORT Income tax result 4 CONSOLIDATED FINANCIAL STATEMENTS Both income taxes (€-5.0m) and deferred taxes (€-8.0m) declined in the period under review. The sig- niﬁcant change in deferred taxes was largely driven by the recognition of tax assets in the current ﬁnancial year. This resulted from interest carry-forwards being assessed as tax deductible based on the new ﬁnancing structure put in place in July 2021. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 39 CONTENTS Adjustments Adj. EBIT The Adj. EBIT margin of 13.2% for the ﬁnancial year 2021/22 was below prior year’s result of 14.3% by -1.1 percentage points, caused by lower revenue and increased input costs. Therefore the Adj. EBITDA mar- gin of 18.2% for the ﬁnancial year 2021/22 was also behind prior year’s margin of 19.5%, as depreciation and amortisation resulted on last year’s level. Adj. EBIT represents the operating result adjusted for exceptional non-recurring items. As such, Novem adjusts certain one-off effects to better show the underlying operating performance of the Group. The adjustments made follow a pre-deﬁned and transpar- ent approach and form part of the regular monthly closing and reporting routines. FY 2020/21 FY 2021/22 614.5 in € million Revenue1 EBIT Change 11.7 % change 1.9% 1 TO OUR SHAREHOLDERS 602.8 72.3 12.0% 6.0 72.9 0.8% 0.6 EBIT margin 11.9% Restructuring -100.0% -100.0% - -6.0 -2.6 -0.1 0.1 2 Adjustments Exceptional ramp-up costs Material quality claims Single impairments Covid-19 costs 2.6 NON-FINANCIAL REPORT -0.1 3.1 1.4 2.1 1.5 8.0 Adjustments in the ﬁnancial year 2020/21 comprised €6.0 million restructuring costs due to the closure of the plant Kulmbach, €3.0 million single provision for expected future ineﬃciencies and €2.6 million excep- tional ramp-up costs for a speciﬁc platform in Vorbach, €1.0 million Covid-19 expenses as well as €1.6 million Others. 3.0 1.0 4.6% 40.4% - 0.4 3 Transaction costs Others 2.1 GROUP MANAGEMENT REPORT 1.6 8.1 -2.8% -1.3% -0.0 -0.1 Exceptional items Discontinued operations Adjustments In the ﬁnancial year 2021/22, adjustments contained €3.1 million single provision for anticipated impending losses that related to a speciﬁc platform in Vorbach, €2.1 million transaction costs solely included expenses in connection with the stock market listing and €1.4 million Covid-19 related costs as well as €1.5 million Others. 14.2 86.4 8.0 80.9 -43.2% -6.4% -6.1 -5.5 4 CONSOLIDATED FINANCIAL Adj. EBIT STATEMENTS Adj. EBIT margin 14.3% 30.9 13.2% 30.9 Depreciation, amortisation and impairment Adj. EBITDA -0.1% -0.0 117.3 19.5% 111.7 18.2% -4.7% -5.6 5 Adj. EBITDA margin ANNUAL 1ꢀIncluding revenue-related adjustments ACCOUNTS In the ﬁnancial year 2021/22, adjustments were sig- niﬁcantly lower than prior year by €6.1 million mainly attributable to restructuring costs in the ﬁnancial year 2020/21 resulting from the closure of plant Kulmbach. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 40 FINANCIAL POSITION CONTENTS Assets Equity and liabilities in € million 31 Mar 21 0.1 31 Mar 22 0.4 Change 0.4 % change >100.0% >100.0% 31 Mar 21 3.6 31 Mar 22 3.1 Change -0.5 % change -14.3% -1.0% in € million Intangible assets Share capital Capital reserves 21.9 539.6 517.7 Property, plant and equipment Trade receivables 186.8 49.6 184.9 47.5 -1.9 Retained earnings/accumulated losses -2.1 -4.2% -528.3 -482.8 45.5 -8.6% Other non-current assets Deferred tax assets Total non-current assets Inventories 14.5 12.6 -1.9 -13.1% >100.0% 1.3% Currency translation reserve Total equity 1.2 -505.1 34.6 10.4 67.7 34.9 3.2 9.2 572.7 0.2 >100.0% <-100.0% 0.7% 1 9.0 18.8 9.9 TO OUR SHAREHOLDERS 263.5 95.5 267.0 129.4 37.7 3.5 Pensions and similiar obligations Other provisions 33.9 -15.3 1.4 35.5% -28.9% 5.1% 5.2 -2.0 -38.6% -71.1% -12.7% -0.4% Trade receivables 53.0 Financial liabilities Other liabilities 856.4 34.1 247.7 29.8 3.6 -608.7 -4.3 2 Other receivables 27.2 28.6 NON-FINANCIAL REPORT Deferred tax liabilities Total non-current liabilities Tax liabilities 3.7 -0.0 Other current assets Cash and cash equivalents Assets held for sale Total current assets Total assets 14.2 13.7 -0.5 -3.8% 933.9 14.9 319.1 13.8 48.0 1.4 -614.8 -1.1 -65.8% -7.3% 175.3 1.2 117.0 0.8 -58.3 -0.5 -33.3% -37.9% -10.7% -5.7% 3 Other provisions 53.9 -5.9 -11.0% -58.5% 13.8% 9.9% 366.4 629.9 327.0 594.0 -39.4 -35.9 GROUP MANAGEMENT REPORT Financial liabilities Trade payables 3.4 -2.0 61.8 70.4 73.7 207.3 594.0 8.5 Other liabilities 67.1 6.6 Total current liabilities Equity and liabilities 201.1 629.9 6.2 3.1% 4 -35.9 -5.7% CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 41 CONTENTS Total assets Working capital Non-current liabilities Total assets amounted to €594.0 million as of 31 March 2022, a decrease of -5.7% compared to the end of the last ﬁnancial year 2020/21 (31 March 2021: €629.9 million). Non-current liabilities decreased from €933.9 million as of 31 March 2021 by -65.8% or €-614.8 million to €319.1 million as of 31 March 2022. The decrease is attributable to the shareholder loan of €461.5 million, which was converted into equity. Besides that, the repayment of the €400.0 million Senior Secured Notes on 26 July 2021 contributed to the decrease. in € million Inventories 31 Mar 2021 31 Mar 2022 % change 57.7 47.1 -54.7 50.1 67.4 35.2 -61.6 41.0 16.9% -25.2% 12.7% Trade receivables Trade payables Trade working capital -18.1% Non-current assets 1 TO OUR SHAREHOLDERS Tooling net 62.9 12.0 74.4 11.9 18.2% -1.1% Non-current assets increased from €263.5 million as of 31 March 2021 by 1.3% to €267.0 million as of 31 March 2022. This movement resulted primarily from an increase in the deferred tax asset position by €9.9 million which corresponds to a doubling. Contract assets Net ﬁnancial debt Total working capital 125.0 127.3 1.8% in € million 31 Mar 2021 31 Mar 2022 % change 2 NON-FINANCIAL REPORT Liabilities from bond Total working capital amounted to €127.3 million as of 31 March 2022 and was therefore higher compared to 31 March 2021 by 1.8%. This subtle change was driven by higher safety stock and tooling net. Lower trade receivables (€-11.9 million) and higher trade paya- bles (€6.9 million) had a counterbalancing impact. As a consequence, total working capital in % of revenue remained stable at 20.7% (31 March 2021: 20.7%). 397.4 0.4 -100.0% 249.1 >100.0% 1.3 >100.0% Liabilities to banks Current assets Liabilities from derivatives (-) 3 0.4 36.1 Current assets decreased to €327.0 million com- pared to the previous balance sheet date (31 March 2021: €366.4 million), €-39.3 million or -10.7%. This change was mainly driven by the decline in cash and cash equivalents of €-58.3 million due to the repayment of the bond. Lower trade receivables of €-15.3 million were attributable to both a higher factoring level and lower revenue at the end of the ﬁnancial year. Through non-recourse factoring Novem sold trade receivables of €47.8 million as of 31 March 2022, exceeding the volume of €40.1 million as of 31 March 2021 by €7.7 million. Higher inventories had the largest counterbal- ancing impact (€+33.9 million). GROUP MANAGEMENT REPORT Lease liabilities 34.9 -2.1% Gross ﬁnancial debt 433.6 282.6 -34.5% Cash and cash equivalents -175.3 -117.0 -33.3% 4 Equity CONSOLIDATED FINANCIAL Net ﬁnancial debt 258.3 165.6 -35.3% STATEMENTS As of 31 March 2022, the equity position improved from €-505.1 million at the end of the last ﬁnancial year to €67.7 million, as the effects of the initial public offering became visible. As a result, capital reserves rose by €517.7 million. Currency translation differences to Euro increased by €9.2 million compared to the end of the last ﬁnancial year. Gross ﬁnancial debt as of 31 March 2022 amounted to €282.6 million (31 March 2021: €433.6 million) and thus posted a signiﬁcant decrease of €-151.0 million. Compared to the previous year, this sharp decline is mainly attributable to the redemption of the €400 mil- lion bond, which was partly offset by the drawdown of a new loan of € 250 million in July 2021. Cash and cash equivalents decreased by €-58.3 million compared to the ﬁnancial year 2020/21. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 42 CONTENTS Net leverage in € million 31 Mar 2021 31 Mar 2022 Net ﬁnancial debt LTM Adj. EBITDA Net leverage 258.3 117.3 2.2x 165.6 111.3 1.5x The net leverage ratio is deﬁned as net ﬁnancial debt divided by Adj. EBITDA for the last 12 months. The ratio signiﬁcantly improved from 2.2x Adj. EBITDA at the end of the ﬁnancial year 2020/21 to 1.5x Adj. EBITDA as of 31 March 2022. Despite the challenging trading conditions, Novem was able to successfully deleverage its balance sheet and demonstrate a robust ﬁnancing structure. The deﬁnition of net leverage has changed in accordance with the new senior revolving facility agreement as of this reporting date and now includes lease liabilities. As of 31 March 2021, lease liabilities amounted to €36.1 million and decreased by 3.5% to €34.9 million. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT Current liabilities 4 Current liabilities amounted to €207.3 million on the reporting date, an increase of 3.1% or €6.2 million com- pared to the previous balance sheet date (31 March 2021: €201.1 million). The increase was attributable to higher trade payables of 8.5 million or 13.8% inﬂuenced by business volume and active cash ﬂow management, followed by higher other liabilities of €6.6 million. The development was offset by lower other provisions by -11.0% or €-5.9 million. CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 43 CASH FLOWS CONTENTS FY 2020/21 105.5 -15.8 FY 2021/22 80.5 Change -25.0 0.3 % change -23.7% -1.8% in € million Cash ﬂow from operating activities Cash ﬂow from investing activities -15.5 Cash ﬂow from ﬁnancing activities -110.7 -21.0 -124.9 -59.8 -14.2 -38.9 1.4 12.8% Net increase (+)/decrease (-) in cash and cash equivalents Effect of exchange rate ﬂuctuations on cash and cash equivalents Cash and cash equivalents at the beginning of the reporting period Cash and cash equivalents at the end of the reporting period >100.0% >100.0% -10.6% 0.1 1.5 196.2 175.3 117.0 -20.9 -58.3 1 175.3 -33.3% TO OUR SHAREHOLDERS Cash ﬂow from operating activities largely driven by the setup of the new ﬁnancing struc- ture. The redemption of the Senior Secured Notes of €-400.0 million was, amongst others, compensated by the drawdown of the term loan facility of €250.0 mil- lion and lower interest paid of €-10.1 million due to the improved interest rate structure. 2 Cash ﬂow from operating activities stood at €80.5 mil- lion, which marked a decline of -23.7% or €-25.0 million compared to previous year (PY: €105.5 million). The development can be explained by the marked change of inventories by €36.1 million to mitigate risks in the global supply chain, amongst others. The considerable increase of proﬁt by €34.2 million compared to the last ﬁnancial year had a positive counterbalancing impact. NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT Cash ﬂow from investing activities 4 CONSOLIDATED FINANCIAL STATEMENTS Cash out-ﬂow for investing activities reached €-15.5 million in the ﬁnancial year (PY: €-15.8 million). The cash ﬂow was characterised by stable capital expen- ditures in property, plant and equipment compared to prior year. 5 ANNUAL ACCOUNTS Cash ﬂow from ﬁnancing activities As a total of €124.9 million, cash out-ﬂow from ﬁnanc- ing activities increased by €14.2 million in the ﬁnancial year 2021/22 (PY: €110.7 million). This change was 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 44 SEGMENT REPORTING CONTENTS Europe Americas Asia External revenue in Europe increased from €311.2 mil- lion in the ﬁnancial year 2020/21 by 2.1% to €317.8 million in the ﬁnancial year 2021/22. External revenue in Americas increased from €199.9 million in the ﬁnancial year 2020/21 to €221.7 million in the ﬁnancial year 2021/22 and exceeded prior by 10.9% or €21.8 million. The currency translation impact amounted to €2.2 million. External revenue in Asia declined from €91.7 million in the ﬁnancial year 2020/21 to €75.0 million in the ﬁnan- cial year 2021/22 (change of -18.2% in comparison to last year). This development was positively affected by a currency translation effect of €4.4 million. Europe accounted for 51.7% of total revenue in FY 2021/22 (PY: 51.6%). Americas accounted for 36.1% of total revenue in FY 2021/22 (PY: 33.2%). Asia accounted for 12.2% of total revenue in FY 2021/22 (PY: 15.2%). 1 Adj. EBIT generated in Europe amounted to €37.1 mil- lion in the ﬁnancial year 2021/22 and was thus 10.3% higher compared to the same reporting period last year (PY: €33.7 million). Adj. EBIT margin increased to 10.4% from 9.5% last year. TO OUR SHAREHOLDERS Adj. EBIT generated in Americas amounted to €27.6 million in the ﬁnancial year 2021/22 and was thus 6.2% higher compared to the same reporting period last year (PY: €26.0 million). Adj. EBIT margin decreased to 9.6% from 10.2% last year. Adj. EBIT generated in Asia amounted to €16.2 million in the ﬁnancial year 2021/22 and was thus -39.7% lower than in the same reporting period last year (PY: €26.8 million). Adj. EBIT margin decreased to 16.2% from 23.6% last year. 2 NON-FINANCIAL REPORT Slight increase in operating performance of the region in the ﬁnancial year 2021/22 compared to prior year mainly resulting from a strong market recovery after the lockdown in 2020/21, even though adversely hit by the customers’ stop-and-go approach due to raw material shortages (e.g. semiconductors and cable har- nesses) as well as increased commodity prices and energy costs. The moderate decline in the operating performance of the region in the ﬁnancial year 2021/22 was pre- dominantly driven by increased material prices and soared transport costs in the ﬁnancial year 2021/22, despite beneﬁting from a strong market recovery after the Covid-19 pandemic in the ﬁnancial year 2020/21. Compared to the other two regions, Asia beneﬁted from a pent-up demand after the pandemic in the ﬁnancial year 2020/21. This effect and newly imposed lockdowns due to the zero-Covid policy in the ﬁnancial year 2021/22 resulted in lower revenue. 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS in € million External revenue1 FY 2020/21 FY 2021/22 % change in € million FY 2020/21 FY 2021/22 % change in € million FY 2020/21 FY 2021/22 % change 311.2 317.8 2.1% External revenue 199.9 221.7 10.9% External revenue 91.7 75.0 -18.2% Revenue between segments Revenue between segments Revenue between segments 43.0 40.9 -5.0% 54.8 66.7 21.6% 21.8 24.9 14.2% Total revenue Adj. EBIT 354.3 33.7 358.7 37.1 1.2% 10.3% 9.0% Total revenue Adj. EBIT 254.7 26.0 288.4 27.6 13.2% 6.2% Total revenue Adj. EBIT 113.5 26.8 99.9 16.2 -12.0% -39.7% -31.5% 5 ANNUAL ACCOUNTS Adj. EBIT margin 9.5% 10.4% Adj. EBIT margin 10.2% 9.6% -6.2% Adj. EBIT margin 23.6% 16.2% 1ꢀIncluding revenue-related adjustments 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 45 STAND-ALONE RESULTS OF OPERATIONS AND FINANCIAL POSITION OF NOVEM GROUP S.A. CONTENTS For the stand-alone annual accounts of Novem Group S.A., please refer to chapter Annual accounts. Financial position The Company’s capital and reserves increased to €682.5 million (31 March 2021: €162.1 million). Total assets and total liabilities amounted to €935.9 million each (31 March 2021: €628.4 million). The amounts owed to credit institutions carried €250.0 million (31 March 2021: €0). In the course of the private placement and stock exchange listing, Novem Group S.A. entered into a facilities agreement comprising a term loan with a principal amount of €250.0 million and a revolving facility. As part of the replacement of the former bond of Novem Group GmbH, the principal amount was transferred with the incorporation of a new shareholder loan from Novem Group S.A. to Novem Group GmbH. Results of operations Fixed assets essentially comprise shares in aﬃliated undertakings, which increased to €674.2 million (31 March 2021: €160.2 million) and a shareholder loan with a principal amount of €250.0 million (31 March 2021: €442.2 million). 1 The Company’s other income amounts to €5.9 mil- lion (PY: €3.4 million) and results from services that are provided to other Novem Group entities based on the service agreement and a one-time effect from the reimbursement of transaction costs for the private placement and stock exchange listing (capital market transactions) . TO OUR SHAREHOLDERS 2 In the course of the private placement and stock exchange listing, the contribution of the past share- holder (intercompany) loan increased the shares in aﬃliated undertakings. Also a new intercompany loan was incorporated as part of the reﬁnancing within the Novem Group. This loan reﬂects with its principal amount the external bank facility. The loans given to Novem Group GmbH were used to replace the former bond. NON-FINANCIAL REPORT The external charges of €5.2 million (PY: €3.4 million) include mainly legal and advisory fees and to a smaller amount audit fees. The position amounts owed to aﬃliated undertakings of €0.8 million (31 March 2021: €461.9 million) included positions for cash pooling and cost recharges from other Novem Group companies for the transaction costs of the private placement and stock exchange listing. In the prior year, the position carried amounts of shareholder loans (principal amount and interest). 3 GROUP MANAGEMENT REPORT The interest income of €12.3 million (PY: €26.3 million) derives from intercompany loans to another Novem Group entity. The total interest expenses occurred from interest expenses for loans to related parties of €7.4 million (PY: €24.9 million) as well as interest expenses and fees to banks of €2.8 million (PY: €0). Current assets amounted to €8.0 million (31 March 2021: €26.1 million) and include mainly a newly incor- porated intercompany loan as part of the reﬁnancing, receivables from the service agreement and the Com- pany’s cash position. In the previous year, the position mainly included accrued interest from an intercompany loan. 4 In the course of the private placement and stock exchange listing, the contribution of the shareholder loans increased the capital and the term loan was incorporated as part of the reﬁnancing. CONSOLIDATED FINANCIAL STATEMENTS The proﬁt for the ﬁnancial year 2021/22 amounted to €1.1 million (PY: €1.0 million). 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 46 RISKS AND OPPORTUNITIES CONTENTS Risk and opportunity management and eﬃciency of the system is continuously adapted to new circumstances to be able to provide a holistic picture of the situation at all times. followed at all times or effectively detect and prevent violations of the applicable laws by one or more of the employees, consultants, agents or partners. As a result, Novem could be subject to penalties and mate- rial adverse consequences on the business, ﬁnancial condition or results of operations if the Group failed to prevent any such violations. Within its global footprint, Novem is exposed to dynamic conditions and thus faces several opportunities and risks. These include political and sector-speciﬁc risks, the risk of ensuring appropriate liquidity, currency risks, ﬁnancial risks, business process risks, research and development risks, litigation risks, loss of know-how and IT risks. The realisation of any of these risks could have a material and adverse effect on business, ﬁnan- cial condition and results of operations. Sustainable success is ensured through active risk management and the ability to correctly anticipate market trends and developments. Operational management is responsi- ble for identifying and exploiting opportunities. The aim is to identify opportunities in a timely manner and to take appropriate measures to utilise them. Novem states in its long-term strategy the high relevance to identify risks and opportunities arising from operations at an early stage, assessing them appropriately and mitigating them by speciﬁc measures. Compliance with economic, social and environmental standards is deep-rooted in the corporate philosophy. The Manage- ment Board makes use of various tools and control systems to prevent and in case of the occurrence of an event minimise the impact on the Group. Amongst the key components are continuous and detailed internal reporting and controlling processes as a focus of risk management, which aim to identify risks to assets, income or liquidity as early as possible and to take appropriate and effective steps to manage risks and seize opportunities. By monitoring the market and all stakeholders, continuous optimisation and adaptation to current challenges is guaranteed. Novem’s busi- ness opportunities and risks are recorded, analysed and evaluated through active multi-tiered planning, information and control processes. The effectiveness Legal risks Novem’s Group companies are and could become involved in legal, administrative and arbitration pro- ceedings. These proceedings or potential proceedings could involve, in particular in the United States, sub- stantial claims for damages or other payments. Based on a judgment or a settlement agreement, Novem could be obligated to pay substantial damages. The litigation costs and those of third parties could also be signiﬁcant. Members of governing bodies, employees, author- ised representatives or agents may intentionally or unintentionally violate applicable laws and internal standards and procedures, in particular in relation to anti-corruption, money-laundering, anti-trust and sanc- tions compliance as well as compliance with laws and regulations regarding sales practices, products and services, environment, ﬁnance, employment and gen- eral corporate and criminal law. However, there can be no certainty that the internal controls, procedures, compliance systems and risk management systems will be able to identify such violations, ensure that they are reported in a timely manner, evaluate them correctly or take the appropriate countermeasures and that they will be adequate for an enterprise of Novem’s scale and complexity. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Doing business on a worldwide basis requires Novem to comply with the laws and regulations of various jurisdictions. The international operations are subject to applicable anti-corruption laws and regulations and economic sanctions programs. Such programs may restrict business dealings with certain sanctioned countries. As a result of doing business in foreign countries, Novem is exposed to a risk of violating anti- corruption laws and sanctions regulations applicable in those countries where Novem, partners or agents operate. Worldwide operations increase the risk of vio- lations of anti-corruption laws or similar laws. Some of the countries in which Novem operates still lack a developed legal system with high standards regarding anti-corruption and similar laws and are perceived to have high levels of corruption. 3 GROUP MANAGEMENT REPORT 4 There can further be no certainty that any counter- measures Novem implements will be appropriate to reduce the corresponding business risks effectively, that breaches of law, regulations or internal controls have not occurred in the past or that their discovery would not result in signiﬁcant liability or reputational damage for the Group. Moreover, in light of continuously evolving legal and regulatory requirements and internal developments such as corporate reorganisations, there can be no certainty that the risk management systems, internal controls and compliance systems and related governance structures will adequately identify and address all relevant requirements. CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS While there are policies and procedures in place that are designed to promote compliance with applicable anti-corruption laws and sanctions, there can be no assurance that the policies and procedures will be 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 47 CONTENTS Novem has to comply with different regulatory regimes across the world that change frequently and are con- tinuously evolving and becoming more stringent, in particular with respect to environmental regulations, chemicals and hazardous materials as well as health and safety regulations. This applies also to air, water and soil pollution regulations and to waste legislation and regulation, all of which have recently become more stringent through new laws. Financial risks Even if Novem enters into certain further hedging arrangements in the future, there can be no assurance that hedging will be available on commercially reason- able terms. In addition, if the Group were to use any hedging transactions in the future in the form of deriva- tive ﬁnancial instruments, such transactions may result in mark-to-market losses. Novem operates worldwide and is therefore exposed to ﬁnancial risks that arise from changes in exchange rates. The primary exposure is to the Euro to US Dollar, US Dollar to Mexican Peso and Euro to Chinese Ren- minbi exchange rates. Currency exchange ﬂuctuations could cause losses if assets denominated in curren- cies with a falling exchange rate lose value, while at the same time liabilities denominated in currencies with a rising exchange rate appreciate. In addition, ﬂuctuations in foreign exchange rates could increase or reduce ﬂuctuations in the prices of materials, since Novem purchases a part of the raw materials with for- eign currencies. As a result of these factors, ﬂuctua- tions in exchange rates and, in particular a signiﬁcant appreciation of the Euro against other major curren- cies, could affect the results of operations. 1 Liquidity and credit risks TO OUR SHAREHOLDERS Moreover, Novem globally faces increasing require- ments regarding matters of corporate responsibility management and transparency, not only with respect to expectations from internal stakeholders, customers, investors and the general public but also concerning legal requirements. Working capital requirements can vary, depending in part on the level, variability and timing of custom- ers’ vehicle production, the number of new platform launches and the payment terms with customers and suppliers. Liquidity could also be adversely impacted if suppliers were to suspend normal trade credit terms and require payment in advance or on delivery. If the available cash ﬂows from operating activities are not suﬃcient to fund ongoing cash needs, Novem would be required to look to cash balances and availability for borrowings, including under the new senior facilities agreement dated 18 June 2021, to satisfy those needs. There can be no assurance that Novem, its suppliers or customers will continue to have access to these or other sources of liquidity. This may increase the risk that the Group cannot produce products or will have to pay higher input prices which may not be recovered in selling prices. 2 NON-FINANCIAL REPORT In addition, for the manufacturing facilities and opera- tions, Novem requires various permits and has to com- ply with the requirements speciﬁed therein. In the past, adjusting to new requirements has required signiﬁcant investments and the Group assumes that further sig- niﬁcant investments in this regard will be required in the future. 3 External and internal transactions involving the deliv- ery of products and services to and/or by third parties result in cash in-ﬂows and out-ﬂows which are denomi- nated in currencies other than the Euro or the functional currency of the respective subsidiary dealing with such cash ﬂow. To the extent that cash out-ﬂows are not offset by cash in-ﬂows resulting from operational business in such currency, the remaining net foreign currency exposure is not neutralised. GROUP MANAGEMENT REPORT 4 The vehicle approval process (homologation) and the implementation of increasingly stringent emission and consumption regulations are becoming more and more complex and time-consuming and may vary by country. CONSOLIDATED FINANCIAL STATEMENTS While the Group hedges a portion of the exposure to the exchange rate of the Euro to the US Dollar, Novem currently does not hedge all foreign exchange risks. In addition, a number of the consolidated companies report in currencies other than the Euro, which requires Novem to convert the respective ﬁnancial information into Euro when preparing the consolidated ﬁnancial statements. Furthermore, any additional requirements restricting or limiting car traﬃc with an aim at reducing green- house gas or other emissions could lead to a mate- rial decrease in car sales and consequently adversely affect demand for the Group’s products and services. Novem’s suppliers typically seek to obtain credit insur- ance for deliveries of raw materials and components to Novem. If for any reason the suppliers were not able to obtain such credit insurance, or not at commercial terms, they may not be able to offer the same pay- ment terms that the Group has historically received, which could signiﬁcantly increase working capital requirements. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 48 CONTENTS Any signiﬁcant change in the needs for or the avail- ability of working capital ﬁnancing or credit insurance may have a material adverse effect on liquidity. To strengthen the working capital structure Novem prac- tices a silent and non-recourse factoring program with a limit of €65,000 thousand. In case of liquidity short- ages, Novem possesses further facilities of €64,000 thousand. monitors the ﬁnancial markets in order to identify potential impacts in a timely manner and to determine any need for action. authorities were to successfully challenge the tax treat- ment or characterisation of any of the intercompany loans or transactions, it could result in the disallowance of deductions, a limitation on the ability to deduct inter - est expenses, the imposition of withholding taxes, the application of signiﬁcant penalties and accrued interest on intercompany loans or internal deemed transfers, the application of signiﬁcant penalties and accrued interest or other consequences. Tax risks Novem is subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the international scope of the operations and corporate and ﬁnancing structure. The Group is also subject to intercompany pricing laws, including those relating to the ﬂow of funds amongst companies pursuant to, for example, purchase agreements, licensing agreements or other arrangements. Adverse developments in these laws or regulations, or any change in position by the relevant authority regarding the application, administra- tion or interpretation of these laws or regulations in any applicable jurisdiction, could adversely affect Novem’s business, results of operations and ﬁnancial condition. Furthermore, the effective tax rate varies in each juris- diction in which Novem conducts business. Changes in the mix of earnings between jurisdictions with lower tax rates and those with higher tax rates could have a material adverse effect on proﬁtability. 1 TO OUR SHAREHOLDERS Interest rate risks Novem could accrue unanticipated tax expenses in relation to previous tax assessment periods which have not yet been subject to a tax audit or are currently sub- ject to a tax audit. It cannot be ruled out that ongoing and/or future tax audits may lead to an additional tax expense and/or payment. Novem is faced with moderate interest rate risks which mainly derive from obligations based on reference inter- est rates. Such variable interests affect the factoring program as well as the senior facility agreement. The two decisive reference interest rates are the 3-month Euribor relating to factoring fees for EUR-receivables and interest expenses for the senior facility agreement and the SOFR which represents the base rate for factor- ing fees resulting from USD-receivables. While a 10% increase in these reference interest rates would have no material impact regarding factoring fees the ﬁnancial expenses arising from the senior facility agreement wouldn’t be inﬂuenced at all by this scenario because every negative Euribor rate is deemed to be 0 in this agreement. 2 NON-FINANCIAL REPORT Customs risks and opportunities 3 GROUP MANAGEMENT REPORT The sales volume of Novem’s products and services depends upon the general global economic situation. Particular risks to the economic environment, inter- national trade and demand for the Group’s products may arise from growing protectionist sentiment in key markets and the introduction of further tariff and non- tariff barriers or similar measures due to increasing protectionist tendencies. 4 CONSOLIDATED FINANCIAL In addition, the tax authorities in any applicable juris- diction may disagree with the positions Novem has taken or intends to take regarding the tax treatment or characterisation of any transactions, including the tax treatment or characterisation of indebtedness, exist- ing and future intercompany loans and guarantees or the deduction of interest expenses. The Group could also fail, whether inadvertently or through reasons beyond its control, to comply with tax laws and regula- tions relating to the tax treatment of various ﬁnancing arrangements, which could result in unfavourable tax treatment for such arrangements. If any applicable tax STATEMENTS The interest rate risk regarding pension obligations is also moderate as their share of total assets only amounts to approximately 5%. Since the beginning of 2018, the previous US admin- istration announced a series of potential measures relating to international trade, which, individually or in aggregate, could have a material adverse impact on the global economy, international trade or the automotive industry. The US administration enacted a number of measures aimed at restricting the access of Chinese companies to the US market. Therefore they began to impose tariffs on certain products originating in China, 5 ANNUAL ACCOUNTS Financial market opportunities Favourable developments in interest rates and exchange rates can have a positive impact on Novem’s ﬁnancial result and earnings. The Group constantly 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 49 CONTENTS including a 25% tariff on automotive trim parts and a 7.5% on imports of aluminium. The Chinese govern- ment retaliated by imposing tariffs on several US prod- ucts. Even though the United States and China entered into an Economic and Trade Agreement in January 2020 as a ﬁrst step, the trade conﬂict between the two coun- tries has not been resolved until today. It is currently unclear whether the Biden administration will continue the trade policy of its predecessor. But the agreement in January 2022 on the import of steel and aluminium products from the EU into the US within the frame- work of a tariff quota and the resulting elimination of additional tariffs will enable a positive development for international trade between the EU and the US and is a ﬁrst step towards minimising trade barriers. Also, the Exit of the United Kingdom from the EU in January 2020 has an impact on the international busi- ness of automotive industries and other goods. After several negotiations and an extended transition period that ended in January 2021, the United Kingdom is no longer part of the single market and the customs union. The introduction of new borders, import restrictions and additional tariffs decrease the sales volume and harm existing supply chains. Even though the trade and cooperation agreement (TCA) between the EU and the United Kingdom prevents higher tariffs, inspec- tion certiﬁcates and other requirements like customs declarations that make border crossings more time- consuming and complicated are driving up trade costs now. Research and development risks and opportunities Future success depends on the ability to anticipate market trends as well as technological changes and to develop and bring to the market new and improved products in a timely manner. The automotive market, in particular, is characterised by progressive development towards more driver and passenger comfort features, quieter vehicles, electronic control and assistance systems. 1 TO OUR SHAREHOLDERS There can be no assurance that Novem will be success- ful in developing new products or systems or in bringing them to market in a timely manner, or at all, products or technologies developed by others will not render offerings obsolete or non-competitive, customers will not substitute the Group’s products with competing products, the market will accept Novem’s innovations, competitors will not be able to produce non-patented products more inexpensively from other sources or the Group will be able to adjust cost structure in the event of contraction of demand. Should Novem fail to develop appropriate strategies as a response to these or other market trends and should fail to enhance existing products, develop new products or keep pace with developing market trends or technology, growth opportunities could be lost or the Group could lose the opportunity to win new platforms from existing customers. Furthermore, if Novem devotes resources to the pursuit of new technologies and products that fail to be accepted in the marketplace or that fail to achieve high process robustness, all or part of these engineering and development expenses may be lost. 2 NON-FINANCIAL REPORT The US administration also replaced the North Ameri- can Free Trade Agreement (NAFTA) with the new USMCA in July 2020. The new United States-Mexico- Canada Agreement includes more stringent rules of origin provisions (e.g. increase of regional value con- tent) and requirements for a minimum percentage of manufacturing being made with labour above a certain minimum wage. Novem has substantial operations in Mexico which currently supply customers located in the United States under a preferred tariff system. The imposition of additional import restrictions, non-tariff trade barriers and/or tariffs could adversely affect the ability to supply customers in the United States or else- where. In addition, new import restrictions, non-tariff trade barriers and/or tariffs could result in higher prices for vehicles, which could, in turn, harm the demand for vehicles and thereby indirectly Novem’s products. In addition, the results of operations could also be affected by retaliatory measures from Europe, China or other countries imposing tariffs on the United States. In addition, the current political uncertainty between the east and the west might lead to another increase in energy prices as well as political and economic sanctions. The increase in regional or international trade barriers, including anti-dumping tariffs and the withdrawal of countries from bilateral and multilateral trade agreements could have a negative impact on the global economic environment and can thus lead to lower demand for the Group’s products. The automo- tive industry supply chain has developed over decades and relies on existing trade arrangements to provide for cross-border supplies of raw materials, automotive parts and other components. The impact of terminat- ing existing trade arrangements could be materially disruptive to the supply chains resulting in immediate shortages of critical parts and components necessary to manufacture automobiles and other vehicles. 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS A trend to highly integrated products on the OEM side can lead to a trend where only full system suppliers will be Tier-1 suppliers. Novem’s business requires a 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 50 CONTENTS high level of technical expertise for the design, develop- ment and manufacture of products. Novem invests in technology, new materials and innovation which the Group believes will be critical to long-term growth and furthermore needs to continually adapt its expertise in response to technological innovations, industry stand- ards and customer requirements or preferences. Customer and market risks and opportunities The ﬁnancial condition of customers is affected by the sales of their vehicles, which may be impacted by several factors, including general economic conditions. In particular, purchases of the customers’ products may be limited by their customers’ inability to obtain adequate ﬁnancing for such purchases or by decreas- ing customer demand for light vehicles in general. Novem’s products are highly competitive in respect of price, quality, delivery performance, innovation, prod- uct design, engineering capability and service, facing signiﬁcant competition in all regions within each major product category. The ability to anticipate changes in technology and market trends and to successfully develop and intro- duce new and enhanced products or manufacturing processes on a timely basis will be a signiﬁcant factor in the ability to remain competitive. New technologies, materials or changes in industry and customer require- ments may render one or more of the current offerings obsolete, excessively costly or otherwise unmarketable. The Group may not fully or accurately assess the cred- itworthiness of customers. In particular, the ﬁnancial condition of and demand for Novem’s products from OEM customers have been and continue to be affected by the Covid-19 pandemic. Signiﬁcantly lower global production levels tightened liquidity and increased cost of capital have in the past combined to cause ﬁnancial distress amongst many OEMs and other customers and suppliers in the automotive industry and could have a similar impact in the future. 1 Some of Novem’s competitors, in particular in the Asian market, have in the past engaged, and may in the future continue to engage, in highly competitive strategies, such as predatory pricing or mergers and acquisi- tions, to gain market share. While Novem currently has a strong market position in the market for premium decorative interior trim elements, if consolidation continues in the automotive components sector, the Group may have to compete against growing competi- tors who beneﬁt from increased economies of scale or are part of large integrated groups and who may have greater ﬁnancial and other resources or a more complete global footprint. Such competitors may also be less margin sensitive than Novem and attempt to increase their market share through pricing below cost. In addition, suppliers that do not currently compete with Novem could expand their product portfolios to include products that compete directly with ours. Changes in the product focus of larger suppliers could also result in such suppliers establishing relationships with custom- ers that reduce or entirely replace Novem’s business with those customers. Given the Group’s strong market position, OEMs have in the past awarded and may in the future award certain platforms to competitors to diversify their supplier portfolio, which has resulted or may result in the loss of nominations in the future and which may limit the potential for future growth of Novem’s market share. TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT If there is a shift away from the use of materials or technologies in which Novem is investing, the costs may not be fully recovered, including, for example, the costs and expenses incurred in connection with the development of or investment in such material or technology. Novem may be placed at a competi- tive disadvantage if other materials or technologies emerge as industry-leading. One of the most important future challenges is sustainability, where OEMs already demand a high degree of recycled raw materials and a precise action plan towards CO2-neutrality. The focus on sustainability of the business is seen as essential for the long-term success of the Group. Additionally, private users of transportation increasingly use modes of transportation other than the private automobile, especially in connection with growing urbanisation and car sharing. The increased use of car sharing concepts and new city-based car rental schemes could reduce dependency on private automobiles and demand for customised premium vehicles. 3 Although Novem supplies products to almost all lead- ing premium OEMs, the Group depends on certain large customers for a signiﬁcant proportion of revenue. In the ﬁnancial year 2021/22, the three largest customers represented approximately 75% of revenue. The loss of all or a substantial portion of the revenue with any of the large-volume customers could have a material adverse impact on Novem’s business, ﬁnancial condition and results of operations. This risk could also materialise if the content per vehicle awarded to Novem were to decrease or if a lower amount of content per vehicle than expected is awarded. While Novem generally has beneﬁtted from an increasing content per vehicle in the past, there have also been platforms with a decreasing content per vehicle. GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS In addition, the market for premium vehicles is signiﬁ- cantly consolidated with a limited number of premium OEMs primarily based in Europe. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 51 CONTENTS The amount of business with Asian-based OEMs gener- ally lags that of the largest customers in Europe, partly due to the existing relationships between these Asian- based OEMs and their preferred suppliers. raw materials have ﬂuctuated signiﬁcantly in recent years and have further increased in the recent past. In addition, Novem uses large amounts of energy in the manufacturing process the price of which is also subject to signiﬁcant volatility. Such volatility in the prices of these commodities could increase the costs of manufacturing products. For example, the Group has in the past experienced and continues to experience signiﬁcant increases in the price for electrical energy for the manufacturing facilities in Pilsen and Slovenia. In addition, supply shortages or delays in delivery of raw materials, components or energy can also result in increased costs of manufacturing products. Novem does not actively hedge against the risk of rising prices of raw materials or energy. Contracts with customers do not include pass-through mechanisms regarding inﬂationary price increases on raw materials or energy prices and if Novem is not able to compensate for such price increases or undertake cost-saving measures elsewhere in operations, they could have a material adverse impact on the ﬁnancial results. border controls, health checks and delayed customs processing or due to limitation of travel in logistics caused by the Covid-19 or another pandemic. The Covid-19 pandemic has harmed the Group’s supply chain, for example, as a result of production suspen- sions at suppliers or additional border or import checks. While Novem has not experienced material diﬃculties in maintaining the supply chain, the Group had to take countermeasures such as using air freight instead of sea freight and increasing inventory, which in turn negatively impacted proﬁtability. Since the beginning of 2021, Novem has also experienced minor delays in shipments to the United Kingdom as a result of new rules for trade including new border control procedures and customs forms. Consolidation amongst customers could result in an increasingly concentrated client base of large custom- ers which could, among others, increase the bargaining power of current and future customers. Mergers of cus- tomers with entities that are not Novem’s customers could also materially impact the ﬁnancial position and results of operations. 1 TO OUR SHAREHOLDERS Market-speciﬁc opportunities primarily relate to con - 2 sumer spending trends concerning the automotive industry. The trend for interiors is to view the car more as a wellness oasis on wheels. Interior design and details are setting standards and decisively inﬂuencing consumer behaviour. Novem’s objective is to stabilise and maintain its attained growth and to generate future, proﬁtable growth. Management pays close attention to how the automotive market responds to developments in consumer conﬁdence. The Group’s product and ser- vice range put Novem in a good position to beneﬁt from expected future trends. Its global presence allows it to shift activities in markets in order to realise cost- cutting potential and further enhance its proximity to the customer. NON-FINANCIAL REPORT In recent years, Novem has broadened its supplier base to include new suppliers in local markets, particularly the United States, Mexico, Canada and Asia, that have not yet proven their ability to consistently meet the Group’s requirements. The lack of even a small single subcomponent or raw material necessary to manufac- ture one of the products, for whatever reason, could force Novem to cease production, possibly for a pro- longed period. Similarly, a potential quality issue could force Novem to halt deliveries while validating the pro- ducts. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach the customer. If Novem ceases timely deliveries, the Group has to absorb its own costs for identifying and solving the cause of the problem, as well as expedi- tiously producing and shipping replacement products. 3 GROUP MANAGEMENT REPORT Logistics risks 4 Complex supply and delivery chains make logistics pro- cesses in Novem’s industry very vulnerable to disrup- tions. As a result, Novem has experienced in the past, and expects to continue to experience in the future, temporary decreases in orders from customers due to supply chain disruptions. CONSOLIDATED FINANCIAL STATEMENTS Material and supplier risks 5 ANNUAL ACCOUNTS Prices of certain raw materials and the energy the Group relies on are linked to commodity markets and thus subject to ﬂuctuation. The primary raw materials and components used in the products are chrome and plastic parts, wood, aluminium, granu- lates, glue and synthetic materials. The prices of such In general, supply chain disruptions may result from many reasons, including closures of supplier facili- ties or critical manufacturing facilities due to strikes, mechanical breakdowns, electrical outages, ﬁre, explo- sions, as well as logistical complications resulting from weather or other natural disasters, mechanical failures, If Novem is unable to deliver products to the custom- ers on time, the customers may be forced to cease production and may seek to recoup losses, which could be signiﬁcant. Thus, any supply chain disruption could 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 52 CONTENTS cause the complete shutdown of an assembly line of one of Novem’s customers, which could expose the Group to material claims for compensation. Group, including as a result of collective bargaining on terms that may be considered below-market standard by employees. suppliers could result in delays, decreased productiv- ity or closures of assembly facilities where the Group’s products are needed for assembly. In addition, the Group is exposed to the risk of lower order volumes from customers due to a disruption to their supply chain which is unrelated to Novem’s products. For example, OEMs are currently faced with a global shortage of semiconductors, which has resulted in lower production volumes and temporary production suspensions at many OEMs, including some of Novem’s customers. Increased prices in the supply chain could also be caused by the requirements imposed by the German Supply Chain Duty of Care Act to be expected to enter into force on 1 January 2023. The manufacture of many of the Group’s products requires signiﬁcant technical skills and expertise. The success of the operations and growth strategy will therefore also depend on attracting and retaining skilled and qualiﬁed personnel maintaining high quality standards globally. The labour markets for production staff in some of the regions in which Novem is active, such as the Czech Republic, Germany, Mexico or Slo- venia, are characterised by very low unemployment rates and strong historic employment growth, resulting in intense competition for qualiﬁed personnel and an increased turnover rate. Furthermore, the ongoing Covid-19 pandemic leads to new challenges. A new part of the daily business is to maintain a working hygienic concept to keep the spread of the pandemic at a low level. However, with ongoing infections especially in the private area, there is a risk of missing workers due to infections within their households and additional quarantines as a so- called ﬁrst-contact person. The labour market had also changed. It gets increasingly challenging to ﬁnd the needed employees to ﬁll vacancies. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Increasing labour costs in certain low-cost countries in which the Group operates such as China, the Czech Republic, Honduras, Mexico or Slovenia, may erode the proﬁt margins and compromise price competitive- ness. Recent wage increases have increased average wage expenses per employee and although Novem undertakes various incentive programs to improve the productivity of employees, as well as cost-effective automation initiatives designed to reduce labour costs, these measures may be insuﬃcient to offset increases in personnel costs or the Group may be unable to effec- tively manage these increases in the future. Personnel risks and opportunities The business could be adversely impacted by strikes and other labour disputes as well as by the ongoing Covid-19 pandemic. 3 Novem’s success depends on attracting and retaining managing directors, executive oﬃcers, senior manage- ment, key employees and other skilled and unskilled personnel. The loss of key employees including man- agement, directors, executives and other skilled person- nel could have a material adverse effect on the Group’s market position. Due to intense competition within the industry, there is a risk of losing qualiﬁed employees to competitors or being unable to ﬁnd a suﬃcient number of appropriate new employees. Considerable expertise could be lost or access thereto gained by competitors. GROUP MANAGEMENT REPORT Novem operates a large, global business with 5,540 employees as of 31 March 2021. The labour force in the automotive industry, including Novem’s labour force, is highly unionised, especially in Europe and Mexico. Over the past several years, the Group’s industry and the industries in which Novem’s customers operate have experienced strikes, lockouts, refusals to work or plant seizures. Although in the recent past the Group has not experienced, and at present is not experiencing any major labour disputes, the relationships with employ- ees and unions at various locations could deteriorate in the future and the Group could experience strikes, further unionisation efforts or other types of conﬂicts with labour unions or employees. Refusals to work or work downtime experienced by customers or other 4 CONSOLIDATED FINANCIAL STATEMENTS Personnel development and apprenticeship programs are a special chance to retain a high standard and knowledge within Novem’s workforce. 5 There is no assurance that the Group will be successful in retaining its executives and employees in key posi- tions or in attracting new employees with correspond- ing qualiﬁcations. Although Novem tries to retain the commitment of qualiﬁed executives and key employees through performance-based remuneration systems, there is a risk that any such individuals will leave the ANNUAL ACCOUNTS The development of employees is a key issue. This is all about giving people the skills to pursue entrepreneurial goals, while at the same time combining this with the speciﬁc development aspirations of individual needs. Alongside the annual employee appraisal interviews, regular feedback talks are held at Novem. As part of 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 53 CONTENTS their discussions, supervisors and their employees identify the necessary areas for action and therefore create individually tailored programmes. business relationship. Maintaining such standards, which are regularly reviewed by Novem’s customers, is essential to building long-term customer relationships. Environmental, health and safety risks Many of the sites at which Novem operates have been used for industrial purposes for many years, leading to risks of contamination and resulting in site restoration obligations. In addition, under federal and state environ- mental laws and regulations (including state property transfer laws), the Group could be held responsible for the remediation of offsite areas impacted by its sites and operations, natural resource damages, and/ or third party claims (e.g. for bodily injury or property damage). Regulatory authorities could assert claims against Novem, as the current or former owner or ten- ant (operator) of the affected sites or as the party that caused or contributed to the contamination, for the investigation or remediation or containment of such soil or groundwater contamination or other environ- mental media (e.g. surface waters), including related to Novem’s use of non-owned treatment, storage and disposal sites or order the Group to dispose of or treat contaminated soil excavated or water encountered in the course of construction. Novem could also be liable to the owners or occupants of sites leased, sites the Group sells, or other impacted properties. Costs typically incurred in connection with such claims are generally diﬃcult to predict. Also, if any contamination were to become a subject of public discussion, there is a risk that the reputation or relations with customers could be harmed. Novem believes that the responsibility for independ- ent career development is with individual employees. Supervisors and Human Resources see themselves as facilitators by making instruments, training courses and feedback talks available. These include, amongst others, development meetings that enable Novem to identify employees’ career-progression aspirations and agree on a plan of action. Through continuous learning, the Group prepares its employees for future challenges. Thinking ahead going forward and strengthening the development of individuals is a key strategy for Novem to shape future talents. As a manufacturer, Novem is subject to product liabil- ity lawsuits and other proceedings alleging violations of due care, violation of warranty obligations (implied and expressed), treatment errors, safety provisions and claims arising from breaches of contract or ﬁnes imposed by government or regulatory authorities. Given the large amounts of products manufactured and distributed to a variety of customers in the automotive sector, Novem is from time to time faced with liability claims related to actual or potentially deﬁcient charges of products and may therefore be held liable in cases of death, bodily injury or damage to property caused by a defective product manufactured by the Group. The risks arising from such warranty and product liability lawsuits, proceedings and other claims are insured up to levels the Group consider economically reasonable, but the insurance coverage could prove insuﬃcient in individual cases. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Quality risks and opportunities 3 GROUP MANAGEMENT REPORT As a supplier of premium decorative interior trim prod- ucts, one of the determining factors for Novem’s cus- tomers in purchasing components and systems is the high quality of products and manufacturing processes. A decrease in the actual or perceived quality of prod- ucts and processes could damage Novem’s image and reputation as well as those of the products. In addition, defective products could result in loss of sales, loss of customers and loss of market acceptance or could damage the Group’s reputation and market perception. Furthermore, Novem manufactures many products pursuant to customer speciﬁcations and quality requirements. If the products manufactured and deliv- ered do not meet the requirements stipulated by the customers at the agreed date of delivery, production of the relevant products is generally discontinued until the cause of the product defect has been identiﬁed and remedied. Furthermore, Novem’s customers could potentially claim damages for breach of contract, even if the cause of the defect is remedied at a later point in time. In addition, failure to perform with respect to quality requirements could negatively affect the market acceptance of the Group’s other products and market reputation in various market segments. 4 CONSOLIDATED FINANCIAL STATEMENTS Greenhouse gas emissions have increasingly become the subject of substantial international, national, regional, state and local attention. Greenhouse gas emission laws and regulations have been promulgated in certain of the jurisdictions in which Novem operates, and additional greenhouse gas requirements are in vari- 5 At some locations, certain product certiﬁcations with regard to speciﬁcations and quality standards are con- sidered a necessity or premise for the acceptance of products by customers and markets. As such, Novem must obtain and maintain the relevant certiﬁcations to be nominated as a supplier as well as for an ongoing ANNUAL ACCOUNTS 6 ous stages of development. In addition, the US Environ - ADDITIONAL INFORMATION mental Protection Agency (EPA) has issued regulations NOVEM ANNUAL REPORT 2021/22 54 CONTENTS limiting greenhouse gas emissions from mobile and stationary sources pursuant to the US Clean Air Act. The ﬁnal Carbon Pollution Standards for new, modiﬁed and reconstructed power plants reﬂect the degree of emission limitation achievable through the application of the best system of emission reduction that the EPA has determined has been adequately demonstrated for each type of unit. Novem’s customers may seek price reductions to account for their increased costs result- ing from greenhouse gas requirements. incidents occur, Novem could be subject to prosecu- tion and litigation, which could result in ﬁnes, penalties and other sanctions and could cause damage to the reputation. customers. Such failure could cause economic loss for which Novem could be liable and may expose the Group to governmental investigations, disciplinary actions and ﬁnes. A failure of the IT systems could also cause damage to Novem’s reputation which could harm the business. The implementation and maintenance of management systems for environment, health and safety are required to fulﬁl legal and customer obligations. Ongoing audits from third parties must conﬁrm the effectiveness of these systems to validate these certiﬁcates and thus be considered as a supplier. 1 TO OUR SHAREHOLDERS Germany, as one of the measures intended to meet national climate targets, recently expanded its national CO2 pricing and trading system to include emissions from the burning of fossil fuels by vehicles. The sys- tem entails mandatory emission certiﬁcates that must be acquired by sellers of fossil fuels and the costs of which are expected to be passed on to end consum- ers, i.e. vehicle users. The initial price for an emission certiﬁcate has been set at €25 per ton of CO2 for 2021 and is expected to step up to approximately €55 to €65 per ton of CO2 in 2026. The new system has already resulted in higher fuel prices in Germany and is expected to have a further signiﬁcant impact in the future, which could in turn have a negative effect on the demand for vehicles in Germany. IT risks 2 NON-FINANCIAL REPORT Novem relies heavily on centralised, standardised information technology systems and networks to support business processes, as well as internal and external communications. Any failure in the operation of these IT systems could result in material adverse consequences, including disruption of operations, loss of information or an unanticipated increase in costs. In addition, from time to time, the Group is required to make investments to maintain and/or upgrade the IT systems and networks and such investments may be signiﬁcant. 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS Growing pressure to reduce greenhouse gas emissions from mobile sources could reduce automobile sales, thereby reducing demand for products and ultimately revenue. The risk of computer viruses, cyber-attacks and secu- rity breaches is further increased as a growing number of employees work remotely. A signiﬁcant or large-scale malfunction or interruption of one or more IT systems could adversely affect the ability to keep operations running eﬃciently or at all and affect product availabil- ity. Furthermore, it is possible that a malfunction of data security measures or a cyber-attack could enable unauthorised persons to access sensitive business or personal data, including information on the Group’s intellectual property or business strategy or those of 5 ANNUAL ACCOUNTS The nature of operations subjects Novem to various statutory and regulatory compliance and litigation risks under health, safety and employment laws. There can be no assurance that there will be no accidents or incidents suffered by employees, contractors or other third parties on the Group’s sites. If any accidents or 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 55 CORPORATE GOVERNANCE STATEMENT CONTENTS The Company is a Luxembourg public limited company (Société Anonyme) and as such is subject to the cor- porate governance regime as set forth in particular in the Companies’ Law. case applied accordingly to a public limited company (Société Anonyme) with a two-tier governance system under Luxembourg law. The internal control systems and risk management for the establishment of ﬁnancial information are described in the section Risk and opportunity man- agement. According to the Articles of Association, the Management Board must be composed of at least two members, whereas the Supervisory Board must be composed of at least three. The Supervisory Board has set up the following committees in accordance with the Articles of Association: the Audit and Risk Com- mittee and the Nomination and Remuneration Com- mittee. The Audit and Risk Committee is responsible for the consideration and evaluation of the auditing and accounting policies and the Company’s ﬁnancial controls and systems. The Remuneration Committee is responsible for making recommendations to the Super- visory Board and the Management Board on the terms of appointment and the beneﬁts of the members of the Management Board of the Company. Further details on the composition and purpose of these committees and the Supervisory Board are described in the sec- tion Report of the Supervisory Board as well as in the section Setup and organisation of the Management Board regarding the Management Board. The Annual General Meeting shall be held at such time as speci- ﬁed by the Management Board and/or the Supervisory Board in the convening notice. The Company’s Supervisory Board or its Audit and Risk Committee arranges for the Company’s external auditors to inform it and note in the Audit Report if, during the performance of the audit, the external audi- tors identify any facts that indicate an inaccuracy in adhering to the recommendations in C.10, D.3, D.9 or D.11 of the GCGC, in each case applied accordingly to a public limited company (Société Anonyme) with a two-tier governance system under Luxembourg law. As the Company’s shares are listed on a regulated mar- ket, the Company is further subject to the provisions of the Shareholder Rights Law. 1 Being a Luxembourg public limited company, with its shares exclusively listed on a regulated market in Ger- many, the Company is neither required to adhere to the Luxembourg corporate governance regime applicable to companies admitted to the regulated market in Luxembourg nor to the German corporate governance regime applying to stock corporations organised in Germany. TO OUR SHAREHOLDERS 2 For the avoidance of doubt, the Company is subject to Luxembourg law with respect to the accounting princi- ples relating to its ﬁnancial statements and therefore does not fall within the application of the German Commercial Code (Handelsgesetzbuch). As a result, recommendation D.3 of the GCGC was followed by the Company to the extent possible. NON-FINANCIAL REPORT The Company has set up its own corporate governance structure, in order to address its own speciﬁc needs and interests, and has, for such purpose, adopted and chosen to abide by its own corporate governance rules, as further described below, rather than to voluntarily apply either of the Luxembourg or Germany govern- ance regimes, and to set up its corporate governance structure. 3 GROUP MANAGEMENT REPORT By virtue of European and Luxembourg law, Novem Group is obliged to report on non-ﬁnancial and diversity information relating to it. Novem’s Non-ﬁnancial Report will be published together with this Annual Report, i.e. on 30 June 2022. In accordance with Article 7bis of the Shareholder Rights Law, the Company must fur- ther draw up a remuneration policy for the Supervisory Board and the Management Board of Novem Group S.A. reﬂecting the principles and measurement for the remuneration of the members of such boards. The Company must as well publish a Remuneration Report, with both the report and the remuneration policy being published separately from the present Annual Report on the Novem IR website on 22 July 2022. 4 CONSOLIDATED FINANCIAL STATEMENTS As the German corporate governance code (“GCGC”) does not apply to the Company, it does not have to issue a declaration of conformity with the GCGC under section 161 of the German Stock Corporation Act (Aktiengesetz). The Management Board and Supervisory Board may convene extraordinary general meetings as often as the Company’s interests so require. An extraordinary general shareholders’ meeting must be convened upon the request of one or more shareholders who together represent at least one-tenth of the Company’s share capital. 5 ANNUAL ACCOUNTS Solely for purposes of section 4.1.1.1 of the Guide to the DAX Equity Indices of STOXX Ltd., the Company declares that it does not deviate from recommenda- tions C.10, D.3, D.9 and D.11 of the GCGC, in each Each share entitles the holder to one vote. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 56 CONTENTS The right of a shareholder to participate in a General Meeting and to exercise the voting rights attached to their shares are determined with respect to the shares held by such shareholder on the 14th day before the General Meeting. voting rights), and AVGP Limited, St. Helier, Jersey (direct: 2,409,424 voting rights attached to shares or 5.60% of total voting rights). shareholders may be re-convened to a second General Meeting. No quorum requirements apply with respect to such second General Meeting and the resolutions are adopted by a majority of two-thirds of the votes validly cast, without counting the abstentions. D) The Articles of Association of the Company do not contain any restrictions on voting rights. Each shareholder can exercise their voting rights in person, through a proxy holder or in writing (if provided for in the relevant convening notice). E) There are no agreements with shareholders which are known to the Company and may result in restric- tions on the transfer of securities or voting rights within the meaning of the Transparency Directive. G) Powers of the Management Board: 1 • • The Company is managed by a Management Board under the supervision of the Supervisory Board. TO OUR SHAREHOLDERS The information required pursuant to Article 10.1 of Directive 2004 / 25 / EC on takeover bids which has been implemented by Article 11 of the Takeover Law is set forth here below under Disclosure Regarding Article 11 of the Luxembourg Law on Takeovers of 19 May 2006. F) Rules governing the appointment and replacement of Management Board members and the amend- ment of the Articles of Association: The Management Board is vested with the broadest powers to perform or cause to be performed any actions necessary or useful in connection with the purpose of the Company. All powers not expressly reserved by the Com- panies’ Law or by the Articles of Association to the General Meeting or the Supervisory Board fall within the authority of the Management Board. 2 NON-FINANCIAL REPORT • The members of the Management Board are appointed by the Supervisory Board, or in the case of a vacancy, by way of a decision adopted by a majority of the remaining Management Board members for the period until the next Supervisory Board Meeting. • Disclosures pursuant to Article 11 of the Luxembourg Law on Takeovers of 19 May 2006 3 GROUP MANAGEMENT REPORT • • Certain measures are subject to the prior approval of the Supervisory Board on the terms set out in the Articles of Association and the Rules of Procedure of the Management Board. The Management Board may appoint one or several persons, including but not limited to members of the Management Board or share- holders, at the exclusion of any member of the Supervisory Board, who shall have full authority to act on behalf of the Company in all matters pertaining to the daily management and affairs of the Company. • • • Management Board members are appointed for a term not exceeding six years and are eligible for re-appointment. Management Board members may be removed at any time with or without cause by the Super- visory Board by a simple majority of the votes. A) For information regarding the structure of capital, reference is made to section 3.9 of the consolidated ﬁnancial statements. 4 CONSOLIDATED FINANCIAL STATEMENTS B) The Articles of Association of the Company do not contain any restrictions on the transfer of shares of the Company. Resolutions to amend the Articles of Associa - tion may be adopted in the manner foreseen by the Companies’ Law, i.e. by a majority of two-thirds of the votes validly cast, without counting the abstentions, if the quorum of half of the share capital is met. If the quorum require- ment of half of the share capital of the Company is not met at the Annual General Meeting, the 5 C) According to the voting rights notiﬁcations received until 31 March 2022, the following shareholders held more than 5% of total voting rights attached to Novem shares: COHV AG, (indirect: 33,505,583 voting rights attached to shares or 77.87% of total ANNUAL ACCOUNTS • The Management Board is also authorised to appoint one or several persons, either members of such board or not, at the exclusion of any 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 57 CONTENTS member of the Supervisory Board, for the pur- poses of performing speciﬁc functions at every level within the Company. • • The Management Board may also appoint com- mittees to which it may delegate some of its tasks and the members of which may, but do not have to be members of the Management Board, at the exclusion of any member of the Supervisory Board. The Management Board is authorised to issue shares in the Company under the Articles of Association, which set the authorised capital of the Company, including the issued share capital at €520,000, represented by 52,000,0000 shares. Such authorisation has been granted for a period of ﬁve years beginning on 30 June 2021. During such period the Management Board, with the consent of the Supervisory Board, may issue new shares under the author- ised share capital, limit or cancel any preferen- tial subscription rights. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT • The Articles of Association of the Company allow for a redemption of shares within the limits of the law, however, there is currently no buyback authorisation to the Management Board in place. 4 CONSOLIDATED FINANCIAL STATEMENTS H) The Company is, given the nature of its business and its ﬁeld of activity, party to agreements which would take effect, alter or terminate upon a change of control of the company following a takeover bid, as is usual in the sector in which it operates. 5 ANNUAL ACCOUNTS I) There are no agreements between the Company and its Management Board members or employ- ees providing for compensation if they resign or are made redundant without valid reason or if their employment ceases because of a takeover bid. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 58 SUBSEQUENT EVENTS CONTENTS There were no events or developments that could have materially affected the measurement and presentation of the Group’s assets and liabilities as of 31 March 2022 other than disclosed in note 5.15 of the consolidated ﬁnancial statements. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 59 OUTLOOK CONTENTS Since the beginning of the war in Ukraine on 24 Febru- ary 2022, the level of uncertainty over the future has further increased. Apart from the geopolitical crisis, the invasion has fuelled the surge in energy prices and ampliﬁed inﬂationary pressures in basically all areas of life. While Novem has no direct exposure to both Russia and Ukraine, the full impact on the business has to be seen. Until now, the Group has been able to keep its strong market and ﬁnancial position with its resilient business model. 1 TO OUR SHAREHOLDERS In terms of economic outlook, global car production faces new headwinds from the war in Ukraine. How- ever, latest market data suggest the demand for light vehicles to accelerate in 2022/23 as global supply is expected to become progressively less constrained and automakers begin restocking their inventories and ﬁlling their sales channels. Novem will closely monitor the developments and take all necessary precautions to adapt to the changing situation. 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT Against this background, it is not possible to issue a reliable outlook. However, the Group anticipates solid growth compared to prior year and the key perfor- mance indicators to remain robust in the coming year. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 60 Consolidated 4 ﬁnancial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the ﬁnancial year ended 31 March 2022 CONTENTS in € thousand Revenue Note 4.1 FY 2020/21 602,718 -12,716 590,002 17,858 284,045 144,440 30,940 76,152 72,285 8,222 FY 2021/22 614,628 29,471 644,100 20,071 327,998 158,483 31,372 73,454 72,864 3,380 Increase or decrease in ﬁnished goods and work in process Total operating performance Other operating income Cost of materials 4.2 4.3 4.4 4.5 4.6 Personnel expenses Depreciation, amortisation and impairment Other operating expenses Operating result (EBIT) Finance income 1 TO OUR SHAREHOLDERS 4.7 4.7 Finance costs 51,292 -43,070 21,122 -1,641 25,821 -22,440 16,131 -9,679 2 Financial result NON-FINANCIAL REPORT Income taxes 4.8 4.8 Deferred taxes Income tax result 19,480 9,735 6,452 Proﬁt for the period attributable to the shareholders 43,972 3 GROUP MANAGEMENT REPORT Differences from currency translation 3.9 -2,122 -2,122 -2,121 583 9,177 9,177 1,978 Items that may subsequently be reclassiﬁed to consolidated proﬁt or loss Actuarial gains and losses from pensions and similar obligations (before taxes) Taxes on actuarial gains and losses from pensions and similar obligations Items that will not subsequently be reclassiﬁed to consolidated proﬁt or loss Other comprehensive income/loss, net of tax 3.10 -487 4 CONSOLIDATED FINANCIAL -1,537 -3,660 6,075 1,491 10,668 54,640 STATEMENTS Total comprehensive income/loss for the period attributable to the shareholders Earnings per share attributable to the equity holders of the parent (in €) 5 basic 4.9 4.9 1.02 1.02 ANNUAL ACCOUNTS diluted 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 62 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as of 31 March 2022 CONTENTS Assets Equity and liabilities Note 3.1 3.2 3.4 3.7 4.8 31 Mar 21 3,618 31 Mar 22 3,100 Note 3.9 31 Mar 21 62 31 Mar 22 430 in € thousand in € thousand Intangible assets Share capital Property, plant and equipment Trade receivables 186,787 49,645 14,519 8,974 184,905 47,541 12,619 18,845 267,009 129,388 37,671 28,584 13,667 116,967 760 Capital reserves 3.9 21,891 -528,289 1,245 539,630 -482,826 10,422 67,656 34,871 3,172 Retained earnings/accumulated losses Currency translation reserve Total equity 3.9 Other non-current assets Deferred tax assets Total non-current assets Inventories 3.9 1 -505,091 34,644 5,169 TO OUR SHAREHOLDERS 263,543 95,470 53,003 27,202 14,206 175,299 1,224 Pensions and similiar obligations Other provisions 3.10 3.12 3.13 3.3 3.4 3.5 3.7 3.6 3.8 Trade receivables Financial liabilities 856,387 247,683 2 3.14 3.15 3.17 Other receivables NON-FINANCIAL REPORT Other liabilities 34,083 29,753 Other current assets Cash and cash equivalents Assets held for sale Total current assets Total assets Deferred tax liabilities Total non-current liabilities Tax liabilities 4.8 3,651 933,934 14,887 53,901 3,381 3,635 319,113 13,805 47,974 1,404 3 366,404 629,947 327,036 594,045 3.11 3.12 3.13 3.16 GROUP MANAGEMENT REPORT Other provisions Financial liabilities Trade payables 61,849 70,384 3.14 3.15 3.17 4 Other liabilities 67,087 73,708 CONSOLIDATED FINANCIAL STATEMENTS Total current liabilities Equity and liabilities 201,104 629,947 207,275 594,045 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 63 CONSOLIDATED STATEMENT OF CASH FLOWS for the ﬁnancial year ended 31 March 2022 CONTENTS in € thousand Proﬁt for the period Note FY 2020/21 9,735 FY 2021/22 43,972 16,131 21,674 31,372 884 in € thousand Cash repayments of loans Note FY 2020/21 -77,177 FY 2021/22 Income tax expense (+)/income (-) 4.8 4.5 21,122 48,062 30,939 -4,029 5,355 Cash received from loans 247,649 48,827 Financial result (+)/(-) net Cash in-ﬂow (+)/out-ﬂow (-) from shareholders of the parent company 0 Depreciation, amortisation and impairment Other non-cash expenses (+)/income (-) Increase (-)/decrease (+) in inventories Increase (-)/decrease (+) in trade receivables Increase (-)/decrease (+) in other assets Increase (-)/decrease (+) in deferred taxes Cash repayments (-) of bond/cash received from (+) issuance of bond 5.6 -400,000 -30,741 19,967 2,896 Cash paid for (-) subsidies/grants Cash paid for (-) ﬁnance leases Interest paid (-) -3 -10,384 -4 -8,366 8,865 1 3.14 -7,324 -1,544 TO OUR SHAREHOLDERS -23,137 -12,994 -124,889 -10,118 Cash ﬂow from ﬁnancing activities -110,702 Increase (-)/decrease (+) in prepaid expenses/ deferred income -37 1,022 Net increase (+)/decrease (-) in cash and cash equivalents -20,961 93 -59,840 1,508 Increase (+)/decrease (-) in provisions Increase (+)/decrease (-) in trade payables Increase (+)/decrease (-) in other liabilities 14,264 4,006 -8,075 8,158 702 2 Effect of exchange rate ﬂuctuations on cash and cash equivalents NON-FINANCIAL REPORT -4,517 Cash and cash equivalents at the beginning of the reporting period 196,166 175,299 175,299 116,967 Gain (-)/loss (+) on disposals of non-current assets 135 20 Cash and cash equivalents at the end of the reporting period 3 Cash received from (+)/cash paid for (-) income taxes -19,527 105,506 28 -17,330 80,536 7 GROUP MANAGEMENT REPORT Cash ﬂow from operating activities Cash received (+) from disposals of property, plant and equipment Cash paid (-) for investments in intangible assets -901 -443 4 CONSOLIDATED FINANCIAL STATEMENTS Cash paid (-) for investments in property, plant and equipment 4.7 -18,122 -18,147 Interest received (+) 3,229 3,095 Cash ﬂow from investing activities -15,765 -15,487 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 64 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the ﬁnancial year ended 31 March 2022 CONTENTS Other retained earnings/ accumulated losses Currency translation reserve Capital reserves in € thousand Note 3.9 Share capital Equity -511,166 9,735 Balance as of 01 Apr 20 62 21,891 -536,487 9,735 3,368 Proﬁt or loss for the year Other comprehensive income or loss Comprehensive income or loss for the year Balance as of 31 Mar 21 -1,537 -2,122 -2,122 1,245 -3,660 8,198 6,075 1 62 21,891 21,891 -528,289 -505,091 TO OUR SHAREHOLDERS Balance as of 01 Apr 21 62 -528,289 1,245 -505,091 368 Profit or loss for the year Other comprehensive income or loss Comprehensive income or loss for the year Issue of new shares Contribution of shareholder loan 368 517,739 517,739 43,972 10,668 54,640 67,656 2 43,972 1,491 NON-FINANCIAL REPORT Balance as of 31 Mar 22 3.9 3.9 9,177 9,177 430 539,630 45,463 -482,826 10,422 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS 1 General information in vehicle interiors in the premium sector. The products combine valuable raw materials with the latest technol- ogy and processing. Typically, the products are used as instrument panels, impact-resistant trim parts in the centre console, door trims, beltlines and decorative functional elements in the car interior. the signiﬁcance of these parameters for measurement as a whole: 1.1 Reporting entity • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, or can be derived indirectly from other prices. Level 3 inputs are unobservable inputs for the asset or liability. Novem Group S.A. was originally formed as a private company (société à responsabilité limitée) for an unlimited period of time under the laws of Luxembourg on 12 July 2011 pursuant to a deed of incorporation published in the Mémorial, Recueil des Sociétés et Associations C on 28 September 2011, number 2306. At that time, the Company’s legal name was Car Interior Design (Luxembourg) S.à r.l. The consolidated ﬁnancial statements were authorised for issue by the Management Board on 27 June 2022. 1 TO OUR SHAREHOLDERS Under Luxembourg Law, the consolidated ﬁnancial statements are approved by the shareholders at their Annual General Meeting. • The Group recognises reclassiﬁcations between differ- ent levels at the end of the reporting period in which the change occurred. 2 On 30 June 2021, the extraordinary General Share- holders’ Meeting converted the Company’s corporate form from a private limited liability company (société à responsabilité limitée) to a public company limited by shares (société anonyme). As a consequence, the shares (parts sociales) were also converted and became actions with no nominal value. The Company’s corporate name was amended to Novem Group S.A. The oﬃcial version of the accounts is the ESEF ver- sion available with the Oﬃcially Appointed Mechanism (OAM) tool. NON-FINANCIAL REPORT The Group classiﬁes assets and liabilities as current if they are expected to be realised or settled within 12 months after the reporting date. If assets and liabilities have both a current and non-current component, they are broken down into their maturity components and reported as current and non-current assets or liabilities in accordance with their accounting classiﬁcation. 3 1.2 Basis of preparation and presentation method GROUP MANAGEMENT REPORT These consolidated ﬁnancial statements have been prepared on the basis of historical cost. This excludes derivative ﬁnancial instruments and certain hybrid agreements in which the host contract represents a ﬁnancial asset, as well as trade receivables that are sold under factoring agreements. These are measured at fair value through proﬁt or loss. Novem Group S.A. (hereinafter also referred to as the “Company”) is domiciled in Contern , Luxembourg, and is registered in the commercial register of Luxembourg under register ﬁle number B 162.537. The Company’s registered oﬃce is at 19, rue Edmond Reuter, 5326 Contern , Luxembourg. 4 These consolidated ﬁnancial statements are presented in Euro, the Company’s functional currency. All amounts are rounded to the nearest thousand Euro, unless otherwise indicated. Totals in tables were calculated on the basis of exact ﬁgures and rounded to the nearest thousand Euro. For computational reasons, there may be rounding dif- ferences to the exact mathematical values in tables and references (monetary units, percentages, etc.). The Group has consistently applied the accounting and consolida- tion policies to all periods presented in these consoli- dated ﬁnancial statements. The consolidated statements of proﬁt or loss and other comprehensive income have been prepared using the nature of expense method. CONSOLIDATED FINANCIAL STATEMENTS The Company’s ﬁnancial year is from 1 April to 31 March of the following year (12-month period). The con- solidated ﬁnancial statements include Novem Group S.A. and its subsidiaries (hereinafter also referred to as “Novem” or the “Group”). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transac- tion between market participants at the measurement date. The fair value can either be directly observable or otherwise be estimated using a valuation technique. When measuring fair value using a valuation technique, it has to be categorised into one of the following levels depending on the available observable parameters and 5 ANNUAL ACCOUNTS 6 Novem operates as developer, supplier and system sup- plier for trim parts and decorative functional elements ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 66 CONTENTS The consolidated ﬁnancial statements as of 31 March 2022 have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted by the European Union (EU). The term IFRS includes all applicable International Account- ing Standards (IAS) as well as all interpretations and amendments by the International Financial Reporting Standards Interpretations Committee (IFRS IC) – for- merly the International Financial Reporting Interpreta- tions Committee (IFRIC). adoption, this is due to the fact that the transactions, other events or conditions affected by the new IFRSs do not currently exist within the Group. Potential impact on the consolidated ﬁnancial statements Effective date New standards or amendments Annual periods beginning on or after 1 January 2022 Annual Improvements 2018-2020 Narrow-scope amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 negligible 1 Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets Onerous Contracts – Costs of Fulﬁlling a Contract Annual periods beginning on or after 1 January 2022 TO OUR SHAREHOLDERS negligible Annual periods beginning on or after 1 January 2022 Amendments to IAS 16: Property, Plant and Equipment Proceeds before Intended Use negligible negligible negligible negligible negligible no impact negligible Novem Group S.A. has prepared the consolidated ﬁnancial statements as of 31 March 2022 on a going concern basis. From the current perspective, there are no risks to the continued existence of the Company. In its assessment, management considered the proﬁt for the last years as well as the strong cash positions. The management also considered the positive cash in- ﬂow from operating activities. Reference is also made to section 3.9, which reﬂects the IPO process by the creation and issuance of new shares as well as the conversion of the shareholder loan into equity. Annual periods beginning on or after 1 January 2022 Amendments to IFRS 3 Business Combinations: Reference to the Conceptual Framework 2 NON-FINANCIAL REPORT Annual periods beginning on or after 1 January 2023 Amendments to IAS 8: Changes in Accounting Estimates and Errors: Deﬁnition of Accounting Estimates Annual periods beginning on or after 1 January 2023 Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies 3 Annual periods beginning on or after 1 January 2023 Amendments to IAS 1: Classiﬁcation of Liabilities as Current or Non-current GROUP MANAGEMENT REPORT Annual periods beginning on or after 1 January 2023 IFRS 17 Insurance Contracts: Replacement of IFRS 4 and Amendments to IFRS 17 Annual periods beginning on or after 1 January 20231 Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from Single Transaction 4 1.3 Effects of new ﬁnancial reporting 1ꢀEU endorsement still pending CONSOLIDATED FINANCIAL standards STATEMENTS The following table shows the new or amended stand- ards effective in 2021. The application of the new stand- ards has not had any signiﬁcant impact on these ﬁnancial statements. Please refer to section 5.4 and section 5.10. The IASB has issued or revised a number of reporting standards and interpretations that will not become effective until a future date. These new standards and interpretations will not be applied by the Group before they become effective in the EU. 5 ANNUAL ACCOUNTS Impact on the consolidated ﬁnancial statements Effective date New standards or amendments Annual periods beginning on or after 1 June 2020 Amendment to IFRS 16: Covid-19-Related Rent Concessions (extended until 30 June 2022) The following table shows the new or amended stand- ards including their effects expected from ﬁrst-time adoption. If the Group does not expect any effects on the consolidated ﬁnancial statements from ﬁrst-time no impact 6 Annual periods beginning on or after 1 January 2021 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase 2 negligible ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 67 CONTENTS 1.4 Consolidated entities and basis of consolidation Basis of consolidation Acquisitions of subsidiaries in the course of business combinations are accounted for using the acquisition method pursuant to IFRS 3. On initial consolidation, the identiﬁable assets acquired and the liabilities assumed are measured at their acquisition-date fair values. The fair values of property, plant and equipment and employee beneﬁts and similar obligations are deter- mined on the basis of expert opinions, while the fair values of ﬁnancial instruments, as well as inventories, are based on available market information. The fair value of signiﬁcant intangible assets is measured using adequate valuation techniques based on estimated future cash ﬂows or multiples. Acquisition-related costs are expensed as incurred. Subsidiaries are entities controlled by Novem Group S.A. A company controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the company‘s returns. Consolidated entities In addition to Novem Group S.A., the consolidated ﬁnancial statements include all subsidiaries that can be controlled by the Group. According to IFRS 10, a company controls an entity when it has the power over the entity, is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 1 In assessing control, all facts and circumstances are considered. This particularly includes the purpose and structure of the investee. For example, changes to decision-making rights can mean that the relevant activities are no longer directed through voting rights, but instead other agreements, such as contracts, give another party or parties the current ability to direct the relevant activities. The assessment of control requires taking into account all facts and circumstances in the management‘s judgment. TO OUR SHAREHOLDERS The consolidated ﬁnancial statements include Novem Group S.A. as well as thirteen international subsidiaries. 2 NON-FINANCIAL REPORT For each business combination, the Group decides on an acquisition-by-acquisition basis whether to recog- nise the acquisition date components of non-control- ling interests in the acquiree at fair value or based on the proportionate share of the acquiree’s net assets. 3 GROUP MANAGEMENT REPORT Registered oﬃce Vorbach, Germany Vorbach, Germany Vorbach, Germany Vorbach, Germany Vorbach, Germany Vorbach, Germany Langfang, China Pilsen, Czech Republic Tegucigalpa, Honduras Bergamo, Italy Ownership interest in % Novem Group GmbH1 Novem Beteiligungs GmbH1 Novem Car Interior Design GmbH1 Novem Car Interior Design Metalltechnologie GmbH1 Novem Car Interior Design Vorbach GmbH1 Novem Deutschland GmbH 100 100 100 100 100 100 100 100 100 100 100 100 100 Goodwill is the positive difference between the con- sideration transferred and the fair value of the iden- tiﬁable assets acquired and the liabilities assumed in a business combination. If the measured amount is negative, the difference is recognised directly in proﬁt or loss after reexamination. Goodwill is not amortised but tested for impairment at least annually – or more frequently if required – and, if necessary, written down to the residual value after deduction of the impairment loss. 4 CONSOLIDATED FINANCIAL STATEMENTS Novem Car Interiors (China) Co., Ltd. Novem Car Interior Design k.s. 5 Novem Car Interior Design S.de R.L. Novem Car Interior Design S.p.A. Novem Car Interior Design S.A. de C.V. Novem Car Interior Design d.o.o. Novem Car Interior Design Inc. ANNUAL ACCOUNTS Subsidiaries are fully consolidated from the date of acquisition, i.e. from the date the group entity obtains control. They are deconsolidated as soon as the group entity loses control. If control is lost at a later date, Querétaro, Mexico Žalec, Slovenia Detroit, USA 6 ADDITIONAL 1ꢀEntities included in the consolidated ﬁnancial statements according to IFRS that have exercised the exemption clauses under §264 (3) HGB. INFORMATION NOVEM ANNUAL REPORT 2021/22 68 CONTENTS proﬁt or loss is recognised in the consolidated ﬁnancial statements for the part of the reporting year during which the Group entity had control. addition, the functional currency of each subsidiary is determined. The items contained in the ﬁnancial state- ments of the respective subsidiary are then translated into the functional currency of the parent company. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Transactions in foreign currencies are translated into Euros at the exchange rate applicable on the date of transaction. In subsequent reporting periods, monetary assets and liabilities denominated in foreign currency are translated at the closing rate. Any resulting gains and losses are recognised in consolidated proﬁt or loss. Non-monetary assets and liabilities are translated into Euros at the exchange rate applicable on the date of transaction. Intercompany proﬁt or loss on trade receivables that have not yet been realised from the Group‘s perspective is eliminated in the consolidated ﬁnancial statements. Receivables, payables, provisions, revenue, expenses and income between group entities are eliminated. Dif- ferences resulting from the elimination of intercompany payables and receivables (genuine elimination differ- ences) are presented under other operating expenses. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Assets and liabilities of foreign subsidiaries whose functional currency is not the Euro are translated into Euros at the closing rate on each reporting date. Equity items are translated at historical exchange rates. The income statements and statements of cash ﬂows are translated into Euros at the applicable average exchange rates for the period. The resulting foreign currency translation differences are presented in the translation currency reserve in accumulated other comprehensive income. Taxes were deferred as required on temporary differ- ences arising from consolidation measures in accord- ance with IAS 12. 3 GROUP MANAGEMENT REPORT If necessary, the ﬁnancial statements of group enti- ties are adapted to the accounting policies of Novem Group S.A. The ﬁnancial statements of the group enti- ties Novem Car Interiors (China) Co., Ltd., China, and Novem Car Interior Design S.A. de C.V., Mexico, whose reporting date is 31 December, are adapted to the par- ent company‘s reporting date. The deviating reporting dates compared to the parent company result from the respective national legislation. 4 CONSOLIDATED FINANCIAL The Group used the following major exchange rates for currency translation: STATEMENTS Closing rate Average rate Currency EUR 1 equals 31 Mar 21 31 Mar 22 2020/21 2021/22 5 ANNUAL ACCOUNTS CNY CZK HNL MXN USD 0.12982 0.03825 0.03555 0.04169 0.85288 0.14115 0.04101 0.03678 0.04526 0.90082 0.12634 0.03762 0.03512 0.03970 0.85887 0.13425 0.03949 0.03571 0.04237 0.86178 1.5 Foreign currency translation The consolidated ﬁnancial statements are prepared in accordance with the functional currency concept. The consolidated ﬁnancial statements are presented in Euros, the parent company‘s functional currency. In 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 69 CONTENTS 2 Accounting policies recognised fair values of ﬁnancial instruments. Please refer to section 5.2 for an overview of the ﬁnancial instruments measured at fair value. feasibility of the development projects are considered in the recognition decision. This is usually the case when an internal development project has reached a speciﬁc milestone in the existing project management model. Measurement of the capitalised development costs depends on assumptions regarding the amount and period of expected future cash ﬂows as well as discount rates to be applied. For more details, please see section 3.1. 2.1 Use of judgments and estimates Impairment of non-ﬁnancial assets In preparing the ﬁnancial statements in accordance with IFRS, management has made judgments and esti- mates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Management assesses at the end of each reporting period whether there is any objective evidence that assets are impaired. Any intangible assets not yet available for use as of the reporting date in the form of capitalised development costs are also tested for impairment annually. Further tests are conducted when there is objective evidence of impairment. Other non- ﬁnancial assets or cash-generating units are tested for impairment when there is evidence that the carrying amount is not recoverable. The recoverable amount of an asset or a cash-generating unit is the higher of fair value less costs to sell and value in use. The measurement of fair value less costs to sell is based on available data from binding sales transactions between independent business partners for similar assets or observable market prices less costs directly attribut- able to the sale of the asset. The discounted cash ﬂow method is used to measure value in use. Cash ﬂows are derived from the budget for the next ﬁve years, which does not include restructuring measures to which the Group has not yet committed and material future investments that will increase the proﬁtability of the tested cash-generating unit. The recoverable amount depends on the discount rate used in the discounted cash ﬂow method as well as the expected future cash in-ﬂows and the growth rate used for extrapolation purposes. 1 TO OUR SHAREHOLDERS Net realisable value of inventories Due to unforeseeable developments beyond the con- trol of management, the actual ﬁgures may differ from these estimates. Estimates and underlying assump- tions are reviewed on an ongoing basis. Revisions to estimates are recognised in accordance with IAS 8 in the period in which they occur, and in each subsequent period affected by the revisions. Inventories are stated at the lower of cost and net real- isable value. The measurement of net realisable value requires assumptions by management, particularly on the development of sales prices and costs still to be incurred until sale. Please refer to section 3.3 for further information. 2 NON-FINANCIAL REPORT 3 The most important forward-looking assumptions and other major sources of estimation uncertainty on the reporting date that have a signiﬁcant risk of result- ing in a material adjustment to the carrying amounts of assets and liabilities in the next ﬁnancial year are explained below. Loss allowances on receivables GROUP MANAGEMENT REPORT Estimates regarding the amount and necessary scope of loss allowances on receivables sometimes require subjective assessments with regard to the creditwor- thiness of customers. These are therefore subject to the inherent uncertainty of judgment. Please refer to section 3.4 and section 5.4 for further information. 4 CONSOLIDATED FINANCIAL Measuring the fair value of ﬁnancial instruments STATEMENTS If the fair values of ﬁnancial assets and ﬁnancial liabili- ties cannot be measured using quoted prices in active markets, they are determined by applying valuation techniques including the discounted cash ﬂow method. The inputs used in the model are based – to the extent possible – on observable market data. If such data is not available, fair value is determined to a considerable extent based on judgment. Judgments concern such inputs as liquidity risk, credit risk and volatility. Changes in the assumptions for these inputs may affect the Deferred tax assets on tax loss carry-forwards Deferred tax assets are recognised for tax loss carry-forwards to the extent that it is considered likely that the related tax beneﬁts will be realised through future taxable proﬁts based on management‘s proﬁt forecasts for the group entities. The determination of deferred tax assets requires signiﬁcant judgment by 5 ANNUAL ACCOUNTS Capitalisation of development costs 6 When capitalising development costs, management‘s estimates regarding the technical and economic ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 70 CONTENTS management with regard to the expected occurrence and amount of future taxable income as well as future tax. Please refer to section 4.8 for further information. Please refer to section 5.10 for details on potential future lease payments for periods after the date of exercising the extension and termination options that are not taken into account in the lease term. Climate change Increasing expectations from stakeholders require explaining how climate-related matters are considered in preparing the ﬁnancial statements to the extent they are material. Climate change and potential future devel- opments on the entity, including the sustainability of its current business model, are for sure important but not expected to have a signiﬁcant impact on the ﬁnancial reporting judgments and estimates so far, consistent with the assessment that climate change is also not expected to have a signiﬁcant impact on the Group’s going concern assessment nor viability of the Group. There are certainly potential risks (e.g. limitations on car traﬃc with the aim of reducing greenhouse gases potentially affecting the overall demand), but also clear opportunities (e.g. expansion of the product portfolio by bio-based, recycled or upcycled decors) which may change in the future both in terms of materiality and likelihood of occurrence and may have a corresponding impact on judgments and estimates). Still, these have been classiﬁed as not material for this year’s ﬁnancial statements. Any trends and developments are continu- ously monitored and investigated in order to identify any effects on the business model at an early stage. This involves analysing matters such as transitory risks resulting from new statutory legislation and regulations on climate protection, such as the introduction of a CO2 tax or a ban on diesel vehicles in large cities. We also take account of technological innovations. Provisions Revenue recognition Signiﬁcant estimates are required in the determination of provisions related to pensions and other obligations, contract losses, warranty costs and legal proceedings. Please refer to section 2.11 and section 2.13 for further information. For the purpose of revenue recognition, it is necessary to identify all distinct performance obligations within a contract with a customer. The assessment of whether a performance obligation is distinct requires judgments by management. 1 TO OUR SHAREHOLDERS Determination of the term of leases with extension/ termination options Moreover, determining and allocating the transaction price to distinct performance obligations of a contract requires assumptions and estimates by manage- ment. This particularly concerns scenarios in which a stand-alone selling price is not directly observable for a good or service and it must therefore be estimated or cases in which the transaction price includes variable components. In addition, management must assess whether there is participation in the development costs of automobile manufacturers in exchange for goods or services transferred by customers to the Group, which is customary in the automotive industry. Should this not be the case, estimates are necessary of the future contract volume under the contracts with customers involving such participation. 2 NON-FINANCIAL REPORT The Group determines the term of its leases based on the non-cancellable period of the lease as well as the periods arising from the option to extend the lease, provided it is reasonably certain that it will exercise this option, or the periods arising from the option to terminate the lease, provided it is reasonably certain that it will not exercise this option. The Group has concluded several leases that include extension and/ or termination options. It exercises judgment in deter- mining whether it is reasonably certain that the option to extend or terminate the lease will or will not be exer- cised. That is, it considers all relevant criteria that cre- ate an economic incentive for it to exercise either the extension or termination option. After the commence- ment date, the Group re-determines the lease term, if there is a signiﬁcant event or change in circumstances that is within its control and has an effect on whether or not it will exercise the option to extend or terminate the lease (e.g. major leasehold improvements or material adjustment of the underlying asset). 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS Furthermore, determining whether a performance obligation is satisﬁed at a point in time or over time also requires management judgment. This particularly concerns the assessment of whether the criteria for recognition of revenue over time are satisﬁed in the individual case. Please refer to section 2.16 and sec- tion 2.7 for further information. 5 Underlying, the Group actively contributes to reducing the footprint of CO2-neutral production in terms of upgrading manufacturing processes with modern and eﬃcient technology. Sustainability is also reﬂected in product innovations and concepts which potentially can even create a competitive advantage with custom- ers in awarding new projects. ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 71 CONTENTS Russia-Ukraine conﬂict Subsequent expenditure is capitalised only when it increases the future economic beneﬁts embodied in the speciﬁc asset to which it relates. All other expenses are recognised as expenses in the period in which they are incurred. In order to continuously assess the need to capital- ise development expenditure, ongoing development projects are monitored at a central level and broken down into multi-stage project phases. If the above- mentioned requirements are fulﬁlled from a particular project phase, the associated expenditure is capitalised as internally generated intangible assets. Management has assessed the potential impact regard- ing the war in Ukraine. Although not directly affected by the military conﬂict, the indirect impact mainly result- ing from increasing energy prices and interest rates, volatility of commodity prices and potential disruptions of supply chains on the business cannot be estimated with a suﬃcient degree of conﬁdence at the moment. Since the beginning of the war on 24 February 2022, management has regularly reviewed the implications of the changing geopolitical and macro-economic condi- tions and has not identiﬁed a going concern or a signiﬁ- cant issue, beyond the general scope of impact, on the performance and ﬁnancial position of the Group as of today. Management continues to monitor the current developments and their potential impact on the Group. The useful lives of software and licenses are estimated at two to ﬁve years. Capitalised development expenditure is amortised on a straight-line basis over its useful life of three to seven years. The useful life is determined on the basis of the estimated use of the technologies in line with technical progress or on the basis of the speciﬁc application of the development on current platforms. Amortisation methods and useful lives are reviewed at each report- ing date and adjusted as necessary. 1 Amortisation methods and useful lives are reviewed at each reporting date and adjusted as necessary. TO OUR SHAREHOLDERS Internally generated intangible assets 2 Expenditures relating to development projects are rec- ognised as intangible assets pursuant to IAS 38 if the following can be demonstrated: NON-FINANCIAL REPORT Internally generated intangible assets are tested for impairment when facts or changes in circumstances indicate that their carrying amount may not be recover- able. Intangible assets from development projects not yet available for use are tested for impairment annually. 1. the technical feasibility of completing the intangible asset so that it will be available for use or sale; 2. the intention to complete the intangible asset and use or sell it; 3. the ability to use or sell the intangible asset; 4. how the intangible asset will generate probable future economic beneﬁts; 5. the availability of adequate technical, ﬁnancial and other resources to complete the development and to use or sell the intangible asset; and 6. the ability to measure reliably the expenditure attrib- utable to the intangible asset during its develop- ment. The cost of an internally generated intangible asset is the sum of expenditure incurred from the date when the intangible asset ﬁrst meets the above-mentioned recognition criteria. 3 2.2 Intangible assets GROUP MANAGEMENT REPORT Purchased intangible assets Intangible assets acquired for valuable consideration are recognised at cost. If they have a determinable useful life, these intangible assets are amortised on a straight-line basis over these useful lives. Straight-line amortisation begins when the asset is in the condition necessary for it to be capable of operating in the man- ner intended by management. After initial recognition, intangible assets are recognised at cost less accumu- lated amortisation and any accumulated impairment losses. Amortisation and impairment losses are rec- ognised in proﬁt or loss. 2.3 Property, plant and equipment 4 CONSOLIDATED FINANCIAL Property, plant and equipment, except from right-of-use assets under leases (IFRS 16), are measured at cost less any accumulated depreciation and any accumu- lated impairment losses. STATEMENTS 5 The cost of an item of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the condition nec- essary for it to be capable of operating in the manner intended. Rebates, discounts or bonuses are deducted from the purchase price. The cost of internally gener- ated assets includes all costs directly attributable to the ANNUAL ACCOUNTS Identiﬁable intangible assets acquired in a business combination are recognised at fair value at the acqui- sition date. If the above criteria are not satisﬁed, the development expenditure is recognised immediately in proﬁt or loss in line with the treatment of research expenditure. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 72 CONTENTS production process as well as proportionately attribut- able production overheads. Borrowing costs are usually not recognised as part of cost. However, if they are directly attributable to the acquisition, construction or production of a qualifying asset, they are capitalised pursuant to IAS 23. Repair and maintenance costs are recognised in proﬁt or loss as incurred if they generate no additional economic beneﬁts. The residual values, useful lives and depreciation meth- ods of assets are reviewed at the end of each ﬁnancial year and adjusted as necessary. Measuring recoverable amount The recoverable amount of an asset or a cash-gener- ating unit is the higher of its fair value less costs to sell and its value in use. Value in use is measured by dis- counting the estimated future cash ﬂows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. The discount rate is a pre-tax rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. 2.4 Impairment of assets Non-ﬁnancial assets 1 To the extent relevant, cost includes the estimated costs of site dismantlement, removal and restoration of the asset. According to IAS 36, non-ﬁnancial assets with ﬁnite useful lives are assessed at the end of each reporting period to determine whether there is any indication that an asset may be impaired, e.g. particular events or market developments indicating a possible impair- ment. The carrying amounts of intangible assets with indeﬁnite useful lives as well as intangible assets not yet available for use are tested for impairment at the end of each reporting period. TO OUR SHAREHOLDERS For assets to which cash ﬂows cannot be directly allo- cated, the recoverable amount of the cash-generating unit to which the asset belongs is determined. Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their useful lives, and is generally recognised in proﬁt or loss. Land is not depreciated. 2 NON-FINANCIAL REPORT Reversing an impairment loss An impairment loss recognised in prior periods for an asset is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount, i.e. the expected recoverable amount has increased. However, the increased carrying amount of an asset attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortisation or deprecia- tion) had no impairment loss been recognised for the asset in prior years. 3 The estimated useful lives of property, plant and equipment for current and comparative periods are as follows: For impairment testing, assets that cannot be individu- ally assessed are grouped into the smallest identiﬁable group of assets generating cash in-ﬂows through continuing use, which are largely independent of the cash in-ﬂows from other assets or groups of assets (cash-generating units). GROUP MANAGEMENT REPORT Useful lives of property, plant and equipment Buildings 10 to 33 years 3 to 13 years 4 years 4 Furniture and ﬁxtures, oﬃce equipment IT equipment CONSOLIDATED FINANCIAL Within the Group, the smallest identiﬁable group of assets is usually at the level of individual entities. STATEMENTS Leasehold improvements 10 years If any such indication exists, or in cases where annual impairment testing is required, the recoverable amount of the asset is estimated. If the recoverable amount of an asset or corresponding cash-generating unit is less than its carrying amount, an impairment loss is recognised. The resulting difference between the car- rying amount and recoverable amount is recognised as an expense in proﬁt or loss. Financial assets Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment. These gains and losses 5 The Group mainly recognises allowances for expected credit losses for: ANNUAL ACCOUNTS are recognised in other operating income or other oper ating expenses. - • • trade receivables measured at amortised cost contract assets 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 73 CONTENTS Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime expected credit losses (“ECL”). Lifetime expected credit losses are ECL that result from all pos- sible default events over the expected life of a ﬁnancial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. Expected credit losses are measured within the Group based on a classiﬁcation of trade receivables and assets by customer (see section 5.4 for further details). Impairment The gross carrying amount of a ﬁnancial asset is fully or partially impaired if – according to an appropriate assessment – the Group does not assume that the ﬁnancial asset can be partly or wholly recovered. In this regard, the Group makes an individual assessment as to the point in time and amount of the impairment. Presentation of impairment for expected credit losses in the statements of ﬁnancial position and consolidated statement of comprehensive income Impairment losses on trade receivables measured at amortised cost and on ﬁnancial assets are deducted from the gross carrying amount of the assets. 1 To assess whether the credit risk of a ﬁnancial asset since initial recognition has signiﬁcantly increased and to evaluate expected credit losses, the Group consid- ers reasonable and supportable information which is relevant and available without undue cost or effort. This covers both quantitative and qualitative informa- tion and analysis which is based on past experience of the Group and in-depth assessments, inclusive of forward-looking information. TO OUR SHAREHOLDERS 2.5 Leases The impairment for expected credit losses are pre- sented in other operating expenses of the Consolidated statement of comprehensive income. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. This is the case if the contract conveys the right to control the use of an identiﬁed asset for a period of time in exchange for con- sideration. To identify whether the contract includes the right to control the use of an identiﬁed asset, the Group uses the deﬁnition of a lease according to IFRS 16. 2 NON-FINANCIAL REPORT Credit-impaired ﬁnancial assets At each reporting date, the Group assesses whether ﬁnancial assets carried at amortised cost are credit- impaired. A ﬁnancial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash ﬂows of the ﬁnancial asset have occurred. 3 The Group assumes that the credit risk on a ﬁnancial asset has increased signiﬁcantly when it is more than 30 days past due. GROUP MANAGEMENT REPORT At the commencement date or on modiﬁcation of a contract that contains a lease, the Group splits up the contractually agreed transaction price generally based on the relative stand-alone selling price and presents the lease and non-lease components separately. For all classes of assets in the context of leases, however, the Group has decided – pursuant to IFRS 16.15 – not to separate non-lease components and instead to rec- ognise lease and non-lease components as a single lease component. The Group considers a ﬁnancial asset in default when it is unlikely that the borrower will be able to repay its loan commitment to the Group in full, without the Group having to resort to measures such as sale of collateral (should it exist). 4 Evidence that a ﬁnancial asset is credit-impaired includes also the following observable data: CONSOLIDATED FINANCIAL STATEMENTS • signiﬁcant ﬁnancial diﬃculty of the issuer or the borrower Measurement of expected credit losses • • breach of contract, such as default 5 Expected credit losses are deﬁned as the weighted average of credit losses with the respective risks of a default occurring as the weights. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between all contractual cash ﬂows that are due to an entity in accordance with the contract and all cash ﬂows that the entity expects to receive). restructuring of a loan or credit by the Group which would not otherwise have been considered if it is probable that the borrower will become insol- vent or enter into other bankruptcy proceedings the disappearance of an active market for a security because of ﬁnancial diﬃculties At the commencement date, the Group recognises a right-of-use asset and a lease liability. The right-of-use asset is initially measured at cost commensurate with the initial measurement of the lease liability, adjusted by the payments made on or before the commence- ment date plus any initial direct costs and estimated costs for the dismantling or removal of the underlying ANNUAL ACCOUNTS • • 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 74 CONTENTS assets or the restoration of the underlying assets or site where the asset is located, less any received lease incentives. applicable index or (interest) rate at the commence- ment date amounts which are expected to be paid, based on a residual value guarantee the exercise price of a purchase option that the Group is reasonably certain to exercise, lease pay- ments for a renewal option if the Group is reason- ably certain to exercise this option, and payments of penalties for early termination of the lease unless the Group is reasonably certain that it will not ter- minate the lease early consolidated statement of comprehensive income as other operating expenses on a straight-line basis over the term of the lease. • • The right-of-use asset is subsequently depreciated using the straight-line method from the commence- ment date to the end of the lease term unless the lease transfers ownership of the underlying asset to the Group at the end of the lease term or the cost of the right-of-use asset reﬂects that the Group will exercise a purchase option. In that case, the right-of-use asset is depreciated over the useful life of the underlying asset, which is determined in line with the requirements for property, plant and equipment (refer in this regard to section 2.3). In addition, the right-of-use asset is con- tinually tested for impairment where necessary and adjusted by speciﬁed remeasurements of the lease liability. 2.6 Inventories Inventories are stated at the lower of cost and net real- isable value. Net realisable value is the estimated sell- ing price realisable in the ordinary course of business less necessary costs of completion and the expected costs until completion. 1 TO OUR SHAREHOLDERS The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments resulting from a change in an index or (interest) rate, when there is a change in the Group‘s estimate of the amounts expected to be payable under a residual value guar- antee, when the Group changes its assessment of whether it will exercise a purchase, renewal or termi- nation option or when there is a revised in-substance ﬁxed lease payment. Cost is determined using the moving average cost method. The cost of ﬁnished goods and work in pro- cess includes, in addition to materials, production and special direct costs of production, also an appropriate share of overheads directly attributable to production as well as production-related depreciation. Production overheads are measured on the basis of normal capac- ity utilisation. 2 NON-FINANCIAL REPORT 3 The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be read- ily determined, the Group‘s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. GROUP MANAGEMENT REPORT The amount of the remeasurement of the lease liability is recognised as an adjustment to the carrying amount of the right-of-use asset or, if this is reduced to zero, any remaining amount of the remeasurement is recognised in proﬁt or loss. 2.7 Other assets 4 One-off participations in the development costs of automobile manufacturers are recognised as assets by the Group. The exclusive position occupied vis-à- vis business partners means that these payments are recouped through future serial business and the resulting revenue. Based on these contract conditions, payments are recognised continually as reducing rev- enue from the start of serial production and the asset is correspondingly written down. The write-down is recognised in this regard as the ratio of goods already supplied to the expected total amount of goods to be provided. CONSOLIDATED FINANCIAL STATEMENTS To determine its incremental borrowing rate, the Group obtains interest rates from a bank and makes corre- sponding adjustments to account for the lease condi- tions and type of asset. The Group presents right-of-use assets for leases in property, plant and equipment and lease liabilities in other ﬁnancial liabilities. 5 ANNUAL ACCOUNTS The lease payments contained in the measurement of the lease liability include: Furthermore, the Group has decided not to report right-of-use assets and lease liabilities for leases based on low-value assets as well as for short-term leases pursuant to IFRS 16.6. The Group recognises the lease payments associated with these leases in the • • ﬁxed payments, including de facto ﬁxed payments variable lease payments which are linked to an index or (interest) rate, initially measured using the 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 75 CONTENTS Furthermore, contract assets are created through the production of customised serial parts, as there is no alternative use for these serial parts. In this regard, a legal claim exists for payment of the work rendered thus far should the customer terminate the contract. Consequently, control over these goods (pursuant to IFRS 15) is transferred over time, which is also why the corresponding revenue is to be recognised over time. If the Group has not yet received consideration in this regard for the transferred goods and at the same time there is no unconditional right to payment, the corre- sponding contract assets are recognised. Intangible assets and property, plant and equipment are no longer amortised or depreciated once they have been classiﬁed as held for sale. Derivative ﬁnancial instruments The Group uses derivative ﬁnancial instruments to hedge currency risks resulting during the course of operations. Embedded derivatives in host contracts, which represent either non-ﬁnancial assets or liabili- ties, are separated from the host contract under certain circumstances and accounted for separately. 2.10 Financial instruments Deﬁnition of initial recognition 1 A ﬁnancial instrument is any contract that gives rise to a ﬁnancial asset of one entity and a ﬁnancial liability or equity instrument in another entity. Financial instru- ments are recognised as soon as the Group becomes a party to the ﬁnancial instrument contract. Derivative products are measured at fair value upon ini- tial recognition. Derivatives are subsequently measured at fair value. Any changes therein are generally recog- nised in other operating expenses or other operating income. The Group does not apply hedge accounting according to IFRS 9. TO OUR SHAREHOLDERS 2 2.8 Cash and cash equivalents NON-FINANCIAL REPORT A ﬁnancial asset (unless it is a trade receivable without a signiﬁcant ﬁnancing component) or ﬁnancial liability is initially measured at fair value. In the case of an item not measured at fair value through proﬁt or loss, trans- action costs are added that are directly attributable to its acquisition or issue. A trade receivable without a signiﬁcant ﬁnancing component is initially measured at the transaction price. Cash and cash equivalents mainly include cash and other current highly-liquid ﬁnancial investments with a term of not more than three months. Petty cash and cash in banks are stated at nominal value. Financial assets All purchases and sales of ﬁnancial assets are recog- nised as of the trading day, i.e. on that date upon which the Group is obliged to acquire the assets. Financial assets with a remaining maturity of more than one year are classiﬁed as non-current. 3 GROUP MANAGEMENT REPORT 2.9 Assets held for sale Non-current assets or disposal groups that contain assets and liabilities are classiﬁed as held for sale if it is highly probable that their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Offsetting On initial recognition, a ﬁnancial asset is classiﬁed and measured as follows: 4 CONSOLIDATED FINANCIAL STATEMENTS Financial assets and liabilities are offset and the net amount presented in the statements of ﬁnancial posi- tion when, and only when, the Group currently has a legally enforceable right to set off the recognised amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. • • ﬁnancial assets measured at amortised cost (FAAC) debt instruments at fair value through other com- prehensive income (FVOCI debt instruments) equity instruments measured at fair value through other comprehensive income (FVOCI equity instruments) These assets or the disposal group are generally meas- ured at the lower of their carrying amount and fair value less costs to sell. Any impairment losses upon initial classiﬁcation as held for sale and any subsequent gains and losses on remeasurement are recognised in proﬁt or loss. • • 5 ANNUAL ACCOUNTS ﬁnancial assets recognised at fair value through proﬁt or loss (FAFVTPL) 6 Financial assets are not reclassiﬁed subsequent to their initial recognition unless the Group changes its ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 76 CONTENTS business model for managing the ﬁnancial assets. In this case, all affected ﬁnancial assets are reclassiﬁed on the ﬁrst day of the reporting period following the change in the business model. receivables sold in the context of factoring agreements. Upon initial recognition, the Group may irrevocably clas- sify a ﬁnancial asset that otherwise meets the require- ments to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or signiﬁcantly reduces accounting mismatches that would otherwise arise. Transfers of ﬁnancial assets to third parties in trans- actions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group‘s continuing recognition of the assets. A ﬁnancial asset is measured at amortised cost (FAAC) if it meets both of the following conditions and is not designated as at FAFVTPL: Financial assets that are held for trading or are man- aged and whose performance is evaluated on a fair value basis are measured at FVTPL. The Group makes an assessment of the objective of the business model in which a ﬁnancial asset is held at a portfolio level because this best reﬂects the way the business is managed and information is provided to management. The information considered includes the following: 1 • • the ﬁnancial asset is held within a business model whose objective is to hold the ﬁnancial asset to col- lect the contractual cash ﬂows, and the contractual terms of the ﬁnancial asset give rise on speciﬁed dates to cash ﬂows that are solely payments of principal and interest on the principal amount outstanding For the purposes of this assessment, principal is deﬁned as the fair value of the ﬁnancial asset on initial recognition. Interest is deﬁned as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particu- lar period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a proﬁt margin. TO OUR SHAREHOLDERS 2 • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management‘s strategy focuses on earning contractual interest income, maintain- ing a particular interest rate proﬁle, matching the duration of the ﬁnancial assets to the duration of any related liabilities or expected cash out-ﬂows or realising cash ﬂows through the sale of the assets how the proﬁt/loss of the portfolio is assessed and reported to management NON-FINANCIAL REPORT A debt instrument is measured at FVOCI if it meets both of the following conditions and is not designated as at FAFVTPL: When assessing whether the contractual cash ﬂows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the ﬁnancial asset con- tains a contractual term that could change the timing or amount of contractual cash ﬂows such that it would no longer meet this condition. In making this assessment, the Group considers: 3 GROUP MANAGEMENT REPORT • • the ﬁnancial asset is held within a business model whose objective is achieved by both collecting con- tractual cash ﬂows and selling ﬁnancial assets, and the contractual terms of the ﬁnancial asset give rise on speciﬁed dates to cash ﬂows that are solely payments of principal and interest on the principal amount outstanding • • the risks that affect the performance of the busi- ness model (and the ﬁnancial assets held within that business model) and how those risks are managed 4 CONSOLIDATED FINANCIAL STATEMENTS • • contingent events that would change the amount or timing of cash ﬂows terms that may adjust the contractual interest rate, including variable-rate features • • how the managers are remunerated – for instance, whether the remuneration is based on the fair value of the managed assets or on the collected contrac- tual cash ﬂows – and the frequency, volume and timing of sales of ﬁnan- cial assets in prior periods and expectations about future sales activity On initial recognition of an equity instrument that is not held for trading, the Group can irrevocably elect to present subsequent value changes in the investment‘s fair value in other comprehensive income. This decision is made on a case-by-case basis for each investment. 5 • • prepayment and extension features and terms that limit the Group‘s claim to cash ﬂows from speciﬁed assets (e.g. non-recourse features) ANNUAL ACCOUNTS All ﬁnancial assets not classiﬁed as measured at amortised cost or FVOCI are classiﬁed as FVTPL. This includes all derivative ﬁnancial assets and trade 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 77 CONTENTS The following is applicable for the subsequent meas- urement of ﬁnancial assets and the associated gains and losses: The Group derecognises a ﬁnancial asset when the contractual rights to the cash ﬂows from the asset expire, or it transfers the rights to receive the contrac- tual cash ﬂows in a transaction in which substantially all of the risks and rewards of ownership of the ﬁnancial asset are transferred. recognition, an entity measures a ﬁnancial asset or a ﬁnancial liability at its fair value plus or minus, in the case of a ﬁnancial asset or a ﬁnancial liability not at fair value through proﬁt or loss, transaction costs that are directly attributable to the acquisition or issue of the ﬁnancial asset or the ﬁnancial liability. Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses, including any inter- est or dividend income, are recognised in proﬁt or loss. For derivatives not designated as hedging instruments according to IFRS 9, see comments at the top of this section. Assets are also derecognised when the Group neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the transferred asset. Other ﬁnancial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expenses and foreign currency translation differences are recognised in proﬁt or loss. Gains or losses (in other operating income or other operating expenses) from derecognition are also recognised in proﬁt or loss. 1 TO OUR SHAREHOLDERS Financial assets at amortised cost are measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, as well as impairment losses, are recognised as other operating expenses or income. A gain or loss from derecognition is recognised in proﬁt or loss (in other operating income or other operating expenses). In order to recognise incoming payments in a timely fashion, the Group partially sells its trade receivables – mainly from automobile manufacturers and their sup- pliers – to a bank. These receivables are derecognised from the consolidated statements of ﬁnancial position at the time of sale, as substantially all opportunities and risks are transferred to the purchaser. 2 NON-FINANCIAL REPORT The Group derecognises a ﬁnancial liability when its contractual obligations are discharged, cancelled or expire. The Group also derecognises a ﬁnancial liability when its terms are modiﬁed and the cash ﬂows of the modiﬁed liability are substantially different, in which case a new ﬁnancial liability based on the modiﬁed terms is recognised at fair value. 3 GROUP MANAGEMENT REPORT Debt instruments at FVOCI are subsequently meas- ured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment losses are recognised in other operating expenses or income (with the exception of income, which is shown under net ﬁnance income). Other net gains or losses are recognised in OCI. Upon derecognition, accumulated other comprehensive income is reclassiﬁed to proﬁt or loss (in other operat- ing income or other operating expenses). Financial liabilities Financial liabilities include especially trade payables, liabilities to banks, liabilities to shareholders and other liabilities. Upon derecognition of a ﬁnancial liability, the differ- ence between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in proﬁt or loss (in other operating income or other operating expenses). 4 CONSOLIDATED FINANCIAL Financial liabilities are classiﬁed and measured at amortised cost or at fair value through proﬁt or loss (FVTPL). A ﬁnancial liability is classiﬁed as at FVTPL if it is classiﬁed as held for trading, it is a derivative or it is designated as FVTPL on initial recognition. STATEMENTS Cost of initial public offering 5 Equity instruments at FVOCI are subsequently meas- ured at fair value. Dividends are recognised as income in proﬁt or loss unless the dividends clearly represent cover of a part of costs of the investment. Other net gains or losses are recognised in other comprehensive income and are never reclassiﬁed to proﬁt or loss. This category was not relevant within the Group thus far. ANNUAL ACCOUNTS The new term loan B, used to replace the bond, is expected to be classiﬁed as a ﬁnancial liability and measured at category FLAC. IFRS 9 requires an entity to recognise a ﬁnancial asset or a ﬁnancial liability in its statement of ﬁnancial position when it becomes party to the contractual provisions of the instrument. At initial IAS 32 deﬁnes guidance for the accounting of ﬁnancial instruments: ﬁnancial liabilities and equity. The con- tracts for the private placement and stock exchange listing were settled by delivering a ﬁxed number of shares for a ﬁxed amount and therefore can be clas- siﬁed as equity instruments. In connection with such 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 78 CONTENTS equity transactions that are classiﬁed as equity instru- ments, transaction costs regularly arise. The transac- tion costs of an equity transaction are accounted for as a deduction from equity, but only to the extent that they are incremental costs directly attributable to the equity transaction that would otherwise have been avoided. The costs of an equity transaction that is abandoned are recognised as an expense. Provisions for restructuring expenses are recognised when the Group has set up and communicated a detailed formal plan for restructuring and has no real- istic possibility of withdrawing from these obligations. 2.13 Employee beneﬁts There are deﬁned beneﬁt obligations within the Group. Pursuant to IAS 19, pension obligations are measured using the projected unit credit method on the basis of actuarial reports. The present value of beneﬁciaries‘ future claims is estimated using actuarial methods on the basis of the beneﬁts earned by staff in the current and preceding periods. The liability recognised in the consolidated statements of ﬁnancial position is the pre- sent value of the deﬁned beneﬁt obligations adjusted for any actuarial gains or losses not yet offset and less any past service cost not yet recorded. The discount rate is determined by the capital market and takes into account the expected maturity of the obligation. The required actuarial calculations are made in the Group by external actuaries. Provisions for onerous contracts are recognised when the expected beneﬁts from a contract are lower than the unavoidable cost of meeting the obligations under the contract. 1 TO OUR SHAREHOLDERS 2.11 Other provisions Should the recognition criteria for provisions not be sat- isﬁed, then a contingent liability is shown in the notes if certain conditions are met. A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obliga- tion, whose amount can be estimated reliably, and it is probable that an out-ﬂow of economic beneﬁts will be required to settle the obligation (probability of occur- rence is greater than 50%). 2 Non-current provisions are recognised at present value. For this purpose, the expected future cash ﬂows are discounted by using a pre-tax discount rate that reﬂects current market expectations of the time value of money and the risks speciﬁc to the liability. The effects of movements in interest rates are shown under ﬁnance income/costs. NON-FINANCIAL REPORT If beneﬁts from the pension plan are expanded, then the share of vested additional beneﬁts from the employee‘s past years of service are recognised immediately in proﬁt or loss. 3 Warranty obligations may arise on account of statutory stipulations, an agreement or ex-gratia arrangements. Provisions are recognised for expected claims arising from warranty obligations. Utilisation of the provision can be expected in particular if the warranty has not yet expired, if warranty expenditure was incurred in the past or if there are speciﬁc signs of warranty cases. Depending on the facts of the situation, the warranty risk is derived either using individual estimates or empirical values from the past, for which a correspond- ing provision is recognised. The Group does not offer any further warranties beyond this in terms of addi- tional maintenance and services. Thus, the warranties are Assurance Type Warranties, which – in accordance with IAS 37 – are to be recognised and which do not fall within the scope of IFRS 15. GROUP MANAGEMENT REPORT 2.12 Deferred liabilities Actuarial gains and losses from measuring the obliga- tion are – just like the difference between plan asset returns determined at the beginning of the period and plan asset returns actually realised – recognised in other comprehensive income and shown separately in the consolidated statement of comprehensive income. Expenses from the unwinding of discounts on deﬁned beneﬁt obligations as well as interest income from plan assets (net interest expense) are shown under net ﬁnance income/costs. The service cost is taken into account in personnel expenses, although past service costs from plan amendments are recognised immediately in proﬁt or loss. 4 Deferred liabilities refer to future expenditures, the amount and date of which are uncertain, however less uncertain than for provisions. These are liabilities relating to received or supplied goods and services, which have been neither paid nor invoiced. These also include current amounts owed to employees (such as bonuses and leave entitlements). Deferred liabilities are recognised in the amount of anticipated expenditures. CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 79 CONTENTS Payments to deﬁned contribution plans are recognised as an expense when employees have rendered the work entitling them to the beneﬁts. To the extent necessary, these are shown as a liability on the reporting date. Grants received to compensate for already incurred expenses are recognised through proﬁt or loss in the period when the expenses are incurred. of serial parts only as of the date of initial delivery of serial parts. In the case of subsequent, later deliveries, this then involves contract modiﬁcations that are to be accounted for separately from the contracts. Grants for assets are deducted from the cost of these assets. As part of multiple-element contracts, the Group has 2.14 Proﬁt-sharing rights of members of identiﬁed the following performance obligations: management Government grants include, for example, social security contributions for short-time allowances received relat- ing to the global Covid-19 pandemic. • the provision of development services and the sale of tools necessary for the production of serial parts sale of serial parts 1 The Group established cash-settled share-based payment agreements for members of the Manage- ment Board. The Performance Share Plan is granted in annual tranches of virtual shares with a respective performance period of four years. TO OUR SHAREHOLDERS • • maintenance of tools 2.16 Revenue recognition Furthermore, individual contracts have a ﬁnancing component as the payment date deviates signiﬁcantly from the date of transfer of power over the goods and services. 2 Revenue is recognised for all contracts with customers on the sale of goods or rendering of services according to the ﬁve-step model speciﬁed under IFRS 15. NON-FINANCIAL REPORT According to IFRS 2, for cash-settled share-based payment transactions, the Group has to measure the liability incurred at the fair value of the liability. The fair value of the share-based payments of the Performance Share Plan has been measured at the end of each quar- ter by using a Monte-Carlo-Simulation. Any changes in the liability are recognised in proﬁt or loss. The model speciﬁes that revenue as of a point in time (or over time) of transfer of control of the goods or services from the entity to the customer is to be rec- ognised in that amount to which the entity is expected to be entitled. As mentioned in section 2.11, warranty obligations always constitute assurance-type warranties that are recognised according to IAS 37. 3 GROUP MANAGEMENT REPORT The transaction price includes the fair value of the received or receivable consideration, taking into account rebates or volume discounts granted in the serial process, which – to the extent necessary – are estimated based on historical experience, as well as an appropriate allocation of one-off payments rendered upfront (e.g. participation in the development work of the OEM). When determining the transaction price, the promised consideration is adjusted for the interest effect of any potentially existing ﬁnancing component. The discount rate used in this case corresponds to the interest rate that would be used for a separate ﬁnanc- ing transaction with the customer. 2.15 Government grants The Group usually concludes multiple-element con- tracts with customers which contain more than one performance obligation. In this regard, two or more agreements are generally combined as these are nego- tiated as a package with one single economic purpose. The agreements relate to the sale of trim and function elements, the provision of development services as well as construction of tools necessary for production of the trim and function elements. Whereas in the case of the agreements for providing development services and the construction of tools, signing of the contract generally satisﬁes the criteria of an agreement pursu- ant to IFRS 15, a contract within the meaning of IFRS 15 is typically established for agreements for the delivery 4 CONSOLIDATED FINANCIAL Government grants, including non-monetary grants at fair value, are recognised at the time when there is reasonable assurance that: STATEMENTS 1. the associated conditions will be satisﬁed and 2. the grants will be received 5 ANNUAL ACCOUNTS Grants are recognised as income as per planning in those periods in which the corresponding expenses that the grants are intended to offset are incurred. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 80 CONTENTS The expected-cost-plus-a-margin approach is used for estimating the stand-alone selling prices as part of allocating the transaction price to the individual perfor- mance obligations. Performance obligations that are satisﬁed over time 2.19 Operating result (EBIT) The Group is commissioned by the customer to manufacture customised serial parts. An asset with no alternative use generally arises as of the point in time when the serial part is customised. Furthermore, in such cases, the Group has an enforceable right to payment for services rendered to date. As a result, rev- enue for these serial parts is recognised over time and the contract asset for this is recognised, amounting to at least any costs of performance completed to date plus a reasonable proﬁt margin. Operating earnings (EBIT) are deﬁned as earnings before ﬁnance income, ﬁnance costs and income taxes. For the one-off payments to be paid by the Group, which grant the Group an exclusive position as sup- plier and which can be recouped through sales from the related agreement, see the comments in section 2.7. 2.20 Net ﬁnance income/costs The Group‘s ﬁnance income and ﬁnance costs include: 1 TO OUR SHAREHOLDERS In terms of type of revenue recognition, it is necessary to differentiate between performance obligations that are fulﬁlled over time and those that are fulﬁlled at a point in time. • • • • interest income interest expenses foreign currency gains and losses expenses and income from measuring certain ﬁnancial instruments at fair value Revenue from service agreements is recognised over time in those periods in which the service is rendered. 2 NON-FINANCIAL REPORT Performance obligations that are satisﬁed at a point in time Interest income and expense are recognised on an 2.17 Other income and expenses accrual basis using the effective interest method. The Group is commissioned by customers to develop special tools, which are sold to the customer upon completion. In such constellations, the development work and subsequent sale of the tools constitute one single performance obligation. The associated revenue is recognised upon completion and sale of the tool to the customer, i.e. at a point in time. 3 Other income is recognised on an accrual basis accord- ing to the provisions of the underlying agreement. Other income, such as from realised exchange gains, is shown under Other operating income. GROUP MANAGEMENT REPORT 2.21 Income taxes Current tax Expenses are recognised when they arise or at the time they are incurred. Other expenses, such as from real- ised exchange losses, are shown under Other operating expenses. Current tax comprises the expected tax payable or receivable on the taxable income or loss for the ﬁnan- cial year, based on the tax rates applicable or shortly to become applicable on the reporting date, and any adjustment to tax payable for prior years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that 4 CONSOLIDATED FINANCIAL The point in time of revenue recognition from the sale of goods generally corresponds – depending on the respective customer contract and respective order – to the date of delivery or acceptance, as control of the good transfers as of this point in time to the customer and the Group has thus fulﬁlled its contractual perfor- mance obligation. The payment terms contractually agreed on with customers are generally between 30 and 90 days. STATEMENTS 2.18 Expenses for research and non-capitalised development services 5 reﬂects uncertainty related to income taxes, if any. Cur rent tax also includes any tax arising from dividends. - ANNUAL ACCOUNTS Expenses for research and non-capitalised develop- ment services are recognised in that period in which they were incurred. Current tax assets and liabilities are only offset under certain conditions. 6 Advance payments received from customers for tools are shown as contract liabilities under other liabilities. ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 81 CONTENTS Deferred taxes Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax is recognised in respect of temporary dif- ferences between the carrying amounts of assets and liabilities in the statements of ﬁnancial position and the amounts used for taxation purposes. Deferred tax is not recognised for: The measurement of deferred tax reﬂects the tax con- sequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets or liabilities. • temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable proﬁt or loss 1 TO OUR SHAREHOLDERS Deferred tax assets and deferred tax liabilities are off- set if certain conditions are fulﬁlled. • temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future and 2 2.22 Contingent liabilities NON-FINANCIAL REPORT A contingent liability is a possible obligation to third parties that arises from past events and whose exist- ence will be conﬁrmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the entity or a present obligation that arises from past events for which an out-ﬂow of resources is not probable or the amount cannot be reliably estimated. Contingent liabilities pur- suant to IAS 37 are generally not recognised. • taxable temporary differences arising on the initial recognition of goodwill 3 GROUP MANAGEMENT REPORT A deferred tax asset is recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable proﬁts will be available against which they can be utilised. Future taxable proﬁts are determined based on the individual business plans of subsidiaries. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the associated tax beneﬁts will be realised. Impair- ment losses are reversed if the probability of generating taxable earnings in the future increases. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable proﬁt will allow the deferred tax asset to be recovered. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 82 CONTENTS Concessions, industrial property rights and similar rights and assets as well 3 Notes to the consolidated statements of ﬁnancial position as licenses to such rights and assets acquired for a Internally generated intangible in € thousand Cost consideration assets 1,989 217 Intangible assets 3.1 Intangible assets The development of the Group’s carrying amounts of intangible assets is shown below for ﬁnancial years 2021/22 and 2020/21. The write-downs include here both amortisation as well as impairment losses (refer here also to section 4.5). As of 01 Apr 20 Currency differences Additions 5,865 -15 7,855 -15 1 685 1 902 1 TO OUR SHAREHOLDERS Disposals Reclassiﬁcations As of 31 Mar 21 232 6,766 232 8,973 2,206 2,206 2 As of 01 Apr 21 Currency differences Additions 6,766 30 8,973 30 NON-FINANCIAL REPORT 344 4 65 409 4 Disposals Reclassiﬁcations As of 31 Mar 22 4 4 3 7,148 2,271 133 69 9,420 GROUP MANAGEMENT REPORT Accumulated amortisation and impairment losses As of 01 Apr 20 Currency differences Additions 4,577 -9 4,709 -9 588 1 657 1 4 Disposals CONSOLIDATED FINANCIAL As of 31 Mar 21 5,155 202 202 5,356 STATEMENTS As of 01 Apr 21 Currency differences Additions 5,155 16 5,356 16 5 727 4 218 945 4 ANNUAL Disposals ACCOUNTS As of 31 Mar 22 Carrying amount As of 31 Mar 21 As of 31 Mar 22 5,902 420 6,321 1,612 1,247 2,004 1,851 3,618 3,100 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 83 CONTENTS Additions to intangible assets in the ﬁnancial year 2021/22 amounted to €409 thousand compared to €902 thousand in the ﬁnancial year 2020/21. No impairment losses were recognised for internally generated intangible assets in the ﬁnancial years 2021/22 and 2020/21. During the ﬁnancial year 2021/22 the Group invested €23,546 thousand (PY: €20,500 thousand) in property, plant and equipment. The additions included €3,978 thousand (PY: €2,900 thousand) from advance pay- ments and assets under construction. Purchased intangible assets The Group recognised €1,931 thousand (PY: €1,755 thousand) in research and development expenses in the ﬁnancial year 2021/22. Amortisation of capitalised internal development projects amounted to €218 thou- sand (PY: €69 thousand). Purchased concessions, patents, licenses, trademarks and similar rights and assets mainly concern expenses for third parties in connection with the acquisition of application software. In addition to depreciation, there are impairment losses on property, plant and equipment amounting to €464 thousand due to the revaluation of the sale of the pro- duction facility in Kulmbach. No impairment losses were recognised in the ﬁnancial year 2020/21. 1 TO OUR SHAREHOLDERS In addition to depreciation, there are impairment losses of €57 thousand due to a project that was not completely implemented. No impairment losses were recognised in the ﬁnancial year 2020/21. 3.2 Property, plant and equipment The development of the Group’s carrying amounts of property, plant and equipment is shown below for the ﬁnancial years 2020/21 and 2021/22. The write-downs include here both depreciation as well as impairment losses (refer here also to section 4.5). 31 Mar 21 80,831 31 Mar 22 80,797 in € thousand 2 Land, leasehold rights and buildings, including buildings on third-party land NON-FINANCIAL REPORT Internally generated intangible assets Thereof right-of-use assets from leases 29,744 87,057 570 29,661 84,212 54 Research costs and non-capitalisable development costs are expensed as incurred. The development expenses to be capitalised amounted to €1,851 thou- sand (PY: €2,004 thousand). This largely involves the development of processes for applying polyurethane systems for high-volume platforms, development in the area of trims with integrated lighting designs and lighting concepts in car interiors and the development of sensor elements. 3 Technical equipment and machinery GROUP MANAGEMENT REPORT Thereof assets from leases Other equipment, operating and oﬃce equipment 13,024 5,397 12,083 4,173 4 Thereof right-of-use assets from leases CONSOLIDATED FINANCIAL STATEMENTS Advance payments and assets under construction 5,876 7,814 The Group differentiates in this regard between customer-based and non-customer-based (internal) development work. Internal development work that can be used across customers is recognised as internally generated intangible assets if the corresponding rec- ognition criteria are met and the assets are amortised over their expected useful life. Property, plant and equipment 186,787 184,905 5 ANNUAL ACCOUNTS Property, plant and equipment include right-of-use assets due to the application of IFRS 16 (Leases). Please refer to section 5.10 for additional information on future lease payments. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 84 CONTENTS Land, leasehold rights and buildings, including buildings on 3.3 Inventories Advance payments and assets under construction Technical Other equipment, equipment and operating and oﬃce equipment Property, plant and equipment in € thousand 31 Mar 21 30,037 31 Mar 22 36,499 in € thousand Cost third-party land machinery Raw materials and consumables As of 01 Apr 20 Currency differences Additions 134,149 1,968 274,592 425 46,552 142 7,243 614 462,536 3,150 Work in process 11,625 13,204 Finished goods and merchandise 15,980 17,664 4,145 8,953 4,502 2,934 136 2,900 95 20,500 21,111 -232 1 Disposals 3,610 14,472 3,511 Tools 37,334 466 61,141 851 TO OUR SHAREHOLDERS Reclassiﬁcations As of 31 Mar 21 372 -4,251 6,412 Advance payments for tools 137,024 273,009 48,398 464,843 Advance payments for raw materials 28 29 As of 01 Apr 21 Currency differences Additions 137,024 5,106 6,148 1,976 64 273,009 6,987 48,398 1,003 4,273 2,305 343 6,412 134 464,843 13,230 23,546 9,311 Inventories 95,470 129,388 2 NON-FINANCIAL REPORT 9,147 3,978 69 The majority of inventories consists of tools as well as raw materials and consumables. Disposals 4,961 Reclassiﬁcations As of 31 Mar 22 2,188 -2,600 7,855 -4 3 146,366 286,370 51,712 492,303 Inventories that are expected to be turned over within 12 months amounted to €129,388 thousand (31 March 2021: €95,470 thousand). The write-downs recognised on inventories amounted to €6,069 thousand in the ﬁnancial year 2021/22 (PY: €7,958 thousand). In the case of write-downs, marketability, age as well as all apparent storage and inventory risks are taken into account. GROUP MANAGEMENT REPORT Accumulated amortisation and impairment losses As of 01 Apr 20 Currency differences Additions 48,383 645 182,831 363 32,511 145 16 525 60 263,741 1,678 30,282 17,647 0 8,424 1,259 16,296 13,543 5 5,502 2,785 1 4 Disposals 60 CONSOLIDATED FINANCIAL Reclassiﬁcations As of 31 Mar 21 -6 STATEMENTS 56,193 185,952 35,374 535 278,054 Due to the fact that there is no alternative use option for the ﬁnished parts on stock as of the reporting date, for which there are also ﬁrm purchase com- mitments by the OEMs, an adjustment was made to the inventories in the amount of €9,418 thousand (31 March 2021: €9,682 thousand) based on recognition of revenue over time under IFRS 15, together with the recognition of contract assets amounting to €11,466 thousand (31 March 2021: €12,005 thousand). As of 01 Apr 21 Currency differences Additions 56,193 1,870 9,364 1,859 185,952 4,879 35,374 773 535 1 278,054 7,523 30,426 8,608 0 5 15,455 4,624 5,565 2,082 43 ANNUAL ACCOUNTS Disposals 43 Reclassiﬁcations As of 31 Mar 22 Carrying amount As of 31 Mar 21 As of 31 Mar 22 496 -496 41 65,569 202,158 39,629 307,397 6 ADDITIONAL 80,831 80,797 87,057 84,212 13,024 12,083 5,876 7,814 186,787 184,905 INFORMATION NOVEM ANNUAL REPORT 2021/22 85 CONTENTS 3.4 Trade receivables credit losses for trade receivables which are not meas- ured at fair value through proﬁt or loss are calculated on a portfolio basis (refer here also to section 5.4). For this purpose, Novem groups the receivables by individual customers. The expected rates of default are provided for each counterparty by an external rat- ing agency. This individual probability of default per customer is applied uniformly throughout the Novem Group. Current external credit information and ratings that reﬂect the prevalent expectations regarding the potential impact of the Covid-19 pandemic were used for the consolidated ﬁnancial statements as of 31 March 2022. An additional adjustment of the valuation allowance is thus not required under this model. 3.5 Other receivables Trade accounts receivable include the following items: The Group’s other receivables comprise the following components: in € thousand 31 Mar 21 104,183 31 Mar 22 86,326 Trade receivables in € thousand From VAT 31 Mar 21 20,865 270 31 Mar 22 23,609 379 Expected credit losses on trade receivables -1,535 -1,115 From employees From payroll tax 1 Trade receivables 102,648 85,211 12 34 TO OUR SHAREHOLDERS Non-current Current 49,645 53,003 47,540 37,671 From advance payment receivables 256 417 Others 5,799 4,145 Other receivables 27,202 28,584 2 Trade receivables are mainly receivables from con- tracts with customers. In conjunction with a factoring agreement, receivables were sold to a bank at a pur- chase price of €47,805 thousand as of 31 March 2022 (31 March 2021: €40,073 thousand) of which €1,016 thousand representing a limited Seller Guarantee (2% of the average outstanding nominal amount of the European sold receivables). The Seller Guarantee rep- resents the Group’s maximum exposure to any losses in respect of trade receivables previously sold under the factoring program. These receivables were carried at fair value through proﬁt or loss until the date of their disposal. The decline in receivables results ﬁrstly from an increase in receivables sold and secondly from lower demand amongst OEMs on account of ongoing supply bottlenecks being experienced mainly by chip manufacturers and also other suppliers. This is leading to production delays or even temporary production stops for automotive manufacturers and thus lower order volumes. NON-FINANCIAL REPORT The allowances for doubtful accounts developed as follows: The majority are receivables from tax authorities. This is the result of regular offsetting and notiﬁcation of paid and received VAT. FY 2020/21 FY 2021/22 in € thousand 3 Loss allowance Loss allowance GROUP MANAGEMENT REPORT 3.6 Cash and cash equivalents As of 01 Apr Additions 3,876 13 1,535 102 -598 0 Reversals -2,354 0 in € thousand 31 Mar 21 71 31 Mar 22 43 4 Used Cash on hand CONSOLIDATED FINANCIAL Exchange rate effects As of 31 Mar 0 76 Cash at banks 175,228 175,299 116,924 116,967 STATEMENTS 1,535 1,115 Cash and cash equivalents Cash and cash equivalents are available at all times and are not subject to any restrictions. Cash and cash equivalents are concentrated at Novem Beteiligungs GmbH, which operates a group-wide cash pooling system. The decrease in cash and cash equivalents is mainly due to the repayment of the bond. 5 ANNUAL ACCOUNTS Trade receivables are written down in full or in part when there are indications that they are not recover- able. Furthermore, in accordance with IFRS 9, expected 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 86 CONTENTS 3.7 Other non-current/current assets In March 2022, the Group reached an agreement on the sale in full of the production premises for a purchase price of €760 thousand. As the carrying amount as of 31 March 2021 was €1,224 thousand, an impairment loss for €464 thousand was necessary. 31 Mar 21 31 Mar 22 in € thousand Current Non-current Total 313 Current Non-current Total Transaction costs Prepaid expenses 104 357 209 7 364 289 13 302 304 The closing of the transaction was completed on 18 May 2022. Furthermore, the two parties have agreed to reduce the purchase price by €10 thousand to a total of €750 thousand in order to fully compensate for minor defects in the property that have not yet been remedied. Miscellaneous other assets Contract assets 272 272 304 11,987 1,758 11,987 11,853 1,525 11,853 1 TO OUR Contribution to develop for later supply contracts SHAREHOLDERS 14,031 15,789 28,725 12,302 13,827 26,286 Other non-ﬁnancial assets 14,206 14,519 13,667 12,619 3.9 Equity 2 Other non-ﬁnancial, non-current assets of €12,619 thousand (31 March 2021: €14,519 thousand) include development contributions for later supply contracts. The expected credit losses on contract assets (refer here also to section 5.4), which are shown within other operating expenses, developed as follows on Group level: NON-FINANCIAL REPORT Please refer to the statement of changes in equity for detailed information on changes in consolidated equity. Overall, the equity position improved from €-505,091 thousand at the end of the last ﬁnancial year to €67,656 thousand, as the effects of the IPO became visible. Thepresentedothernon-ﬁnancialcurrentassetsamount- ing to €13,667 thousand (31 March 2021: €14,206 thousand) mainly include development contributions for later supply contracts as well as contract assets, i.e. acquired right to consideration for already satisﬁed performance obligations from contracts with customers as of the reporting date. Contract assets are reclassiﬁed as trade receivables as soon as there is an unconditional right to receive cash, which is obtained upon invoicing the customer for the quantities actually delivered. In this regard, €12,017 thousand was reclassiﬁed in 2021/22 (31 March 2021: €10,134 thousand) from contract assets to trade receivables. 3 FY 2020/21 FY 2021/22 in € thousand As of 01 Apr Additions GROUP MANAGEMENT REPORT 39 30 3 Share capital On 30 June 2021, the Company’s share capital was increased to €400 thousand by the creation and the issuance of 33,750,000 new shares with no nominal value each by way of incorporation of an amount of €337 thousand, which was then booked under the freely distributable share premium account of the Company. In the context of the private placement and the issuance of the new shares on 14 July 2021, the Company’s share capital was further increased by the creation and the issuance of 3,030,303 new shares with no nominal value each against contribution in cash. Net proceeds from the private placement of these shares amounted to €48,827 thousand based on the issuance Reversals Used -9 -3 4 CONSOLIDATED FINANCIAL As of 31 Mar 30 30 STATEMENTS 3.8 Assets held for sale 5 In the ﬁnancial year 2020/21, the Group’s production facility in Kulmbach was closed following a manage- ment decision on the Group’s strategic focus for future operations. However, this did not lead to the subsidiary being liquidated under law and subsequently wound up, meaning that it remains included in the consolidated ﬁnancial statements. ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 87 CONTENTS of 3,030,303 new shares at an offer price of €16.50 per share and related costs of the private placement listing attributable to the Company. price per share no higher than 10% above the shares’ oﬃcial price reported in the trading session on the day before carrying out each individual transaction. reported in the Currency translation reserve in equity; they amount to €10,422 thousand as of 31 March 2022 (31 March 2021: €1,245 thousand). The change resulted from differences in currency translation of €9,177 thousand (31 March 2021: €-2,122 thousand). At the beginning of the period, the Group’s share capi- tal amounted to €63 thousand represented by 62,500 shares having a nominal value of €1.00 each. As of 31 March 2022, the share capital of the Company amounted to €430 thousand as of 31 March 2022 (31 March 2021: €63 thousand) and is divided into 43,030,303 ordinary shares in a dematerialised form with no nominal value. Each share of the Company represents a par value of €0.01 in the Company’s share capital. All shares are fully paid. During the ﬁnancial year 2021/22, the Company did not buy any of its own shares. Dividend Capital reserves The Group begins paying a dividend for the ﬁnancial year 2021/22. Due to the change in legal form during the ﬁnancial year 2021/22, there is no comparative ﬁgure available for the following disclosures. 1 The capital reserves amounted to €539,630 thousand as of 31 March 2022 (31 March 2021: €21,891 thou- sand). The change of €517,739 thousand is essentially due to the contribution of the existing shareholder loan and a cash capital increase of €50,000 thousand against the issue of new shares. Directly attributable transaction cost of €1,172 thousand were incurred in this context and deducted from capital reserves. In addition, deferred taxes amounted to €438 thousand were recognised. TO OUR SHAREHOLDERS The Management Board and the Supervisory Board propose a dividend distribution of €0.40 per share to the Annual General Meeting to be held in Luxembourg on 25 August 2022. The total dividend will thus amount to €17,212 thousand and the distribution ratio will be 39.1% of the consolidated proﬁt attributable to the shareholders of Novem. As this dividend is subject to shareholder approval at the Annual General Meeting, no liability has been recognised in the consolidated ﬁnancial statements as of 31 March 2022. 2 NON-FINANCIAL REPORT The authorised capital of the Company is set at €520,000 thousand divided into 52,000,000 shares with no nominal value. The Management Board is author- ised to increase the current issued capital up to the amount of the authorised capital, in whole or in part from time to time during the next ﬁve years. 3 GROUP MANAGEMENT REPORT Other retained earnings Authorisation for repurchase of own shares Retained earnings amounted to €-482,826 thousand as of 31 March 2022 (31 March 2021: €-528,289 thou- sand). Retained earnings comprise the past undistrib- uted net income and other comprehensive income of the companies included in the consolidated ﬁnancial statements. The negative amount primarily results from a recapitalisation and a related Group re-organi- sation in the ﬁnancial year 2019/20. On 30 June 2021, the extraordinary General Sharehold- ers’ Meeting of the Company resolved to authorise the Management Board to effect on one or several occa- sions repurchases and disposals of shares on the regulated market on which the Company’s shares are admitted for trading, or by such other means resolved by the Management Board during a period of ﬁve years from the date of the General Shareholders’ Meeting, for a maximum number corresponding to 20% of the ordi- nary shares of the Company, within a price range from a price per share not lower than 10% below the shares’ oﬃcial price reported in the trading session on the day before carrying out each individual transaction; to a 4 3.10 Employee beneﬁts CONSOLIDATED FINANCIAL STATEMENTS The Group grants its staff in and outside of German pension entitlements, which are either deﬁned-contri- bution or deﬁned-beneﬁt pension plans. In this regard, besides the ongoing contributions, the deﬁned contri- bution plans do not lead to any further payment obli- gations. The pension provision for the deﬁned beneﬁt plans is generally calculated using the projected unit credit method. Under this projected unit credit method, expected future increases in salaries and pensions are taken into account in addition to the pensions and vested entitlements known as of the reporting date. 5 Difference in equity from currency translation ANNUAL ACCOUNTS The statement of ﬁnancial position and of total com- prehensive income for all foreign subsidiaries whose functional currency is not the Euro are translated into Euro. The currency translation differences arising are recognised in other comprehensive income and 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 88 CONTENTS The present value of the obligation (Deﬁned Beneﬁt Obligation or “DBO”) is determined by discounting the future expected cash out-ﬂows using a discount rate that is based on the returns on high-quality ﬁxed-rate corporate bonds in the same currency. In doing so, the underlying corporate bonds are used to derive a yield curve and the related discount rate is determined using the term of the future obligations. The present value of the deﬁned beneﬁt obligations developed as follows: The employee beneﬁt expense for deﬁned beneﬁt plans recognised in proﬁt or loss consists of the following items: FY 2020/21 FY 2021/22 in € thousand FY 2020/21 FY 2021/22 in € thousand Present value of the beneﬁt entitlements on 01 Apr 31,442 1,319 34,644 Current service cost Past service cost Service cost 1,319 1,123 1,260 2,383 568 Current service cost Past service cost Interest expense 1,123 1,260 568 1,319 1 Deﬁned beneﬁt plans TO OUR SHAREHOLDERS 601 Interest expense 601 Employer‘s direct beneﬁt payments Pension expense for beneﬁt plans The signiﬁcant deﬁned beneﬁts are in Germany and include staff’s entitlements to retirement beneﬁts in the case of disability or upon reaching retirement age – and also in the event of death in individual cases. The gen- eral commitment speciﬁes payments for a standard basic sum, which rises by a ﬁxed amount for each year of service completed. Furthermore, there are various individual commitments in Germany based on ﬁnal salary. The beneﬁt entitlements applicable to Germany encompassed deﬁned beneﬁt obligations amounting to €31,552 thousand as of 31 March 2022 (31 March 2021: €31,510 thousand) and, thus, accounted for 90.0% of the total obligation. There are retirement ben- eﬁt obligations in Italy, Slovenia and Mexico with entitle- ment to capital sums based on statutory regulations. -883 -811 1,920 2,951 Actuarial gains (-)/ losses (+) 2 The pension provision is derived as follows: NON-FINANCIAL REPORT Thereof on account of changes to demographic assumptions 29 -1,866 -141 FY 2020/21 FY 2021/22 in € thousand Thereof on account of changes to ﬁnancial assumptions Present value of beneﬁt entitlements from beneﬁt plans 1,793 328 34,644 34,871 3 GROUP MANAGEMENT REPORT Thereof on account of experience-based adjustments Financing status 34,644 34,644 34,871 34,871 Pension provision on 31 Mar Effects of changes in foreign exchange rates 44 65 The beneﬁts paid out in FY 2021/22 amounted to €811 thousand (PY: €883 thousand). Payments amounting to €1,029 thousand are expected for 2022/23, which are directly rendered by the employer. 4 Present value of the obligation on 31 Mar 34,644 34,871 CONSOLIDATED FINANCIAL STATEMENTS The risks associated with the deﬁned beneﬁt plans essentially include the usual risks of deﬁned beneﬁt pension plans relating to possible changes to the dis- count rate and, to a small extent, inﬂation trends and longevity. In order to limit the risks of changing capital market conditions and demographic developments, the pension scheme in Germany was closed to new entrants in Germany in 2015. The speciﬁc risks of salary-based obligations are minimal within the Group. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 89 CONTENTS The pension provision developed as follows: An increase or decrease in the discount rate by 25 basis points would impact the present value of the beneﬁt entitlements as of 31 March 2022 as follows: An increase or decrease in the pension progression by 25 basis points would impact the present value of the beneﬁt entitlements as of 31 March 2022 as follows: FY 2020/21 FY 2021/22 in € thousand Pension provision on 01 Apr Pension expense 31,442 1,920 34,644 2,951 in € thousand 31 Mar 22 in € thousand 31 Mar 22 Actuarial gains (-)/losses (+) recognised in other comprehensive income Change in present value of the beneﬁt entitlements if the Change in present value of the beneﬁt entitlements if the 2,121 -883 -1,978 -811 discount rate were to be 25 basis point higher pension progression were to be 25 basis points higher 33,414 36,428 35,909 33,880 1 Employer‘s direct beneﬁt payments TO OUR SHAREHOLDERS discount rate were to be 25 basis point lower pension progression were to be 25 basis points lower Effects of changes in foreign exchange rates 44 65 Pension provision on 31 Mar 34,644 34,871 A decrease or increase in assumed life expectancy by one year would impact the present value of the ben- eﬁt entitlements in Germany as of 31 March 2022 as follows: The weighted average duration of the deﬁned beneﬁt obligations is 17 years. 2 NON-FINANCIAL REPORT Actuarial gains and losses are recognised directly in other comprehensive income. They are part of retained earnings and will never be reclassiﬁed to the proﬁt or loss. Deﬁned contribution plans The amounts for the Group’s statutory pension insur- ance are treated as deﬁned contribution plans pursuant to IAS 19. Expenses amounting to €9,836 thousand were reported in the ﬁnancial year 2021/22 (PY: €9,424 in € thousand 31 Mar 22 3 Change in present value of the beneﬁt GROUP MANAGEMENT REPORT entitlements if the1 The actuarial assumptions for calculating the Group’s pension obligations are shown below: life expectancy were to be 1 year higher life expectancy were to be 1 year lower 36,340 33,395 thousand) in the Czech Republic, Germany, Italy, Lux embourg, Slovenia, and the US. - 31 Mar 21 1.7% 31 Mar 22 2.3% 1ꢀSince changes in life expectancy have a minimal impact on capital commitments, the beneﬁt entitlements abroad are not taken into account. Discount rate 4 CONSOLIDATED FINANCIAL Salary trend/growth of pension expectancies 2.3% 1.5% 2.4% 2.0% STATEMENTS Future pension growth The ﬁgures stated are weighted averages. A dis- count rate of 2.2% was set for Germany (31 March 2021: 1.5%). A uniform discount rate of 2.0% was set for the Euro area (Italy and Slovenia) (31 March 2021: 1.5%). Heubeck’s 2018 G guideline tables were used as the biometric basis for calculation in Germany in 2018. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 90 CONTENTS 3.11 Tax liabilities 3.12 Other provisions The provisions cover all identiﬁable risks and other uncertain obligations. The provisions are shown in the following in each case broken down into non-current and current provisions. Income tax liabilities in € thousand Current Change in tax liabilities As of 01 Apr 20 Used 13,292 -7,900 9,407 88 13,292 -7,900 9,407 88 The non-current provisions developed as follows: Addition 1 Obligations from Employee beneﬁts Other non- Other risks current provsion TO OUR SHAREHOLDERS Exchange rate difference As of 31 Mar 21 in € thousand sales 5,704 0 14,887 14,887 As of 01 Apr 20 1,460 -157 0 0 0 7,164 -157 0 Used As of 01 Apr 21 Used 14,887 -8,618 7,386 150 14,887 -8,618 7,386 150 2 Reversal 0 0 NON-FINANCIAL REPORT Addition 0 99 345 0 444 Addition Reclassiﬁcation to current provisions As of 31 Mar 21 -2,282 3,422 0 -2,282 5,169 Exchange rate difference As of 31 Mar 22 1,402 345 13,805 13,805 3 As of 01 Apr 21 3,422 1,402 -15 345 -345 0 5,169 -360 -9 GROUP MANAGEMENT REPORT The Group is subject to income taxes in different juris- dictions. Therefore, key assumptions are necessary to take into account the various tax legislations and to determine the global income tax liability. Used 0 0 Reversal -9 Addition 0 -73 0 -73 Reclassiﬁcation to current provisions As of 31 Mar 22 -1,555 1,867 0 0 -1,555 3,172 4 The Group might be subject to tax risks attributable to previous tax assessment periods and might be subject to unanticipated tax expenses in relation to previous tax assessment periods that have not yet been subject to a tax audit or are currently subject to a tax audit. It cannot be ruled out that tax authorities may apply a different approach in ongoing and/or future tax audits from the one adopted by the Group which may lead to an additional tax expense and/or payment, which could have a material and adverse effect on our business, ﬁnancial condition and results of operations. CONSOLIDATED FINANCIAL STATEMENTS 1,305 0 The non-current provisions amounted to €3,172 thou- sand as of 31 March 2022 (31 March 2021: €5,169 thousand) and are expected to mature between one and ﬁve years. calculated using actuarial reports. The provisions attributable to the sales area include primarily risks arising from warranty claims. 5 ANNUAL ACCOUNTS Of this amount, €1,305 thousand (31 March 2021: €1,402 thousand) is fully attributable to provi- sions in the personnel area. These personnel-related obligations relate to long-service awards, which are 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 91 CONTENTS The development of current provisions is set out in the table below: were based on assumptions or estimates made on account of ongoing customer negotiations or past experience with customers. Employee Obligations from Other current provisions The remaining risks primarily involve a number of dis- cernible individual risks and uncertain liabilities that are accounted for at their probable settlement amounts. in € thousand beneﬁts 1,557 -1,123 -327 sales 31,695 -7,543 -4,415 15,038 -557 Other risks 7,065 As of 01 Apr 20 40,317 -12,124 -4,756 28,838 -655 Used -3,458 -14 It is expected that all current provisions will be used during the course of the following ﬁnancial year. Reversal 1 TO OUR Addition 1,858 53 11,942 -151 SHAREHOLDERS Exchange rate difference Reclassiﬁcation from non-current provisions As of 31 Mar 21 2,282 2,282 2,018 36,500 15,384 53,902 2 NON-FINANCIAL REPORT As of 01 Apr 21 2,018 36,500 -8,756 -6,779 16,934 787 15,384 -11,889 -504 53,902 -21,829 -7,283 20,636 993 Used -1,184 Reversal 3 Addition 818 89 2,884 117 GROUP MANAGEMENT REPORT Exchange rate difference Reclassiﬁcation from non-current provisions As of 31 Mar 22 1,555 1,555 1,741 40,241 5,992 47,974 4 Current provisions as of 31 March 2022, which are recognised for uncertain obligations within one year include in particular provisions from obligations from the personnel and sales areas as well as other risks of €47,974 thousand (31 March 2021: €53,902 thousand). The provisions attributable to the sales area include especially risks arising from warranty claims, price risks and not yet ﬁnalised customer debit notes. CONSOLIDATED FINANCIAL STATEMENTS Management’s best estimate is used as a basis when measuring warranty provisions. These are estimated based on past experience with respect to the Group’s liability. Speciﬁc individual cases are also taken into account. 5 The personnel-related obligations relate largely to provisions for partial retirement beneﬁts, severance payments and performance-based obligations. For the latter, key management personnel account for €124 thousand (31 March 2021: €1,345 thousand). ANNUAL ACCOUNTS The outstanding customer debit notes recognised in the consolidated ﬁnancial statements relating to price or quantity differences, as well as quality deﬁciencies, 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 92 CONTENTS 3.13 Financial liabilities The lease liabilities of €34,857 thousand as of 31 March 2022 (31 March 2021: €36,111 thousand) are largely from leasing land and buildings (refer to section 5.10). 31 Mar 21 31 Mar 22 in € thousand Current Non-current Total 397,442 441 Current Non-current Total 0 Liability from bonds Liabilities to banks 2,567 441 394,875 0 1,404 0 0 247,683 0 3.15 Other non-ﬁnancial liabilities 249,087 0 Other non-ﬁnancial liabilities breakdown as follows: Liabilities to shareholders Financial liabilities 373 461,512 461,885 859,768 1 3,381 856,387 1,404 247,683 249,087 TO OUR SHAREHOLDERS 31 Mar 21 31 Mar 22 in € thousand Other current liabilities Total current and non-current ﬁnancial liabilities amounted to €249,087 thousand as of 31 March 2022 (31 March 2021: €859,768 thousand). 2021: €0) of the liabilities to banks of €249,087 thou- sand (31 March 2021: €441 thousand) relate to the utilised term loan. The remaining amount of €1,404 thousand (31 March 2021: €441 thousand) mainly resulted from derivatives. Employee-related liabilities 7,468 7,306 2 VAT 2,143 4,903 1,824 3,563 NON-FINANCIAL REPORT As of 14 July 2021, the shareholder loan with a carry- ing amount of €469,280 thousand between Automotive Investments (Luxembourg) S.à r.l. and Novem Group S.A. was converted into equity and transferred to the capital reserves. Other liabilities Contract liabilities Other current liabilities 15,491 30,005 23,100 35,793 3.14 Other ﬁnancial liabilities 3 Other non-current liabilities Other liabilities GROUP MANAGEMENT REPORT Other ﬁnancial liabilities are composed as follows: 3,356 1,148 After the successful IPO, a new term loan agreement for €310,000 thousand in total (€250,000 thousand as a term loan and €60,000 thousand as a revolving credit facility) was entered into between Novem Group S.A. and an international syndicate of banks as of 18 June 2021. Accordingly, the reﬁnancing was implemented as of 23 July 2021 by the drawdown of the term loan of €250,000 thousand and it matures in July 2026. Other non-current liabilities 3,356 1,148 31 Mar 21 31 Mar 22 7,855 in € thousand Other current ﬁnancial liabilities Current non-ﬁnancial liabilities amounted to €35,793 thousand as of 31 March 2022 (31 March 2021: €30,005 thousand). This item included especially contract liabili- ties in the form of advance payments received for tools, VAT liabilities as well as personnel-related liabilities, which were recognised in the context of social secu- rity for social insurance contributions still outstanding. In addition, the OEM’s development contributions are shown under other liabilities. 4 Lease liabilities 6,837 CONSOLIDATED FINANCIAL Other non-current ﬁnancial liabilities STATEMENTS Lease liabilities Loan (beneﬁts fund) Other ﬁnancial liabilities 29,274 27,002 8 11 36,122 34,865 Using own funds and the cash contribution from the private placement, the Senior Secured Notes of Novem Group GmbH of €397,442 thousand, due to mature in 2024, and deferred interest of €4,083 thousand were repaid in full effective 26 July 2021. 5 ANNUAL ACCOUNTS The liabilities to leases changed due to cash out-ﬂow of €8,366 thousand in the ﬁnancial year 2021/22 (31 March 2021: €10,384 thousand). The changes to the lease liability occurred primarily from contract modiﬁ- cations and current leases as well as from a currency translation effect in the amount of €-845 thousand. Non-current non-ﬁnancial liabilities amounted to €1,148 thousand as of the reporting date (31 March 2021: €3,356 thousand). These pertain primarily the OEMs’ development contributions. 6 After the deduction of transaction costs and pro rata interest incurred, €247,683 thousand (31 March ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 93 CONTENTS The following table shows the signiﬁcant changes in contract liabilities which always have a duration of less than one year: 3.17 Deferred liabilities/accruals 31 Mar 21 31 Mar 22 11,704 in € thousand Personnel-related accruals 13,089 15,453 Outstanding invoices for trade payables FY 2020/21 FY 2021/22 in € thousand 15,929 1,780 Revenue recognised in the ﬁnancial year that was included in the carrying amount of the contract liabilities at the beginning of the ﬁnancial year Costs related to the year-end audit and annual ﬁnancial statements 1,440 24,705 8,904 13,390 20,999 1 TO OUR Other deferred liabilities 1,702 2,243 SHAREHOLDERS Deferred liabilities/accruals 31,684 31,656 Increase in the ﬁnancial year on account of advance payments for tools Non-current Current 1,441 1,594 30,243 30,062 2 NON-FINANCIAL REPORT 3.16 Trade payables Accruals are disclosed under other liabilities. Accru- als are liabilities to pay for goods or services already received, but which have not been paid nor invoiced by the supplier. Trade payables comprise outstanding obligations from the exchange of the Group’s goods and ser- vices. Outstanding invoices and liabilities for deliver- ies received are reported in accordance with their character under trade payables. Trade payables amounted to €70,384 thousand on the reporting date (31 March 2021: €61,849 thousand). The increase in trade payables was inﬂuenced by both business vol- ume and cash ﬂow management. 3 GROUP MANAGEMENT REPORT These largely comprise outstanding obligations within the Group from the exchange of goods and services as well as on account of employee beneﬁts. 4 Employee beneﬁts largely include matters such as leave not yet taken, Christmas and holiday pay or performance-related salary components. CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 94 CONTENTS 4 Explanatory notes on the consolidated statements proﬁt or loss and other comprehensive income revenue is recognised over time in such cases. Rev- enue within the Group can be broken down by type of revenue recognition as follows: Other operating income increased in the ﬁnancial year 2021/22 by €2,213 thousand from €17,858 thousand to €20,071 thousand year-on-year. Other operating income mainly includes €5,582 thousand (PY: €6,466 thousand) currency translation effects as well as €3,358 thousand (PY: €4,325 thousand) income from charging out to third parties. Other income also includes €8,440 thousand (PY: €5,494 thousand) income from reversal of provisions, €56 thousand (PY: €55 thousand) insur- ance reimbursements as well as €2,603 thousand (PY: €1,436 thousand) income from other periods. in € thousand FY 2020/21 FY 2021/22 4.1 Revenue Goods transferred at a point in time 590,713 603,162 In the ﬁnancial year 2021/22, Novem generated total revenue of €614,628 thousand (PY: €602,718 thousand), which marks a 2.0% increase compared to last year. As in previous years, the wood surface area accounted for the largest share of Novem’s success, followed by aluminium and premium synthetics. Revenue can be broken down by the surface areas mentioned below: Goods and services transferred over time 12,005 11,466 1 TO OUR Revenue 602,718 614,628 SHAREHOLDERS There is also a corresponding adjustment of revenue in the amount of €2,732 thousand (PY: €1,795 thou- sand) on account of current contract terms, whereby, on the start of production (SOP) on some platforms, the revenue recognised is reduced in line with the units delivered and the asset for the development contribu- tion is reversed accordingly. 4.3 Cost of materials 2 NON-FINANCIAL REPORT The cost of materials includes the expenses for raw materials, consumables and purchased goods/ser- vices as well as purchased services. For further infor- mation on inventories, refer to section 3.3. in € thousand Wood FY 2020/21 FY 2021/22 468,150 110,656 23,912 457,863 127,309 29,456 Aluminium Premium synthetics Revenue 3 GROUP MANAGEMENT REPORT Novem expects that revenue for its delivery obligations not (or only partially) fulﬁlled at the end of the ﬁnancial year will be recognised within a year. in € thousand FY 2020/21 FY 2021/22 602,718 614,628 Cost of raw materials and consumables and of purchased goods 267,354 305,588 The manufacture of customised serial parts creates assets for which the Group has no alternative use. In these contract situations, there is also the legal entitle- ment to payment for the work already done or a deﬁned purchase commitment for these customised serial parts within a speciﬁed period of time. Consequently, Cost of purchased services 16,689 22,410 4 4.2 Other operating income CONSOLIDATED FINANCIAL Cost of materials 284,045 327,998 STATEMENTS in € thousand FY 2020/21 FY 2021/22 The reported cost of materials increased by 15.5% year-on-year. The increase contrasts with a growth in sales of 2.0%. Hence, the cost of materials to output (total operating performance) ratio increased to 50.9% (PY: 48.1%). This development results from lower rev- enue increase in the reporting period, higher material costs and increase of the inventories in order to ensure the stability of the supply chains due to the uncertain and challenging situation on the world market. Income from the disposal of property, plant and equip- ment and intangible assets 61 29 5 ANNUAL Foreign currency translation gains 6,466 4,325 5,582 3,358 ACCOUNTS Income from charging out to third parties Other income 7,006 11,102 6 ADDITIONAL Other operating income 17,858 20,071 INFORMATION NOVEM ANNUAL REPORT 2021/22 95 CONTENTS 4.4 Personnel expenses leased workers, interns and students) we employed as of the dates indicated for each of the regions in which we operate: 4.6 Other operating expenses The high level of vertical integration means personnel expenses in the Group account for a considerable por- tion of total expenses. The personnel expenses include social security, pension and other beneﬁts. Other operating expenses include especially: 31 Mar 21 3,010 31 Mar 22 2,969 in € thousand FY 2020/21 FY 2021/22 Order-related expenses Legal and advisory fees Maintenance expenses Personnel-related expenses Leasing and rent expenses 21,097 9,699 8,320 12,151 3,814 18,045 11,594 8,977 7,414 4,765 Europe Management’s compensation as well as those of staff in managerial positions is designed with variable com- ponents in differing proportions. The variable payments are based on fulﬁlling the Group’s revenue and earnings targets as well as on individual objectives. Americas 1,958 1,842 Asia 749 729 1 TO OUR Number of employees 5,717 5,540 SHAREHOLDERS Expenses for insurance, feeds and contribution 3,971 3,221 1,778 4,171 3,358 1,900 4.5 Amortisation, depreciation and impairment losses in € thousand FY 2020/21 FY 2021/22 2 Other services NON-FINANCIAL REPORT Wages and salaries Social security 120,798 21,492 2,150 130,071 25,086 3,326 Expenses for environmental protection in € thousand FY 2020/21 FY 2021/22 Expenses from foreign cur- rency translation 7,578 1,273 -2,189 6,893 1,040 -163 Pension expense Personnel expenses Intangible assets 657 931 144,440 158,483 3 Expenses relating to other periods Property, plant and equipment 30,282 30,441 GROUP MANAGEMENT REPORT Loss allowance on receiva- bles Thereof right-of-use assets from leases The personnel expenses ratio (personnel expenses to total operating performance) slightly increased com- pared to the previous year and equaled 24.6% (PY: 24.5%). 8,621 7,953 Expenses from remeasuring derivative ﬁnancial instru- ments at fair value Amortisation, depreciation and write-downs 30,940 31,372 406 4 CONSOLIDATED FINANCIAL STATEMENTS Other expenses 5,033 5,460 During the ﬁnancial year 2021/22, the personnel costs presented above include government grants amount- ing to €333 thousand granted in connection with the global Covid-19 pandemic. This amount was deducted from the corresponding expenses. In the previous year, the Group received government grants in the amount of €1,204 thousand. Amortisation and depreciation of €31,372 thou- sand was recognised in the ﬁnancial year 2021/22 (PY: €30,940 thousand). Other operating expenses 76,152 73,454 Other operating expenses decreased in the ﬁnancial year 2021/22 by €-2,698 thousand from €76,152 thou- sand to €73,454 thousand. Other operating expenses mainly include order related expenses, which consist mostly of outgoing freight expenses amounting to €14,592 thousand (PY: €10,662 thousand), as well as legal and advisory fees in an amount of €11,594 5 ANNUAL ACCOUNTS The table below sets forth the number of employees (by headcount including headquarters and excluding 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 96 CONTENTS thousand (PY: €9,699 thousand). The remaining expenses amounting to €5,460 thousand (PY: €5,033 thousand) primarily include IT, vehicle and oﬃce mate- rial costs. Finance costs 4.8 Tax expense The income tax expense for the ﬁnancial years 2021/22 and 2020/21 can be broken down as follows: in € thousand FY 2020/21 FY 2021/22 Interest paid to banks 1,422 24,909 21,292 2,974 7,389 6,825 in € thousand Current taxes Deferred taxes Taxes on income FY 2020/21 FY 2021/22 Interest paid on sharehol- der loans 4.7 Net ﬁnance income/costs 21,122 -1,641 16,131 -9,679 6,452 Interest paid on bond The ﬁnancial result amounted to €22,440 thousand in the ﬁnancial year 2021/22 (PY: €43,070 thousand). 1 Transaction costs directly attributable to the issue of a ﬁnancial liability 19,481 TO OUR SHAREHOLDERS 1,744 624 5,757 588 Finance income Interest expense from discounting of provisions The total tax rate of 27.0% (PY: 27.0%) is based on a corporation tax rate of 15.0% and a solidarity surcharge of 5.5% on the corporation tax as well as a trade tax rate of 11.2%. in € thousand FY 2020/21 FY 2021/22 Interest expense arising from leases 2 667 634 539 698 Interest income 3,229 4,993 8,222 3,095 285 NON-FINANCIAL REPORT Other interest expenses Income from currency translation Expenses from currency translation 1,051 25,821 Finance income 3,380 Finance costs 51,292 3 GROUP MANAGEMENT REPORT Finance income amounted to €3,380 thousand in the ﬁnancial year 2021/22 (PY: €8,222 thousand) and was largely attributable to interest income from customer tooling of €2,953 thousand (PY: €2,761 thousand). This item also included income from foreign currency translation of €285 thousand (PY: €4,993 thousand). The ﬁnance costs of €25,821 thousand (PY: €51,292 thousand) mainly arose from interest expenses for banks, the shareholder loan that existed until July 2021 and the bond that was also repaid in July 2021 (refer to section 3.13). With the exception of the interest expense from the discounting of provisions, interest expenses were calculated using the effective interest method. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 97 CONTENTS Reconciliation of the income taxes in the ﬁnancial years 2021/22 and 2020/21, using a total tax rate of 27.0% (PY: 27.0%) (corporation tax and trade tax) to the income tax expense shown in the statements of proﬁt or loss is as follows: Deferred tax assets and liabilities result from temporary differences in the following items in the statements of ﬁnancial position and are broken down as follows: Deferred taxes on outside basis differences were not recognised due to the lack of requirements necessary set out in IAS 12.44 to do so in the current and previous year. in € thousand Property, plant and FY 2020/21 FY 2021/22 In deferred taxes €865 thousand were recognised outside of proﬁt or loss in the ﬁnancial year 2021/22 (PY: €583 thousand). in € thousand FY 2020/21 FY 2021/22 equipment and 5,848 5,237 intangible assets Proﬁt/loss before tax 29,215 27.0% 50,424 27.0% Receivables and other assets 1 Weighted average tax rate (%) 286 0 652 TO OUR SHAREHOLDERS 4.9 Earnings per share Tax interest carry forward Tax expense at average weighted tax rate 7,976 7,891 13,622 The earnings per share for the ﬁnancial year ended 31 March 2022 amounted to €1.02 (due to change in legal form during FY 2021/22, no comparative ﬁgure available). Earnings per share are calculated by dividing the proﬁt for the period attributable to shareholders of the parent by the weighted average numbers of shares issued in the reporting period. Liabilities 186 182 Causes for additional amounts/shortfalls Provisions 11,860 12,233 2 Non-deductible expenses 13,063 3,712 NON-FINANCIAL REPORT Deferred income tax assets (gross) 18,180 9,206 8,974 26,280 7,435 Tax-exempt income -1,177 144 -1,941 Tax income/expense relating to other periods Offset -6,401 Deferred income tax assets 18,845 Tax rate differential -1,155 741 -2,383 -156 3 GROUP MANAGEMENT REPORT Other effects Property, plant and equipment and intangible assets FY 2021/22 3,969 4,923 4,317 3,830 Disclosed expense for income taxes 19,481 6,452 Proﬁt attributable to shareholders of the 43,972 parent (in € thousand) Receivables and other assets Number of weighted shares Earnings per share basic (in €) Earnings per share diluted (in €) 43,030,303 1.02 The non-deductible expenses in the current and prior year largely consist of non-deductible interest in the context of the interest rate cap and non-deductible withholding taxes. The tax relating to other periods con- sists of tax payments for the tax audit for the ﬁnancial years 2012/13 until 2014/15. For the current ﬁnancial year, deferred tax assets were recognised for the inter- est carry-forwards of €32,935 thousand. Liabilities 1,671 2,295 215 4 CONSOLIDATED FINANCIAL Provisions 2,708 1.02 Deferred income tax liabilities (gross) STATEMENTS 12,857 9,206 3,651 11,070 7,435 3,635 Offset Deferred income tax liabilities 5 ANNUAL Deferred income tax asset (net) ACCOUNTS 5,323 15,210 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 98 CONTENTS 5 Other disclosures The following table shows the reconciliation of the working capital: Total working capital amounted to €127,298 thousand as of 31 March 2022 and was therefore nearly stable compared to 31 March 2021 (€125,020 thousand). The increase of €2,278 thousand was driven by higher safety stock and tooling net. 5.1 Working capital in € thousand Inventories 31 Mar 21 95,470 31 Mar 22 129,388 -61,142 Trade working capital is, amongst others, a key per- formance indicator to track the Group’s operating performance. It is neither required by nor presented in accordance with IFRS. It is also not a measure of ﬁnancial performance under IFRS and should not be considered as an alternative to other indicators of oper- ating performance, cash ﬂow or any other measure of performance derived in accordance with IFRS. Tools -37,334 Advanced payment for tools -467 57,669 102,648 -850 67,396 85,211 1 Inventories – non tooling TO OUR SHAREHOLDERS Receivables from third parties Trade receivables > 1 year Trade receivables tooling -49,645 -5,901 -47,541 -2,432 2 The following table shows the amounts of the working capital broken down by balance sheet class position: Receivables from third parties NON-FINANCIAL REPORT 47,102 61,848 -7,159 35,238 70,384 -8,772 Trade payables < 1 year in € thousand Inventories – non tooling 31 Mar 21 57,669 31 Mar 22 67,396 Trade payables and services tooling 3 Payables to third parties (-) Trade working capital Tooling inventories 54,689 50,082 37,336 61,612 41,023 61,141 Receivables from third parties GROUP MANAGEMENT REPORT 47,102 35,238 Payables to third parties (-) Trade working capital Tooling net 54,689 50,082 62,922 61,612 41,023 74,392 Current tooling trade receivables 5,901 2,432 4 Non-current tooling trade receivables 49,645 47,541 Contract assets 12,017 11,883 CONSOLIDATED FINANCIAL Working capital 125,020 127,298 STATEMENTS Tooling related trade payables -7,159 466 -8,772 851 Advance payment tooling Tooling received advanced payment current -15,491 -23,100 5 ANNUAL ACCOUNTS Other provisions Tooling net -7,776 62,922 11,987 30 -5,700 74,392 11,853 30 Contract asset ECL contract asset < 1 year Contract asset 6 ADDITIONAL 12,017 125,020 11,883 127,298 INFORMATION Working capital NOVEM ANNUAL REPORT 2021/22 99 CONTENTS 5.2 Financial instruments The following table shows the carrying amounts and fair values of the ﬁnancial instruments broken down by balance sheet class and category: 31 Mar 21 Carrying 31 Mar 22 Carrying in € thousand Financial assets by classiﬁcation Category amount Fair value amount Fair value 1 TO OUR SHAREHOLDERS Trade receivables FAAC FAFVTPL FAAC 92,712 92,712 81,785 81,785 Trade receivables within the scope of factoring agreements 9,936 9,936 3,426 3,426 Cash and cash equivalents Financial liabilities by classiﬁcation Trade payables 175,299 175,299 116,967 116,967 2 NON-FINANCIAL REPORT FLAC FLAC 61,849 461,885 397,442 34 61,849 461,885 397,442 34 70,384 70,384 Liabilities to shareholders Liabilities from bond Liabilities to banks (non-derivative) Liabilities to banks (derivative) Summary by category FAAC FLAC 3 FLAC 247,746 1,342 247,746 1,342 GROUP MANAGEMENT REPORT FLFVTPL 406 406 268,011 9,936 268,011 9,936 198,752 3,426 198,752 3,426 FAFVTPL 4 FLAC 921,210 406 921,210 406 318,130 1,342 318,130 1,342 CONSOLIDATED FINANCIAL FLFVTPL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 100 CONTENTS The following table provides an overview of the clas- siﬁcation of ﬁnancial instruments presented above in the fair value hierarchy: The following table shows net gains and losses from ﬁnancial instruments by category: Fair value Currency Impair- ment 31 Mar 21 Level 22 31 Mar 22 Level 22 in € thousand Interest measure- ment transla- tion Level 11 Level 33 Level 11 Level 33 in € thousand FY 2020/21 FAAC Financial assets 3,229 49,365 4062 -1,1121 -1,311 -2,189 Trade receivables within the scope of factoring agreements 1 9,936 406 3,426 1,342 FLAC TO OUR SHAREHOLDERS Financial liabilities FLFVTPL FY 2021/22 FAAC Derivative ﬁnancial instruments 1ꢀMeasurement of fair value based on quoted prices (non-adjusted) for these or identical instruments on active markets. 2ꢀMeasurement of fair value based on inputs that are either directly (i.e. as prices) or indirectly (i.e. derived from prices) observable on active 3,095 22,944 1,3423 -163 2 FLAC markets. NON-FINANCIAL REPORT 3ꢀMeasurement of fair value based on inputs that do not represent any observable market data. FLFVTPL 1ꢀAdjusted There were no transfers between the different levels of the fair value hierarchy in the ﬁnancial year 2021/22. The fair values of the derivative ﬁnancial instruments in the form of forward exchange contracts with banks are determined using the present value method based on market prices. 2ꢀIn addition to the €406 thousand ﬁnancial liabilities from deriva- tives reported here as of 31 March 2021, €1,186 thousand in rea- lised gains were generated during the ﬁnancial year 2020/21. 3ꢀIn addition to the €1,342 thousand ﬁnancial liabilities from deri- vatives reported here as of 31 March 2022, €1,209 thousand in realised losses were generated during the ﬁnancial year 2021/22. 3 GROUP MANAGEMENT REPORT Fair value is the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. The following methods and assumptions were used to estimate fair values in the ﬁnancial year: Interest income and expense on ﬁnancial assets and liabilities accounted for at amortised cost is included in interest income on ﬁnancial assets and in interest expense on ﬁnancial debt (refer to section 4.7). 4 CONSOLIDATED FINANCIAL The invoice amount of receivables is used as a reason- able approximation for the fair value of trade receiva- bles in conjunction with factoring agreements. STATEMENTS 5.3 Share-based payments For trade receivables not subject to factoring arrange- ments and for cash and cash equivalents, given their maturity, it is assumed that the carrying amount is a reasonable approximation of fair value due to their predominantly short-term nature. Similarly for trade payables, non-derivative liabilities to banks and other ﬁnancial liabilities, it is assumed that the carrying amount is the fair value. 5 The Management Board members of Novem Group S.A. participate in a long-term incentive (Performance Share Plan) in the form of virtual shares. The Perfor- mance Share Plan is classiﬁed according to IFRS 2 as cash-settled share-based payment. ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 101 CONTENTS The Performance Share Plan is granted in annual tranches of virtual shares with a respective perfor- mance period of four years. Deviating from this, the performance period of the tranche 2021 started on the day of the listing of Novem Group S.A. and will end on 31 March 2025. The ﬁrst tranche of the Performance Share Plan was allocated to Management Board members of Novem Group S.A. for the ﬁnancial year 2021/22. In total, the number of conditionally granted virtual shares for the ﬁnancial year 2021/22 amounts to 40,826. The expenses for the ﬁnancial year 2021/22 amount to €69 thousand. The provisions as of 31 March 2022 are also €69 thousand. risks early on. Group-wide risk management aims to identify risks based on operations as early as possible to take appropriate and effective steps to manage or avoid these risks. The Group is exposed to the following risks in particular: • • • liquidity risks credit risk ﬁnancial market risks (cxchange rate risks and interest rate risks) The conditionally granted number of virtual shares at the beginning of the performance period is calculated for each tranche by dividing a contractually deﬁned individual target amount by the start share price of the share of Novem Group S.A. (arithmetic mean of the closing prices of the stock during the last 60 trading days prior to the start of the performance period). In deviation from this, the start share price for the tranche 2021 was calculated based on the arithmetic mean of the 60 trading days following the IPO. 1 The fair value of the Performance Share Plan to calcu- late expenses and provisions was determined by using a Monte-Carlo-Simulation. The fair value and the inputs used in the assessment of the fair value as of 31 March 2022 were as follows: TO OUR SHAREHOLDERS The Group’s management has overall responsibility for establishing and overseeing the Group’s risk manage- ment system. The Finance Department is responsible for developing and monitoring the risk management system and reports regularly on these matters to management. 2 NON-FINANCIAL REPORT Valuation date 31 Mar 22 19 Jul 21 – 31 Mar 25 Performance period The ﬁnal number of virtual shares is determined by multiplying the total target achievement with the con- ditionally granted number of virtual shares. The total target achievement depends on the target achievement of the two ﬁnancial ﬁgures relative Total Shareholder Return (70% weighting) and Adj. EBIT margin (30% weighting). Thereby, the target achievement of relative Total Shareholder Return and Adj. EBIT margin can range between 0% and 150%. At the core of risk management is an internal report- ing system that continually optimises monitoring of all business-relevant key data and is adapted to current challenges. In addition, the business opportunities and risks are recorded, analysed and evaluated in a multi-tiered planning, information and control pro- cess, allowing changes to the business environment and deviations from plan to be recognised early and countermeasures introduced in advance. Additionally, important KPIs (metrics such as order intake, rev- enue, Adj. EBIT, EBITDA, staﬃng level, ﬂuctuation and quality data) are reported monthly and evaluated by management. Start share price Novem Group S.A. 3 €16.46 GROUP MANAGEMENT REPORT Remaining duration of performance period 3.0 years Expected annual volatility 44.9% 0.1% Risk-free annual interest rate 4 Expected target achievement for internal target EBIT margin 100% CONSOLIDATED FINANCIAL Fair value per virtual share €8.96 STATEMENTS In order to determine the payout in cash, the ﬁnal num- ber of virtual shares is multiplied with the end share price of the share of Novem Group S.A. (arithmetic mean of the closing prices of the stock during the last 60 trading days prior to the end of the performance period) plus the sum of the dividends disbursed during the performance period. The payout is capped at 200% of the contractually deﬁned individual target amount. 5.4 Risk reporting 5 ANNUAL ACCOUNTS Management of ﬁnancial risks Liquidity risks The Group is exposed to a wide range of risks and opportunities within the scope of its business activi- ties. Its business operations are focused on seizing opportunities and identifying and controlling the related Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as they fall due. Liquid- ity risks arise from current liabilities due to long-term rental agreements, interest and repayments. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 102 CONTENTS Funds are largely generated from operations and used to cover ﬁnancing needs. The following overview shows the contractually agreed terms of ﬁnancial liabilities which represent expected future cash out-ﬂows: To ensure and monitor liquidity, the Corporate Treasury Department permanently tracks, optimises and docu- ments the current cash ﬂows of all entities and has established a rolling 12-month liquidity planning. The planning takes into account the maturities of ﬁnancial investments and ﬁnancial assets (e.g. receivables and other ﬁnancial assets) as well as expected cash ﬂows from the operating activities. Both the liquidity status (weekly) and the liquidity plan (monthly) are regularly reported to management and, if this results in changes in ﬁnancing needs, measures are initiated at an early stage. This approach allows the entire Group’s needs and those of individual group companies to be addressed optimally. Less than one Between one and More than ﬁve years Financial liabilities in € thousand year ﬁve years As of 31 Mar 21 Liabilities to shareholders Liabilities to banks (non-derivative) Liabilities to banks (derivative) Liabilities from bond Trade payables 25,516 34 530,761 556,277 34 1 TO OUR SHAREHOLDERS 4061 406 21,292 61,849 7,315 447,833 18,986 469,125 61,849 36,589 2 Lease liabilities 10,288 NON-FINANCIAL REPORT As of 31 Mar 22 Liabilities to shareholders Liabilities to banks (non-derivative) Liabilities to banks (derivative) Liabilities from bond Trade payables 4,560 273,012 277,572 1,342 The Group ensures compliance with the ﬁnancing requirements of its operating business and with ﬁnan- cial obligations by means of cash pooling agreements, intragroup loans and credit lines based on the respec- tive legal and tax regulations. As of 31 March 2022, the Group has a total of €60,000 thousand (31 March 2021: €75,000 thousand) in unused revolving credit facility from the new term loan agreement to ensure the liquidity. Additionally, the Group possesses a €4,000 thousand credit line which was drawn in the amount of €2,670 thousand as guarantee facility. 3 1.3421 GROUP MANAGEMENT REPORT 70,384 8,280 70,384 36,754 Lease liabilities 19,667 8,807 1ꢀThe amount stated relates to the market value and results from the difference between the purchase of EUR in the amount of €69,896 thousand (31 March 2021: €54,843 thousand) and the sale of USD in the translated amount of €68,554 thousand (31 March 2021: €54,437 thousand). 4 CONSOLIDATED FINANCIAL STATEMENTS The contractually agreed cash ﬂows related to non- derivative bank include a variable interest as well as the repayment amount of the loan. The expected cash ﬂows for derivative liabilities to banks in the form of forward exchange contracts incorporate their negative value as of the reporting date. Based on the current state of knowledge, the cash out-ﬂows presented are not expected to occur signiﬁcantly earlier or to con- siderably deviate in amount from the values shown in the table. Credit risk Credit risk is the risk of ﬁnancial losses if a customer or counterparty to a ﬁnancial instrument fails to meet its contractual obligations. Credit risk arises mainly from trade receivables, with the maximum credit risk corresponding to the carrying amount of the ﬁnancial assets. Impairment losses are also recorded for con- tract assets. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 103 CONTENTS The following tables give information on the carrying amounts of trade receivables and contract assets aris- ing from contracts with customers: primarily on long-standing business relationships with most customers and the ratings of the major rating agencies. Historical default rates for these receivables are extremely low. In the event that one of the three largest customer defaults (currently assessed as unlikely), credit risk arising from open receivables as of 31 March 2022 would be between €7,366 thousand and €15,373 thousand (31 March 20211: €8,639 thousand and €13,763 thousand). Contract assets As of the reporting date of 31 March 2022, contract assets were recognised amounting to €11,883 thou- sand (31 March 2021: €12,017 thousand). These assets have arisen with the right to consideration acquired from contractual obligations already satisﬁed. Contract assets are reclassiﬁed to trade receivables as soon as an unconditional right to payment arises, which is obtained by invoicing the customer for the quantities actually delivered. 31 Mar 21 102,648 11,987 31 Mar 22 85,211 in € thousand Trade receivables Contract assets 11,853 1 Accumulated impairment losses on trade receivables and contract assets are as follows: TO OUR SHAREHOLDERS Expected credit losses for trade receivables recognised at amortised cost are measured based on the lifetime expected credit losses. This involves the receivables being grouped according to the individual customers. For these customers, a one-year probability of default is then determined via a credit agency. Expected credit losses per customer are calculated ultimately as the product of the gross carrying amount of the receivable, the customer’s probability of default (maturity-adjusted as required) and an appropriate insolvency ratio. Expected credit losses for contract assets are meas- ured using the lifetime expected credit losses. This involves the contract assets being grouped according to the individual customers. For these customers, a one-year probability of default is then determined via a credit agency. Expected credit losses per customer are calculated ultimately as the product of the gross carrying amount of the contract asset, the customer’s probability of default (maturity-adjusted as required) and an appropriate insolvency ratio. FY 2020/21 FY 2021/22 in € thousand 2 Trade receivables Contract assets Impairment loss 1,535 30 1,115 30 NON-FINANCIAL REPORT 1,565 1,145 3 Trade receivables GROUP MANAGEMENT REPORT Credit risk relates in particular to a receivable being repaid late, partially or not at all. The Group uses a number of measures to minimise this risk. As part of receivables management, the Group continuously monitors open positions, conducts maturity analyses and contacts the customer at an early stage if pay- ment delays emerge. The highest priority is placed on monitoring early indicators. On the statements of ﬁnan- cial position, the residual risk for trade receivables is accounted for by calculating expected credit losses. In general, the Group’s exposure to credit risk is inﬂuenced mainly by the individual characteristics of each cus- tomer. Trade receivables are spread essentially over the major manufacturers in the automotive industry which, due to solid sector performance in Americas, Europe and Asia, is assessed as representing relatively low default risk for the Group. This assessment is based The gross carrying amounts and related probabilities of default of customers for trade receivables measured at amortised cost are as follows: 4 CONSOLIDATED FINANCIAL FY 2020/21 FY 2021/22 STATEMENTS in € thousand Gross carrying amount 55,951 Probability of default Gross carrying amount Probability of default < 1% < 1% 1% < x < 2% 2% < x < 5% > 5% 44,7002 3,891 3,492 1% < x < 2% 2% < x < 5% > 5% 5 29,040 27,530 10,604 86,326 ANNUAL 15,303 ACCOUNTS Trade receivables 104,185 2ꢀThereof trade receivables within the scope of factoring agreements amounted to €3,426 thousand (31 March 2021: €9,936 thousand) were measured at fair value through proﬁt or loss. No expected credit losses were recognised for this portion. 6 ADDITIONAL INFORMATION 1ꢀAdjusted NOVEM ANNUAL REPORT 2021/22 104 CONTENTS The gross carrying amounts and related probabilities of default of customers for contract assets are as follows: by raising the purchase volume in the foreign currency area or increasing local production. To further secure operating activities, the option of group netting foreign currency exposures within the Group is used. A further measure taken is to manage the volume of excess liquidity arising from the respective hedged items in FY 2020/21 FY 2021/22 in € thousand Gross carrying amount Probability of default Gross carrying amount Probability of default 4,234 1,358 < 1% 1% < x < 2% 2% < x < 5% > 5% 4,990 206 < 1% 1% < x < 2% 2% < x < 5% > 5% foreign currency based on incremental FX spot transac tions within a prescribed scope. - 3,547 4,078 2,609 11,883 1 A sharp appreciation of the Euro against currencies of other exporting countries could, however, negatively impact the Group’s competitiveness. TO OUR 2,878 SHAREHOLDERS Contract assets 12,017 Cash and cash equivalents affect the Group’s earnings or the value of the ﬁnan- cial instruments it holds. The objective of managing ﬁnance market risks is to manage and control market A reasonably possible change in exchange rates would inﬂuence consolidated earnings due to the fair values of the monetary assets and liabilities. The following table is based on the exchange rates determined at the reporting date. It illustrates the effects of apprecia- tion or depreciation of the currencies to be considered (USD, CNY, CZK, MXN, HNL) of +10% or -10% against the respective functional currency. The overall result for each currency thus includes effects calculated based on appreciation or depreciation of the Euro, where the functional currency corresponds to the currency stated in the table. 2 NON-FINANCIAL REPORT As of 31 March 2022, the Group had cash and cash equivalents of €116,967 thousand (31 March 2021: €175,299 thousand). Thus, this amount repre- sents the maximum exposure to credit risk in terms of these assets. The cash and cash equivalents are held at banks that have Fitch ratings of BBB to AAA. For reasons of materiality, no expected credit losses were recognised for cash and cash equivalents by the Group. Moreover, external ratings indicate that these assets have only low credit risk. risk exposure within an acceptable range while optimis - ing income. 3 Exchange rate risk GROUP MANAGEMENT REPORT Foreign currency risks arise when Group companies settle transactions in currencies other than their func- tional currency. Through its subsidiaries, the Group has assets and liabilities outside the Eurozone. These assets and liabilities are denominated in local curren- cies. If the value of net assets is translated into Euro, exchange rate ﬂuctuations from one period to the next result in changes to these net asset values. Accord- ingly, the Corporate Treasury Department cooperates with the Currency Commission and is guided by the latter’s instructions to minimise the resulting foreign currency risks. The Group mainly has foreign currency exposure to Czech Koruna (CZK), US Dollar (USD), Mex- ican Peso (MXN), Honduran lempira (HNL) and Chinese Renminbi (CNY), which arise from trade receivables/ payables and from procurement. The Group counters its foreign currency risks through natural hedging, i.e. 4 CONSOLIDATED FINANCIAL Derivatives STATEMENTS 31 Mar 21 31 Mar 22 in € thousand Changes Derivatives are concluded with banks with a rating from Fitch Ratings of at least BBB+. As of 31 March 2022, all derivatives in the form of forward exchange contracts have a negative market value totalling €1,342 thousand (31 March 2021: €406 thousand). in foreign exchange rates (gain) +10% -10% +10% -10% 5 ANNUAL USD CNY CZK MXN HNL 8,878 17 -10,041 -21 11,182 -124 627 -555 0 -12,970 119 -627 556 0 ACCOUNTS Finance market risks 91 -91 -18 0 18 6 Finance market risks are the risks of changes in market prices such as exchange rates or interest rates that ADDITIONAL 0 INFORMATION NOVEM ANNUAL REPORT 2021/22 105 CONTENTS To further reduce foreign currency risk from US Dollar exposures, the Group concluded a number of forward exchange contracts with UniCredit and HSBC. Using these derivative instruments, the signiﬁcant part of the forecast net foreign currency exposures for the respec- tive next 12 months is hedged in US Dollar. As of 31 March 2022, these derivatives had a negative market value of €-1,342 thousand. In this case, they are not presented as hedges: instead, the derivatives are meas- ured at fair value through proﬁt or loss. Further moderate interest rate risks exist for pension obligations and for the factoring program. The factor- ing program depends on the 3-month Euribor relating to factoring fees for EUR-receivables and the SOFR which represents the base rate for factoring fees resulting from USD-receivables. A 1% change of the reference interest rates would have no material impact regarding factoring fees. business model and the operations on global markets, the Group generates predictable and sustainable cash ﬂows under normal business conditions. The Group therefore manages its capital structure and makes necessary adjustments based on the prevailing busi- ness conditions. Due to the new term loan agreement, the Group has a total of €60,000 thousand in unused revolving credit facility. Additionally, the Group possesses a €4,000 thousand credit line, which was drawn in the amount of €2,670 thousand as guarantee facility. 1 The interest rate risk regarding our pension obligations is also manageable as their share of total assets only amounts to approximately 5%. TO OUR SHAREHOLDERS Interest rate risks Net ﬁnance income/costs and ﬁnancial performance can be positively inﬂuenced by favourable interest rate and exchange rate developments. To allow prompt reactions to positive developments, the ﬁnancial mar- kets are monitored continuously. Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 regarding the impact of IBOR reform (phase 2) issued in August 2020 were applied effectively in 2021. Initial application has not impacted any deriva- tives or hedging relationships recognised by Novem Group. With respect to other ﬁnancial instruments, the changes are generally relevant for any variable interest instrument that is linked to a benchmark interest rate that is affected by IBOR reform. As of 31 March 2022, this affected primarily current accounts denominated in USD. However, the impact of changing the bench- mark interest rate from LIBOR to an alternative interest rate is currently insigniﬁcant. For monitoring the capital structure, the Group utilises, amongst others, the ratio of net ﬁnancial debt and Adj. EBITDA, which is also used as a covenant in the senior facilities agreement. Regular quarterly monitoring of the ﬁnancial ratios has been implemented. The Group does not expect a breach of this covenant. 2 NON-FINANCIAL REPORT 3 At 31 March 2022, the Group’s interest-bearing ﬁnancial instruments can be aggregated as follows with regard to the basic structure of the respective interest rate: GROUP MANAGEMENT REPORT In order to maintain or adjust the capital structure, the Group may increase or decrease the dividends, issue new shares or return capital to the shareholders, and raise additional or reduce parts of the outstanding debt. 31 Mar 21 397,442 31 Mar 22 250,000 in € thousand 4 Variable rate instruments Financial liabilities CONSOLIDATED FINANCIAL 5.6 Consolidated statement of cash ﬂows Fixed-rate instruments Financial liabilities STATEMENTS 461,919 5.5 Capital management The statement of cash ﬂows is prepared in accordance with IAS 7 and is broken down into cash ﬂows from operating, investing and ﬁnancing activities. In-ﬂows and out-ﬂows from operating activities are presented in accordance with the indirect method and those from investing and ﬁnancing activities by the direct method. Interest rate exposure 859,361 250,000 The objective of the Novem Group’s capital manage- ment is to ensure the ability to continue as a going con- cern and to maintain a stable capital case to maintain investor, creditor and market conﬁdence. Opportunities to repay and reﬁnance liabilities and ﬁnance future business activities and future investments depend on how the total operating revenue of the Group develops and its ability to obtain suﬃcient liquidity. Due to the 5 As of 31 March 2022, ﬁnancial liabilities with ﬁxed rates amount to zero. Interest rate risk exists for the syndicated loan as it is linked to the 3-month Euribor. In view of the current negative 3-month Euribor, however, there are only very small risks overall from ﬂuctuating interest rates as the market interest rates for the loan in this case are 0% plus the agreed margin. ANNUAL ACCOUNTS Cash held comprises current available funds and cash equivalents less bank liabilities due on demand (cur- rent account liabilities). With proﬁt for the period as 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 106 CONTENTS the starting point, the non-cash expenses and changes in net working capital are accounted to calculate cash ﬂows from operating activities. Income tax payments of €17,330 thousand (PY: €19,527 thousand) are also recognised in cash ﬂows from operating activities. 5.7 Operating segments as it regularly reviews the segments in terms of their proﬁtability and resource allocation using internal man- agement reporting. Segment information is provided on the basis of the Group’s internal reporting in order to assess the type and ﬁnancial impact of the Group’s business activities as well as the economic environment in which it oper- ates. Transactions between the operating segments based on transfer prices are determined according to arm’s length conditions typical for the market. The management of the parent company evaluates the performance of the operating segments based on a measure for segment earnings (performance indica- tor) designated as Adj. EBIT, as this provides the most relevant information for assessing the earnings of spe- ciﬁc segments in relation to other companies operating in these sectors. Investing activities comprise payments to acquire intangible assets, property, plant and equipment and ﬁnancial assets as well as proceeds from the sale of intangible assets, property, plant and equipment and ﬁnancial assets. Financing activities include the repay- ment of bond and borrowings. Interest payments of €12,994 thousand (PY: €23,137 thousand) are also reﬂected in cash out-ﬂows from ﬁnancing activities. 1 TO OUR SHAREHOLDERS The Group is structured into divisions, with business activities organised over the geographical sales regions of Europe, Americas and Asia. Adj. EBIT is EBIT adjusted by management primarily for business transactions of a one-off and non-recurring nature. The accounting policies for segment reporting are based on the IFRSs applied in these consolidated ﬁnancial statements. 2 The Chief Operation Decision Maker (“CODM”) makes the assessment. The CODM within the meaning of IFRS 8 is the management of the parent company, NON-FINANCIAL REPORT The table below shows the details of changes in the Group’s ﬁnancial liabilities, which are classiﬁed in the Group’s consolidated statement of cash ﬂows as cash ﬂows from ﬁnancing activities: Segment reporting as determined by management is disclosed for the segments Europe, Americas and Asia. There are no further segments within the Group. 3 GROUP MANAGEMENT REPORT Liabilities to shareholders in € thousand Liability from bonds Liabilities to banks Lease liabilities As of 01 Apr 20 395,743 77,902 436,976 43,059 Reportable segments Business activities Changes from ﬁnanc- ing cash ﬂows Production, processing and sale of high-quality trims and decorative functional elements in vehicle interior -2,5081 -77,177 -10,384 709 Europe 4 Effect of changes in foreign exchange rates CONSOLIDATED FINANCIAL STATEMENTS Production, processing and sale of high-quality trims and decorative functional elements in vehicle interior Other changes 4,207 -285 441 24,909 2,727 Americas Asia As of 31 Mar 21 397,442 461,885 36,111 As of 01 Apr 21 397,442 -400,000 441 461,885 36,111 -8,366 Production, processing and sale of high-quality trims and decorative functional elements in vehicle interior 5 Changes from ﬁnanc- ing cash ﬂows ANNUAL 247,649 ACCOUNTS Effect of changes in foreign exchange rates -845 Other changes 2,558 998 -461,885 7,957 6 As of 31 Mar 22 0 249,087 0 34,857 ADDITIONAL INFORMATION 1ꢀPartial of amount presented in the statement of cash ﬂows as interest paid NOVEM ANNUAL REPORT 2021/22 107 CONTENTS 5.8 Reporting by region Revenue is spread over the individual segments accord- ing to surfaces as follows: The Group is organised and managed at regional level. The three reportable operating segments of the Group are Europe, Americas and Asia. The product portfolio is broadly similar in these three regional segments. Europe Americas Asia in € thousand FY 2020/21 Wood 235,881 51,836 155,805 43,582 76,464 15,238 Aluminium Europe Americas 199,893 Asia in € thousand Premium synthetics 1 FY 2020/21 23,406 506 TO OUR Revenue SHAREHOLDERS FY 2021/22 Wood generated from 311,123 91,702 third parties1 223,213 66,067 170,534 50,316 64,116 10,926 FY 2021/22 Aluminium 2 Revenue Premium synthetics 28,621 835 NON-FINANCIAL REPORT generated from 317,901 221,685 75,042 third parties1 1ꢀBreakdown of revenue according to parent company location (i.e. Revenue is spread over the individual segments accord- from the invoiced by perspective) ing to the category of revenue recognition as follows: 3 GROUP MANAGEMENT REPORT In the ﬁnancial year 2021/22, between 21.6% and 49.3% (PY: 22.5% and 50.4%) in the three regions were attrib- utable to the respective most signiﬁcant customers. Europe Americas Asia in € thousand FY 2020/21 Goods transferred at a point in time 306,907 4,216 194,006 5,887 89,800 1,902 Overall, revenue of between 6.2% and 38.1% (PY: 5.6% and 42.4%) was generated with three major customers in all segments. 4 Goods and ser- vices transferred over time CONSOLIDATED FINANCIAL STATEMENTS FY 2021/22 Goods transferred at a point in time 313,199 4,702 216,661 5,024 73,302 1,740 5 Goods and ser- vices transferred over time ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 108 CONTENTS 5.9 Reconciliation of information on reportable segments The following table shows further information on the Adj. EBIT performance indicator, which is used to assess the performance of the operating segments: Adjustments 1 TO OUR SHAREHOLDERS Europe Americas Asia FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 in € thousand Restructuring 6,008 2,599 -104 Exceptional ramp-up costs 2 NON-FINANCIAL REPORT Material quality claims Single impairments Covid-19 costs 2,960 432 3,096 916 527 73 306 409 59 207 Others 1,492 1,111 2,093 7,112 3 GROUP MANAGEMENT REPORT Transaction costs Exceptional items Discontinued operations Adjustments 7,483 600 600 715 715 59 59 207 207 13,491 7,112 4 CONSOLIDATED FINANCIAL STATEMENTS For both ﬁnancial years 2020/21 and 2021/22 the most signiﬁcant effects were related to Europe and contain a single provision for anticipated impending losses related to a speciﬁc platform in Vorbach amounting to €3,096 thousand (PY: €2,960 thousand) and transac- tion costs in the amount of €2,093 thousand (PY: €0) because of the stock market listing. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 109 CONTENTS Segment Reporting Europe Americas Asia Total segments Other/consolidation Group FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 FY 2020/21 FY 2021/22 in € thousand External revenue 311,2381 43,025 317,7971 40,884 199,893 54,848 221,685 66,712 91,702 21,781 75,042 24,880 602,833 119,655 614,524 132,476 602,833 614,524 Revenue between segments 119,655 132,476 Total revenue Adj. EBITDA 354,263 48,557 358,681 51,614 254,741 36,824 288,397 38,827 113,483 31,934 99,922 21,308 722,488 117,315 747,000 111,749 119,655 132,476 602,833 117,315 614,524 111,749 1 TO OUR SHAREHOLDERS Depreciation, amortisation and impairment 14,902 14,489 10,821 11,209 5,157 5,153 30,880 30,851 30,880 30,851 Adj. EBIT 33,655 13,491 20,164 37,125 7,112 26,003 600 27,618 715 26,777 59 16,155 207 86,435 14,150 72,285 80,898 8,034 86,435 14,150 72,285 80,898 8,034 2 Adjustments NON-FINANCIAL REPORT Operating Result (EBIT) 30,013 25,403 26,903 26,718 15,948 72,864 72,864 1ꢀIncluding revenue-related adjustments 3 The amounts shown above in the Other/consolidation column include the elimination of transactions between the segments and speciﬁc items at group level that relate to the Group as a whole and cannot be allocated to the segments. The following table shows the reconciliation of Adj. EBIT to EBIT and to earnings before taxes for the ﬁnan- cial years 2021/22 and 2020/21: Adj. EBIT include transactions with a one-off and non- recurring nature occurred in the ordinary course of business. GROUP MANAGEMENT REPORT FY 2020/21 FY 2021/22 5.10 Leases in € thousand 4 Within the segment reporting in the three regions of Europe, Americas and Asia and in relation to recog- nition of revenue over time according to IFRS 15, €4,702 thousand relates to Europe, €5,024 thousand to the Americas region and €1,740 thousand to Asia (PY: €4,216 thousand to Europa, €5,887 thousand to the Americas region and €1,902 thousand to Asia). Adj. EBITDA 117,315 111,749 CONSOLIDATED FINANCIAL STATEMENTS In the ordinary business, the Novem Group is the les- see in different leases of land and buildings, technical equipment and machinery as well as parts of operat- ing and oﬃce equipment. The lease term for land and buildings is typically between two and 35 years. Leases of technical equipment and machinery generally have a term of less than one year. Leases of operating and oﬃce equipment usually have a term of between one and ten years. The Group applied the practical expedi- ent in IFRS 16.6 by not accounting short-term leases (leases with a lease term of less than 12 months) and low value assets (underlying asset <5,000€/$, Depreciation, amortisation and impairment 30,880 30,851 Adj. EBIT 86,435 14,150 72,285 8,222 80,898 8,034 Adjustments EBIT 5 72,864 3,380 ANNUAL ACCOUNTS Finance income Finance costs Earnings before taxes 51,292 29,215 25,821 50,423 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 110 CONTENTS e.g. printers and copiers) as right-of-use assets. For all leases, respective lease term options (e.g. renewal options) are considered. The majority of the current options to extend or terminate the leases can only be exercised by the Novem Group and not by the respec- tive lessor. The future undiscounted lease payments from lease term options not yet exercised amount to €8,251 thousand. Amounts recognised in proﬁt and loss and cash ﬂows 5.11 Other ﬁnancial liabilities and contingent liabilities There were no signiﬁcant other ﬁnancial obligations occurring after the reporting date. There are just ﬁnan- cial obligations within the usual range resulting from the purchase commitment for €32,620 thousand on 31 March 2022. The total amount includes tooling busi- ness costs of €18,564 thousand and €14,056 thousand for series business (PY: Tooling €20,949 and Series €6,836). FY 2020/21 FY 2021/22 in € thousand Interest expense for lease liabilities 674 559 Short-term lease expenses 2,275 2,267 Lease expenses for low value assets except short-term leases for low value assets 1 Some leases of land and buildings provide for addi- tional lease payments based on a change in the local price indices. 888 820 TO OUR SHAREHOLDERS Expense for variable lease payments not included in the measurement of lease liabilities Contingent liabilities constitute off-balance sheet contingent liabilities recognised for valuation as of the reporting date. It includes sureties and guarantees assumed for third parties increased to €2,670 thousand on 31 March 2022 (PY: €830 thousand). This is mainly due to the guarantee against the Mexican tax oﬃce of about €2,245 thousand. The amount of the guarantee comprises Mexican VAT, for which the tax authorities rejected an appeal. 427 243 Future cash out-ﬂow from variable lease payments not incorporated into the measurement of the lease liability amount to €3,546 thousand (31 March 2021: €4,224 thousand). These relate mainly to leases of land and buildings. 2 NON-FINANCIAL REPORT Total cash out-ﬂow for leases 13,090 11,666 As of 31 March 2022, the lease liabilities amounted to €34,857 thousand (31 March 2021: €36,111 thousand). Thereof €7,855 thousand are due within the next ﬁnan- cial year 2022/23. 3 There are no leases in which the Novem Group S.A. acts as lessor. Information on leases in which the Group is the lessee is presented below. GROUP MANAGEMENT REPORT Furthermore, tax risks are also included in contingent liabilities. The Group might be subject to tax risks attrib- utable to previous tax assessment periods and might be subject to unanticipated tax expenses in relation to previous tax assessment periods, which have not yet been subject to a tax audit or are currently subject to a tax audit. It cannot be ruled out that tax authorities may apply a different approach in ongoing and/or future tax audits from the one adopted by the Group, which may lead to an additional tax expense and/or payment. This could have a material and adverse effect on the busi- ness, ﬁnancial condition and results of operations. Right-of-use assets 4 Technical Other equipment, CONSOLIDATED FINANCIAL Land and buildings equipment and operating and Right-of-use assets in € thousand machinery oﬃce equipment STATEMENTS Depreciation and impairment FY 2020/21 Additions to right-of-use assets Carrying amount as of 31 Mar 21 4,779 1,318 2,524 2,333 5,397 8,621 4,434 2,100 29,743 570 166 35,710 5 ANNUAL ACCOUNTS Depreciation and impairment FY 2021/22 Additions to right-of-use assets 5,090 3,715 2,697 1,616 4,173 7,953 5,331 Carrying amount as of 31 Mar 22 29,661 54 33,888 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 111 CONTENTS 5.12 Related parties 5.13 Remuneration of key management personnel The total remuneration of the Management Board dur- ing the reporting period is as follows: According to IAS 24, the Group has to disclose speciﬁc information about transactions between the Group and other related parties. Balances and transactions between the Group and its fully consolidated subsidiar- ies, which constitute related parties within the mean- ing of IAS 24, have been eliminated in the course of consolidation and are therefore not commented on in this note. The consolidated ﬁnancial statements do not include any associated companies that are accounted for using the equity method. FY 2020/211 2,990 FY 2021/222 1,215 130 The key management personnel are the members of the Management and Supervisory Board of Novem Group S.A. The total remuneration paid to the Man- agement Board members is calculated as the sum of base salary, short-term incentive, expenses for fringe beneﬁts and pensions, as well as the fair value of the share-based Performance Share Plan. For further infor- mation regarding the share-based Performance Share Plan, please refer to section 5.3. in € thousand Base salary Fringe beneﬁts 256 Pension expenses3 Non-recurring payments4 Short-term incentive Long-term incentive Remuneration 1,072 1,502 385 1 1,3455 124 TO OUR SHAREHOLDERS 69 5,663 3,425 1ꢀIn ﬁnancial year 2020/21 the deﬁnition of the key management per- sonnel was different compared to the reporting year 2021/22 and included the members of management, split into the positions of CEO, CFO and the Heads of Corporate Departments. 2ꢀRemuneration displayed for Management Board members for full ﬁnancial year 2021/22. In deviation to this, the Remuneration Report provides information on the pro-rated compensation of the Management and Supervisory Board members of Novem Group S.A. since the IPO of Novem Group S.A, i.e. for the period from 19 July 2021 to 31 March 2022. In the ﬁnancial years 2021/22 and 2020/21, the Com- pany incurred costs in connection with the private placement and listing and its preparation. Due to a cost sharing and indemnity agreement entered into with its direct and indirect shareholders, the costs incurred were invoiced to its shareholders (with the percent- age of the secondary shares) so that these costs represented a pass-through item (amounts to €8,032 thousand which have already been settled). The Group is obliged by Luxembourg law to draw up a Remuneration Policy as well as a Remuneration Report for the members of the Supervisory Board and Management Board of Novem Group S.A. The Remu- neration Policy and Remuneration Report are prepared in accordance with Art. 7bis and Art. 7ter of the Lux- embourg Law of 24 May 2011 on Shareholder Rights, as amended. 2 NON-FINANCIAL REPORT 3 3ꢀCurrent and past service cost according to IAS 19 4ꢀOne-time payment due to the IPO of Novem Group S.A. 5ꢀAdjusted GROUP MANAGEMENT REPORT In FY 2021/22 transaction volume regarding the pur- chase of tools with Kunststoff Schwanden AG was €145 thousand (PY: €208 thousand). The present value of the pension entitlements of the Management Board amounts to €5,502 thousand (31 March 2021: €4,152 thousand). The total remuneration paid to the Supervisory Board members is calculated as the sum of ﬁxed compensation and committee com- pensation. In the ﬁnancial year 2021/22, the members of the Supervisory Board of Novem Group S.A. were active during the period from 1 July 2021 to 31 March 2022. For this period, the total remuneration for the members of the Supervisory Board amounts to €240 thousand. 4 CONSOLIDATED FINANCIAL STATEMENTS For the remuneration of and other transactions with key management personnel constitute related party transactions pursuant to IAS 24, please refer to the section 5.3, section 5.13 and the Remuneration Report. The Remuneration Report will be published separately from this Annual Report on the Novem IR website on 22 July 2022. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 112 CONTENTS 5.14 Audit fees and services The following fees for the Group auditor only concern services directly related to the Group parent, Novem Group S.A. and its subsidiaries. in € thousand FY 2020/21 FY 2021/22 Audit services 1,040 10 881 1,515 501 1 Other assurance services Tax advisory services Fees TO OUR SHAREHOLDERS 869 1,919 2,897 2 NON-FINANCIAL REPORT 5.15 Subsequent events There were no events or developments that could have materially affected the measurement and presentation of the Group’s assets and liabilities as of 31 March 2022. 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 113 RESPONSIBILITY STATEMENT CONTENTS We, Günter Brenner (Chief Executive Oﬃcer), Dr. Johannes Burtscher (Chief Financial Oﬃcer), Christine Hollmann (Director Financial Audit and Tax) and Frank Schmitt (Director Consolidation and Internal Audit), conﬁrm, to the best of our knowledge, that the consoli- dated ﬁnancial statements which have been prepared in accordance with the International Financial Report- ing Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss of the Novem Group S.A. and the undertakings included in the consolidation taken as a whole and that the Group Management Report includes a fair review of the development and perfor- mance of the business and the position of the Novem Group S.A. and the undertakings included in the con- solidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Luxembourg, 27 June 2022 3 GROUP MANAGEMENT REPORT Novem Group S.A. Management Board Günter Brenner Dr. Johannes Burtscher Frank Schmitt 4 CONSOLIDATED FINANCIAL STATEMENTS Christine Hollmann 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 114 SETUP AND ORGANISATION OF THE MANAGEMENT BOARD CONTENTS In the ﬁnancial year ending 31 March 2022, the Man- agement Board of Novem Group S.A. diligently fulﬁlled its tasks in accordance with the statutory requirements, the Articles of Association of Novem Group S.A. as well as the Rules of Procedure of the Management Board of the Company, approved by the Management Board and the Supervisory Board on 1 July 2021. It regularly made decisions regarding strategic and operational topics. In the ﬁnancial year ending 31 March 2022, the members of the Management Board were Günter Brenner (Chair- man and CEO), Dr. Johannes Burtscher (CFO), Christine Hollmann (Director Financial Audit and Tax) and Frank Schmitt (Director Consolidation and Internal Audit). 1 TO OUR SHAREHOLDERS 2 The Management Board held in total eight regular meetings during the ﬁnancial year ending 31 March 2022. All of the eight meetings were attended by all of the members of the Management Board. In the meet- ings, the Management Board regularly discussed the status and performance of the Group including risks and opportunities, its market position, course of busi- ness as well as relevant ﬁnancial data. The discussions were based on regular and extensive reports in verbal and written form presented by the relevant members of the Management Board. The Management Board maintained close contact also outside of the regular meetings to exchange all important information related to the Novem Group. This close collaboration also included strategy discussions as well as information on the organisational development. NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 During the ﬁnancial year ending 31 March 2022, there were no conﬂicts of interest between the members of the Management Board and the Company. ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 115 INDEPENDENT AUDITOR‘S REPORT CONTENTS To the Shareholders of Novem Group S.A. (formerly: Car Interior Design S.à r.l.) 19, Rue Edmond Reuter 5326 Contern, Luxembourg International Standards on Auditing (“ISAs”) as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier (“CSSF”). Our responsibilities under the EU Regulation Nº 537/2014, the Law of 23 July 2016 and ISAs are further described in the Responsibilities of the réviseur d’entreprises agréé for the audit of the consolidated ﬁnancial statements section of our report. We are also independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethi- cal requirements that are relevant to our audit of the consolidated ﬁnancial statements, and have fulﬁlled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our opinion. 1. Revenue recognition Risk identiﬁed The Group’s revenue is mainly generated from the sales of serial parts, the provision of development services and sales of tools necessary for the production of the serial parts. Report on the audit of the consolidated ﬁnancial statements 1 Revenue is considered a key audit matter because of its signiﬁcance, the high transactions volume as well as the inherent risk associated with the recognition and measurement of revenue. TO OUR SHAREHOLDERS Opinion We have audited the consolidated ﬁnancial statements of Novem Group S.A. and its subsidiaries (the “Group” or “Novem”), which comprise the consolidated state- ment of ﬁnancial position as at 31 March 2022, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and consolidated statement of cash ﬂows for the year then ended, and the notes to the consolidated ﬁnan- cial statements, including a summary of signiﬁcant accounting policies. 2 The revenue reported in the consolidated ﬁnancial statements is one of the main ﬁnancial performance indicators used by the Management Board of Novem. As a general rule, revenue is recognised upon satisfac- tion of the respective performance obligation, namely the date on which the customer obtains control over the underlying asset. NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT Key audit matters Key audit matters are those matters that, in our profes- sional judgment, were of most signiﬁcance in our audit of the consolidated ﬁnancial statements of the current period. These matters were addressed in the context of the audit of the consolidated ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The recognition of revenue is subject to the risk that revenue is recognised at a wrong time and thus, leads to a presentation in the wrong period, or the recognition of ﬁctitious revenue. In our opinion, the accompanying consolidated ﬁnan- cial statements give a true and fair view of the consoli- dated ﬁnancial position of the Group as at 31 March 2022, and of its consolidated ﬁnancial performance and its consolidated cash ﬂows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. 4 CONSOLIDATED FINANCIAL STATEMENTS Novem usually concludes multiple-element contracts with customers, which contain more than one perfor- mance obligation. Novem has identiﬁed the following main performance obligations: 5 ANNUAL ACCOUNTS • • The provision of development services and the sales of tools necessary for the production of serial parts (consisting of the trims inside the car) Sales of the serial parts Basis for Opinion We conducted our audit in accordance with EU Regu- lation N° 537/2014, the Law of 23 July 2016 on the audit profession (the “Law of 23 July 2016”) and with 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 116 CONTENTS Revenue from development work and subsequent sale of special tools is recognised upon completion and sale of the tool to the customer, at a point in time, corre- sponding to the date of delivery or acceptance. and accounting treatment of revenue recognition in accordance with IFRS 15. We obtained external customer conﬁrmations on a sample basis. revenue recognition as disclosed in Note 2.16 and Note 4.1 to the consolidated ﬁnancial statements. • • We performed a correlation testing between rev- enue, receivables and cash and checked a sample of incoming payments to the corresponding bank statements. We agreed a sample of tooling transactions to the general ledger by reference to contracts, cor- respondence with the customer, and subsequent cash collection. We inspected correspondence with customers to assess that the tooling was ready for serial production when tooling revenue was recognised. For tooling projects that will not result in immediate cash payments but rather are amortised over the unit price of the serial product, we inspected on a sample basis a combination of correspondence with the customer, computation details or price list details to assess the amount of compensation for the performance achieved, which will, in turn, need to be amortised over the project’s life. Other information Serial parts are customised to the customer, repre- sent assets with no alternative use and Novem has an enforceable right to payment for services rendered to date. As a result, revenue for these serial parts is recognised over time. The Management Board is responsible for the other information. The other information comprises the information included in the Consolidated Management Report and the corporate governance statement but does not include the consolidated ﬁnancial statements and our report of réviseur d’entreprises agréé thereon. • • 1 TO OUR SHAREHOLDERS Revenue results from a range of individual transactions in the form of separate deliveries. Moreover, continu- ous price negotiations with customers lead to regular changes in transaction prices and, hence, to changes in the measurement of the revenue recognised. Our opinion on the consolidated ﬁnancial statements does not cover the other information and we do not express any form of assurance conclusion thereon. 2 NON-FINANCIAL REPORT Due to the inherent risk associated with the recognition and measurement of revenue, its signiﬁcance and the high transactions volume, we consider the recognition of revenue from the serial production and serial sale as a key audit matter. In connection with our audit of the consolidated ﬁnan- cial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consoli- dated ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially mis- stated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard. 3 GROUP MANAGEMENT REPORT Our answer • • • • We identiﬁed and analysed on a sample basis nor-routine sales transactions and entries, for example, debits or credits related to price adjust- 4 Our audit procedures over revenue recognition included, among others: CONSOLIDATED FINANCIAL ments and other non-recurring events. STATEMENTS We determined whether the corresponding trade receivables had been settled by the customer by paying the invoice amount in the customary busi- ness cycle. We evaluated management’s assumptions associ- ated with the provisions for price risks based on historical fact patterns and trends in each of the signiﬁcant locations. • We documented our understanding of the revenue recognition process and an understanding of the contractual arrangements with the customers, per- formed walkthroughs over each class of revenue transactions and evaluated the design and imple- mentation of the related controls. Responsibilities of the Management Board and those charged with governance for the consolidated ﬁnancial statements 5 ANNUAL ACCOUNTS The Management Board is responsible for the prepara - • • We obtained an understanding of current market trends in the industry as they would apply to the Group. tion and fair presentation of these consolidated ﬁnan- cial statements in accordance with IFRS as adopted by the European Union, and for such internal control as the Management Board determines is necessary to enable We assessed the adequacy of the Group’s dis- closures in respect of the accounting policies on 6 ADDITIONAL We assessed the compliance with the requirements INFORMATION NOVEM ANNUAL REPORT 2021/22 117 CONTENTS the preparation of consolidated ﬁnancial statements that are free from material misstatement, whether due to fraud or error. 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 consolidated ﬁnancial statements. concern. If we conclude that a material uncer- tainty exists, we are required to draw attention in our report of the réviseur d’entreprises agréé to the related disclosures in the consolidated ﬁnancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of the réviseur d’entreprises agréé. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated ﬁnancial statements, including the disclosures, and whether the consoli- dated ﬁnancial statements represent the underlying transactions and events in a manner that achieves fair presentation. Assess whether the consolidated ﬁnancial state- ments have been prepared, in all material respects, in compliance with the requirements laid down in the ESEF Regulation. Obtain suﬃcient appropriate audit evidence regard- ing the ﬁnancial information of the entities and business activities within the Group to express an opinion on the consolidated ﬁnancial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. The Management Board is responsible for presenting and marking up the consolidated ﬁnancial statements in compliance with the requirements set out in the Delegated Regulation 2019/815 on European Single Electronic Format (“ESEF Regulation”). As part of an audit in accordance with EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scep- ticism throughout the audit. We also: 1 TO OUR SHAREHOLDERS In preparing the consolidated ﬁnancial statements, the Management Board is responsible for assessing the Group’s ability to continue as a going concern, disclos- ing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Group or to cease operations, or has no realistic alter- native but to do so. • • Identify and assess the risks of material misstate- ment of the consolidated ﬁnancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suﬃcient and appropri- ate 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. 2 NON-FINANCIAL REPORT • • 3 Those charged with governance are responsible for overseeing the Group’s ﬁnancial reporting process. GROUP MANAGEMENT REPORT Responsibilities of the réviseur d’entreprises agréé for the audit of the consolidated ﬁnancial statements • Obtain 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 effective- ness of the Group’s internal control. 4 CONSOLIDATED FINANCIAL STATEMENTS The objectives of our audit are to obtain reasonable assurance about whether the consolidated ﬁnancial statements as a whole are free from material mis- statement, whether due to fraud or error, and to issue a report of the réviseur d’entreprises agréé that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit con- ducted in accordance with EU Regulation N° 537/2014, the Law of 23 July 2016 and with the ISAs as adopted for Luxembourg by the CSSF will always detect a mate- rial misstatement when it exists. Misstatements can • • Evaluate the appropriateness of accounting poli- cies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. Conclude on the appropriateness of Management Board’s use of the going concern basis of account- ing and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁcant doubt on the Group’s ability to continue as a going We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, includ- ing any signiﬁcant deﬁciencies in internal control that we identify during our audit. 5 ANNUAL ACCOUNTS We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 118 CONTENTS communicate to them all relationships and other mat- ters that may reasonably be thought to bear on our inde- pendence, and where applicable, related safeguards. We have checked the compliance of the consolidated ﬁnancial statements of the Group as at 31 March 2022 with relevant statutory requirements set out in the ESEF Regulation that are applicable to the ﬁnancial state- ments. For the Group, it relates to: From the matters communicated with those charged with governance, we determine those matters that were of most signiﬁcance in the audit of the consoli- dated ﬁnancial statements of the current period and are, therefore, the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter. • • Financial statements prepared in valid xHTML format The XBRL markup of the consolidated ﬁnancial statements using the core taxonomy and the common rules on markups speciﬁed in the ESEF Regulation 1 TO OUR SHAREHOLDERS Report on other legal and regulatory requirements In our opinion, the consolidated ﬁnancial statements of the Group as at 31 March 2022, identiﬁed as 2022-03-31-Novem_Annual_Report_2021-22, have been prepared, in all material respects, in compliance with the requirements laid down in the ESEF Regulation. 2 NON-FINANCIAL REPORT We have been appointed as réviseur d’entreprises agréé by the General Meeting of the Shareholders on 30 June 2021 and the duration of our uninterrupted engage- ment, including previous renewals and reappointments, is 1 year. 3 We conﬁrm that the audit opinion is consistent with the additional report to the audit committee or equivalent. GROUP MANAGEMENT REPORT The Consolidated Management Report is consistent with the consolidated ﬁnancial statements and has been prepared in accordance with applicable legal requirements. We conﬁrm that the prohibited non-audit services referred to in EU Regulation No 537/2014 were not provided and that we remained independent of the Group in conducting the audit. 4 CONSOLIDATED FINANCIAL STATEMENTS The corporate governance statement, included in the Consolidated Management Report, is the responsibility of the Management Board. The information required by article 68ter paragraph (1) letters c) and d) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended, is consistent with the consolidated ﬁnancial statements and has been prepared in accordance with applicable legal requirements. Luxembourg, 27 June 2022 Ernst & Young Société anonyme Cabinet de révision agréé 5 ANNUAL ACCOUNTS 6 Yves Even ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 119 Annual 5 accounts PROFIT AND LOSS ACCOUNT for the ﬁnancial year ended 31 March 2022 CONTENTS Note 9 FY 2021/22 5,879 5,216 9 FY 2020/21 in € thousand Other operating income 3,392 Raw materials and consumables and other external expenses Raw materials and consumables Other external expenses 3,405 0 10 11 5,208 475 3,405 Staff costs 0 Wages and salaries 443 0 1 Social security costs 32 0 0 TO OUR SHAREHOLDERS Value adjustments in respect of formation expenses and on tangible and intangible ﬁxed assets Other operating expenses 537 228 2 Other interest receivable and similar income derived from aﬃliated undertakings other interest and similar income Interest payable and similar expenses concerning aﬃliated undertakings other interest and similar expenses Tax on proﬁt 12 13 14 12,331 12,331 0 26,313 26,313 0 2 NON-FINANCIAL REPORT 10,180 7,404 2,776 487 24,909 24,909 0 3 GROUP MANAGEMENT REPORT 356 0 Other taxes 13 Proﬁt or loss for the ﬁnancial year 1,075 1,034 The accompanying notes form an integral part of these stand-alone ﬁnancial statements. 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 121 BALANCE SHEET as of 31 March 2022 CONTENTS Assets Capital, reserves and liabilities Note 31 Mar 22 3,713 31 Mar 21 0 Note 7 31 Mar 22 682,483 430 31 Mar 21 162,128 63 in € thousand in € thousand Formation exenses 3 4 Capital and reserves Fixed assets 924,217 602,239 Subscribed capital Tangible assets Share premium account Reserves 540,803 149 21,891 149 Other ﬁxtures and ﬁttings, tools and equipment Financial assets 23 0 1 5 5.1 5.2 Legal reserve 6 6 TO OUR SHAREHOLDERS Shares in aﬃliated undertakings Loans to aﬃliated undertakings Current assets 674,159 250,035 160,028 442,211 Other non available reserves Proﬁt or loss brought forward Proﬁt or loss for the ﬁnancial year Creditors 143 143 140,025 1,075 253,375 250,063 63 138,992 1,034 466,229 0 2 Debtors 6 7,013 6,648 6,648 365 26,110 8 NON-FINANCIAL REPORT Amounts owed by aﬃliated undertakings becoming due and payable within one year Other debtors 6.1 26,109 Amounts owed to credit institutions becoming due and payable within one year 8.1 26,109 0 becoming due and payable after more than one year 6.2 2 250,000 0 3 becoming due and payable within one year Cash at bank and in hand Total assets 365 2 7 GROUP MANAGEMENT REPORT Trade creditors 8.2 8.3 560 560 813 813 0 0 915 becoming due and payable within one year Amounts owed to aﬃliated undertakings becoming due and payable within one year 935,858 628,356 461,899 20,734 4 becoming due and payable after more than one year 0 441,165 CONSOLIDATED FINANCIAL STATEMENTS Other creditors 8.4 1,939 1,195 8 4,330 930 Tax authorities Social security debts 0 5 Other creditors 736 3,400 3,400 628,356 ANNUAL ACCOUNTS becoming due and payable within one year Total capital, reserves and liabilities 736 935,858 The accompanying notes form an integral part of these stand-alone ﬁnancial statements. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 122 NOTES TO THE ACCOUNTS CONTENTS 1 General The purpose of the Company is the taking of partici- pating interests in whatsoever from in other, either in Luxembourg or foreign companies and the manage- ment, control and development of such participating interests. The Company may, in particular, acquire all types of transferable securities, either by way of con- tribution, subscription, option, purchase or otherwise, as well as realise them by sale, transfer, exchange or otherwise. The Company may also acquire and manage all patents and trademarks and connected licenses and other rights deriving from these patents or complementary thereto. The Company may borrow and grant any assistance, loan, advance or guarantee to companies in which it has participation or in which it has a direct or indirect interest. The Company may, for its own account as well as for the account of third parties, carry out any commercial, industrial or ﬁnan- cial activities which may be useful or necessary to the accomplishment of its purposes or which are related directly or indirectly to its purpose. It was noted that the board closely monitored devel- opments in relation to the Covid-19 pandemic and the impact on the Company. The board has made an assessment of the Company’s ability to continue its activities as a going concern. It concluded that, as of the establishment of these annual accounts, it is reasonable to assume that the Company will be able to continue as a going concern. However, market condi- tions subsequent to year-end and related uncertainties could result in outcomes that require an adjustment to the carrying amount of assets and liabilities affected in future periods. Novem Group S.A. (the “Company”, formerly Car Interior Design (Luxembourg) S.à r.l.) was originally formed as a private company (société à responsabilité limitée) for an unlimited period of time under the laws of Luxem- bourg on 12 July 2011 pursuant to a deed of incorpora- tion published in the Mémorial, Recueil des Sociétés et Associations C on 28 September 2011, number 2306. 1 TO OUR SHAREHOLDERS In June 2021, the extraordinary General Shareholders’ Meeting converted the Company from a private limited liability company (société à responsabilité limitée) to a public company limited by shares (société anonyme). As a consequence, the shares (parts sociales) were also converted and became actions with no nominal value. The Company’s corporate name was amended to Novem Group S.A. The Company is registered under the number B 162.537 in the Luxembourg trade register. Management has assessed the potential impact regard- ing the war in Ukraine. Although not directly affected by the military conﬂict, the indirect impact mainly result- ing from increasing energy prices and interest rates, volatility of commodity prices and potential disruptions of supply chains on the business cannot be estimated with a suﬃcient degree of conﬁdence at the moment. Since the beginning of the war on 24 February 2022, management has regularly reviewed the implications of the changing geopolitical and macro-economic condi- tions and has not identiﬁed a going concern or a signiﬁ- cant issue, beyond the general scope of impact, on the performance and ﬁnancial position of the Group as of today. Management continues to monitor the current developments and their potential impact on the Group. 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT In conjunction with the conversion of the Company to a public company limited by shares, Günter Brenner was appointed as Chief Executive Oﬃcer, Dr. Johannes Burtscher was appointed as Chief Financial Oﬃcer, Christine Hollmann was appointed as Director Finan- cial Audit and Tax and Frank Schmitt was appointed as Director Consolidation and Internal Audit of Novem Group S.A. The Company became listed on 19 July 2021. The Company’s ﬁnancial year begins on 1 April and ends on 31 March of each year. 4 CONSOLIDATED FINANCIAL The consolidated ﬁnancial statements are prepared in accordance with EU regulation 1606/2002. STATEMENTS All members of the Management Board of Novem Group S.A. are appointed until the date of the Annual General Meeting of Novem Group S.A. approving the annual accounts for the period ending 31 March 2022. The Company’s ﬁnancial statements are presented in Euro, the Company’s functional currency. All amounts are rounded to the nearest thousand Euro unless oth- erwise indicated. Totals in tables were calculated on the basis of exact ﬁgures and rounded to the nearest thousand Euro. For computational reasons, there may be rounding differences to the exact mathematical values in tables and references (monetary units, per- centages, etc.). The oﬃcial version of the accounts is the ESEF ver- sion available with the Oﬃcially Appointed Mechanism (OAM) tool. 5 ANNUAL ACCOUNTS The Company is managed by a Management Board under the supervision of the Supervisory Board. 6 ADDITIONAL The Company is formed for an unlimited duration. INFORMATION NOVEM ANNUAL REPORT 2021/22 123 CONTENTS 2 Summary of signiﬁcant valuation and accounting policies Formation expenses, tangible and ﬁnancial ﬁxed assets denominated in currencies other than Euro are trans- lated at the historical exchange rates. accordance with its utilisation and based on the useful life of the asset. The residual value, depreciation meth- ods and useful life are reviewed annually and adjusted, if necessary. Basis of preparation Cash at bank denominated in currencies other than Euro is translated at the exchange rates prevailing at the date of the balance sheet. Useful life of tangible assets (Other ﬁxtures and ﬁttings, tools and equipment): 5 years The annual accounts were prepared in accordance with Luxembourg’s legal and regulatory requirements under the historical cost convention and the going concern assumption. Accounting policies and valuation rules are, besides the ones laid down by the Commercial Law dated 10 August 1915 as amended and the amended Law of 19 December 2002, determined and applied by the Management Board. Current assets and liabilities denominated in currencies other than Euro are recorded globally at the exchange rates prevailing at the date of the balance sheet. 1 Financial assets TO OUR SHAREHOLDERS Shares in aﬃliated undertakings, participating interests and securities held as ﬁxed assets are stated at acqui- sition cost. Write-downs are recorded if a permanent reduction in the fair value is expected. The impairment analysis is done individually for each investment. Long-term debts denominated in currencies other than Euro are translated at the historical exchange rates. 2 NON-FINANCIAL REPORT From the current perspective, there are no risks to the continued existence of Novem Group S.A. and its aﬃli- ated companies. As a result, realised exchange gains and losses and unrealised exchange gains and losses are recorded in the proﬁt and loss account. Loans to aﬃliated undertakings are recorded at their nominal value. Loans are written down to their recover- able amount if there is a permanent impairment. 3 In preparing the ﬁnancial statements in accordance with Luxembourg Generally Accepted Accounting Principles, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. GROUP MANAGEMENT REPORT Formation expenses These value adjustments may not be continued if the reasons for which the value adjustments were recog- nised have ceased to exist. The position carries expenses arising from the context of the private placement and stock exchange listing (capital market transactions) of the Novem Group S.A. relating to the newly issued shares and the reﬁ- nancing. Formation expenses are measured at cost less accumulated value adjustments. Depreciation is recorded on a straight-line basis in accordance with its utilisation. 4 CONSOLIDATED FINANCIAL Due to unforeseeable developments beyond the con- trol of management, the actual ﬁgures may differ from these estimates. Estimates and underlying assump- tions are reviewed on an ongoing basis. Debtors STATEMENTS Current receivables are recorded at their nominal value. Current receivables are written down to their recover- able amount if there is a permanent impairment. 5 ANNUAL ACCOUNTS Foreign currency translation Intangible and tangible assets These value adjustments may not be continued if the reasons for which the value adjustments were recog- nised have ceased to exist. The Company maintains its books and records in Euro. The balance sheet and the proﬁt and loss account are expressed in this currency. Intangible and tangible assets are used for business purposes and are measured at cost less accumulated value adjustments. Depreciation on intangible and tangible assets is recorded on a straight-line basis in 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 124 CONTENTS Cash Total Total in € thousand in € thousand Gross value Gross value Cash at bank and in hand is recorded at its nominal value and comprises bank current accounts. Balance as of 01 Apr 21 Additions 0 4,247 0 Balance as of 01 Apr 21 Additions 0 26 0 Disposals Disposals Provisions Balance as of 31 Mar 22 4,247 Balance as of 31 Mar 22 26 Provisions are made at year-end and in the event, the Company has a legal or implicit obligation resulting from a past event, where it is likely that an amount will have to be paid out to meet this obligation and where the amount of the obligation can be reliably determined. The amount of the provision corresponds to the most accurate estimate of the expenditure required to meet the obligation existing on the last day of the year. Accumulated value adjustments Balance as of 01 Apr 21 Additions Accumulated value adjustments Balance as of 01 Apr 21 Additions 1 TO OUR SHAREHOLDERS 0 534 0 0 4 0 4 Disposals Disposals Balance as of 31 Mar 22 534 Balance as of 31 Mar 22 2 NON-FINANCIAL REPORT Net value Net value Balance as of 01 Apr 21 Balance as of 31 Mar 22 0 Balance as of 01 Apr 21 Balance as of 31 Mar 22 0 3,713 22 Creditors 3 GROUP MANAGEMENT REPORT Debts are recorded at their reimbursement value. Where the amount repayable on account exceeds the amount received, the difference is shown as an asset and is written off over the period of debt. The tangible ﬁxed assets comprised oﬃce equipment. The Management Board believes that no value adjust- ment was required on the Company’s tangible assets. 4 Fixed assets Tangible assets 4 5 Financial assets CONSOLIDATED FINANCIAL STATEMENTS 3 Formation expenses Fixed assets were written off on a straight-line basis over a period of ﬁve years. Formation expenses comprised expenses arising from the context of the private placement and stock exchange listing of the Novem Group S.A. relating to the newly issued shares and the reﬁnancing. 5.1 Shares in aﬃliated undertakings The shares in aﬃliated undertakings of the Company consist of an investment in the Novem Group (“Novem”). The Company is the sole shareholder of Novem Group GmbH (the “Subsidiary”). Through the Subsidiary, which is not audited on a stand-alone basis as of 31 March 2022, the Company owns 100% of Novem. 5 ANNUAL ACCOUNTS Formation expenses were written off on a straight-line basis over a period of ﬁve years (60 months). 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 125 CONTENTS Closing date of the last approved accounts related to the private placement and stock exchange listing. As of 31 March 2021, the position carried €26,109 thousand. The amount comprised invoices of cost reimbursements of €3,392 thousand related to the private placement and stock exchange listing and accrued interest of €22,717 thousand. Percentage of ownership Subsidiary Registered oﬃce (unaudited) Weiden i.d. Oberpfalz Novem Group GmbH 100% 31 Mar 22 Shareholder’s Results of the last Book value at Additional contribution Book value at in € thousand equity ﬁnancial period 31 Mar 21 31 Mar 22 Novem Group GmbH 674,156 22,527 160,028 514,131 674,159 6.2 Other debtors 1 TO OUR SHAREHOLDERS The amount mainly related to receivables from the tax authorities. The Management Board believes that no value adjust- As of 31 March 2021, amounts owed by aﬃliated under- ment was required on the Company’s ﬁnancial assets. takings consisted of the following loan agreements: 2 7 Capital and reserves Starting date Maturity Interest rate NON-FINANCIAL REPORT 5.2 Loans to aﬃliated undertakings Borrower date The extraordinary General Shareholders’ Meeting, held in June 2021, converted the Company’s corporation form from a private limited liability company (société à respon- sabilité limitée) to a public company limited by shares (société anonyme). Consequently, the shares (parts sociales) were also converted and became actions with no nominal value. Novem Group GmbH 23 May 19 31 Dec 24 6.0% p.a.1 As of 31 March 2022, amounts owed by aﬃliated under- takings consisted of the following loan agreements: Principal Capitalised amount Accrued interests 3 in € thousand interests GROUP MANAGEMENT REPORT Novem Group GmbH 416,860 25,351 22,700 Starting date Maturity Interest rate 2.5% p.a.1 Borrower date 1ꢀInterests are calculated on the basis of a 360 days-year with months of 30 days each. Novem Group GmbH 23 Jul 21 20 Jul 26 Book value at 31 Mar 22 In the course of the private placement and stock exchange listing the loan was contributed, please see note 7. During the same extraordinary General Shareholders’ Meeting, the Company’s share capital was increased from its then-current amount of €63 thousand to €400 thousand by the creation and the issuance of 33,750 new shares with no nominal value each by way of the incorporation of the amount of €337,500 thousand which was booked under the available share premium account. 4 Principal amount Accrued interests CONSOLIDATED FINANCIAL STATEMENTS in € thousand Novem Group GmbH 250,000 35 250,035 1ꢀInterests are calculated on the basis of a 360 days-year with months of 30 days each. 6 Debtors 5 ANNUAL ACCOUNTS 6.1 Amounts owed by aﬃliates undertakings On 30 June 2021, the extraordinary General Sharehold- ers’ Meeting resolved to create and set the authorised capital of the Company (including, for the avoidance of doubt, the Company’s issued share capital) at €520 thousand divided into 52,000,000 shares with no nomi- nal value. The amount mainly related to receivables from aﬃli- ated undertakings for providing management services and a newly incorporated intercompany loan (31 March 2022: €5,000 thousand) in the course of the reﬁnancing 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 126 CONTENTS The Management Board is authorised, with the consent of the Supervisory Board, up to the maximum amount of the authorised capital, to increase the issued share capital on one or several occasions, against payment in cash or in kind, by the incorporation of reserves, issue premium or retained earnings, with or without the issue of new shares, or following the issue and the exercise of subordinated or non-subordinated bonds, convertible into or repayable by the exchangeable for shares (whether provided in the terms at issue or sub- sequently provided), or following the issue of bonds with warrants or other rights to subscribe for shares attached, or through the issue of stand-alone warrants or any other instrument carrying an entitlement to, or the right to subscribe for, shares. proceeds from the private placement of these shares amounted to €49,125 thousand based on the issuance of 3,030,303 new shares at an offer price of €16,50 per share and related costs of the Private Placement Listing attributable to the Company. As a result, the share capital of the Company amounts to €430 thou- sand and is divided into 43,030,303 ordinary shares in a dematerialised form with no nominal value. Each share of the Company represents a par value of €0.01 in the Company’s share capital. All shares are fully paid up. Subscribed capital As of 31 March 2022, the issued and fully paid-up subscribed capital amounted to €430 thousand (31 March 2021: €63 thousand) and was represented by 43,030,303 shares of €0.01 each (31 March 2021: 62,500 shares of €1.00 each). 1 Share premium and similar premiums TO OUR SHAREHOLDERS On 14 July 2021, Automotive Investments (Luxem- bourg) S.à r.l. contributed receivables of an aggregate amount of €469,280 thousand it held against the Company resulting from shareholder loans to the freely distributable reserve account of the Company named contribution to equity capital without the issue of shares (‘capital contribution’) pursuant to the Grand Ducal decree dated 12 September 2019 on the pres- entation and content of standard chart of accounts. As of 31 March 2022, the share premium and simi- lar premiums account of the Company amounted to €540,803 thousand (31 March 2021: €21,891 thousand). 2 NON-FINANCIAL REPORT On 30 June 2021, the extraordinary General Share- holders’ Meeting resolved to authorise the Manage- ment Board to effect on one or several occasions repurchases and disposals of Company shares on the regulated market on which the Company’s shares are admitted for trading or by such other means resolved by the Management Board during a period of ﬁve years from the date of the General Shareholders’ Meeting, for a maximum number corresponding to 20% of the ordinary shares of the Company, within a price range from a price per share not lower than 10% below the shares’ oﬃcial price reported in the trading session on the day before carrying out each individual transac- tion; to a price per share no higher than 10% above the shares’ oﬃcial price reported in the trading session on the day before carrying out each individual transaction. Legal reserve 3 In accordance with Luxembourg law, the Company is required to appropriate a minimum of 5% of the net GROUP MANAGEMENT REPORT Capital and reserves Share premium 4 Special Legal reserve net Results brought forward Total equity CONSOLIDATED FINANCIAL Subscribed and similar Interim STATEMENTS in € thousand capital premiums reserve wealth tax dividends Balance as of 01 Apr 21 Additions 63 21,891 6 143 0 138,992 161,095 367 367 5 Contributions 518,912 518,912 ANNUAL Allocation of the result 2020/21 ACCOUNTS 1,034 1,034 On 14 July 2021, 3,030,303 new ordinary shares in a dematerialised form with no nominal value were issued from the Company’s authorised share capital against contributions in cash by resolution of the Manage- ment Board of the Company on the same day. Net Balance as of 31 Mar 22 430 540,803 6 143 0 140,025 681,407 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 127 CONTENTS proﬁt after tax for the year to a legal reserve until the balance of such reserve is equal to 10% of the issued share capital. The legal reserve is not available for dis- tribution to shareholders except upon the dissolution of the Company. The legal obligation was fulﬁlled for the last ﬁnancial year and will likewise be done for the current ﬁnancial year. 8 Creditors 8.4 Other creditors The position included mainly taxes relating to the actual ﬁnancial year and prior years (31 March 2022: €1,195 thousand, 31 March 2021: €930 thousand). 8.1 Amounts owed to credit institutions On 23 July 2021, the Company has drawn the €250,000 thousand under the term facility being part of the €310,000 thousand term and revolving facilities agree- ment the Company and its direct subsidiary Novem Group GmbH and certain other subsidiaries entered into with Bayerische Landesbank, Commerzbank, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Landesbank Baden-Württemberg, Raiffeisen Bank International, UniCredit and J.P. Morgan as lead arrang- ers on 18 June 2021. The term facility initially bore interest at 1.5% per annum, which may be increased or reduced to a margin range between 2.0% and 0.75% per annum depending on the total net leverage of the Group. As of 31 March 2021, there were no amounts owed to credit institutions. 9 Other operating income 1 Special reserve net wealth tax (NWT) The other operating income included reimbursements for management services provided by Novem Group S.A. to other Novem Group companies amounting to €698 thousand and cost reimbursements of €5,181 thousand (31 March 2021: €3,392 thousand). TO OUR SHAREHOLDERS In accordance with paragraph 8a of the 16 October 1934 law as amended, the Company is entitled to reduce the net wealth tax due for the year by an amount which can not exceed the corporate income tax due for the year. In order to avail of the above, the Company must set up a restricted reserve equal to ﬁve times the amount of the net wealth tax credited. This reserve has to be maintained for a period of ﬁve years following the year in which it was created. In case of distribution of the restricted reserve, the tax credit falls due during the year in which it was distributed. 2 NON-FINANCIAL REPORT 10 Other external expenses The amount included mainly legal and advisory fees of €4,530 thousand (31 March 2021: €2,949 thousand) related to the private placement and stock exchange listing and to a smaller amount audit fees of €355 thousand (31 March 2021: €443 thousand). 3 GROUP MANAGEMENT REPORT 8.2 Trade creditors Special reserve NWT The amount consisted of several invoices for legal and advisory services. 4 11 Staff costs CONSOLIDATED FINANCIAL STATEMENTS Reserve to be created in FS Amount in € thousand The Company employed four employees as of 31 March 2022. The average number of employees in the ﬁnancial year 2021/22 was four. As of 31 March 2021, the Company employed no staff. NWT of the year 2016 8.3 Amounts owed to aﬃliated undertakings 2017 2018 2017 2019 2019 2020 16,200 10,525 17,800 33,325 35,425 29,875 143,150 2017 The amount comprised invoices of cost reimburse- ments related to the private placement and stock exchange listing. 5 2018 ANNUAL ACCOUNTS 2019 12 Other interest receivable and similar income 2020 2021 6 Total The income from other interest receivable and similar income derived from aﬃliated undertakings of €12,331 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 128 CONTENTS thousand (31 March 2021: €26,313 thousand) com- prised the interest from the shareholder loans and the intercompany loan. The reduction originated from the reﬁnancing related to the private placement and stock exchange listing. placement and listing and its preparation. Due to a cost-sharing and indemnity agreement entered into with its direct and indirect shareholders, the costs incurred were invoiced to its shareholders (with the percentage of the secondary shares) so that these costs represented a pass-through item (amounts of a middle one-digit-million Euro amount, which have already been settled). the conditionally granted number of virtual shares. The total target achievement depends on the target achievement of the two ﬁnancial ﬁgures relative Total Shareholder Return (70% weighting) and Adj. EBIT mar- gin (30% weighting). Thereby, the target achievement of relative Total Shareholder Return and Adj. EBIT margin can range between 0% and 150%. 13 Interest payable and similar expenses In order to determine the payout in cash, the ﬁnal num- ber of virtual shares is multiplied by the end share price of the share of Novem Group S.A. (arithmetic mean of the closing prices of the stock during the last 60 trading days prior to the end of the performance period) plus the sum of the dividends disbursed during the perfor- mance period. The payout is capped at 200% of the contractually deﬁned individual target amount. 1 The position carried the amounts concerning aﬃliated undertakings of €7,405 thousand (31 March 2021: €24,909 thousand) and interest payables to banks of €2,625 thousand (31 March 2021: €0 thousand) for the newly incorporated term loan. The decreased amount from aﬃliated undertakings resulted from the contri- bution of the existing shareholder loans related to the private placement and stock exchange listing. TO OUR SHAREHOLDERS 16 Share-based payments The Management Board members of Novem Group S.A. participated in a long-term incentive (Performance Share Plan) in the form of virtual shares. The Perfor- mance Share Plan is classiﬁed according to IFRS 2 as a cash-settled share-based payment. 2 NON-FINANCIAL REPORT The ﬁrst tranche of the Performance Share Plan was allocated to Management Board members of Novem Group S.A. for the ﬁnancial year 2021/22. In total, the number of conditionally granted virtual shares for the ﬁnancial year 2021/22 amounted to €40,826 thousand. The expenses for the ﬁnancial year 2021/22 amounted to €69 thousand. The provisions as of 31 March 2022 were also €69 thousand. The Performance Share Plan is granted in annual tranches of virtual shares with a respective perfor- mance period of four years. Deviating from this, the performance period of the tranche 2021 started on the day of the listing of Novem Group S.A. and will end on 31 March 2025. 3 14 Taxation GROUP MANAGEMENT REPORT The Company is subject to Luxembourg company tax law. 4 15 Related parties The conditionally granted number of virtual shares at the beginning of the performance period is calculated for each tranche by dividing a contractually deﬁned individual target amount by the start share price of the share of Novem Group S.A. (arithmetic mean of the closing prices of the stock during the last 60 trading days prior to the start of the performance period). In deviation from this, the start share price for the tranche 2021 was calculated based on the arithmetic mean of the 60 trading days following the IPO. CONSOLIDATED FINANCIAL The fair value of the Performance Share Plan to calcu- late expenses and provisions was determined by using a Monte-Carlo-Simulation. The fair value and the inputs used in the assessment of the fair value as of 31 March 2022 were as follows. STATEMENTS Novem Group S.A. is obliged by the European directive and Luxembourg law to draw up a remuneration policy for the Supervisory Board as well as the Management Board. The principles and measurement of the remu- neration policy for the Management Board and Super- visory Board of the Novem Group S.A. are prepared in accordance with Article 7bis of the Luxembourg law of 24 May 2011 on Shareholders. 5 ANNUAL ACCOUNTS 6 In the ﬁnancial years 2020/21 and 2021/22, the Com- pany incurred costs in connection with the private The ﬁnal number of virtual shares is determined by multiplying the total target achievement with ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 129 CONTENTS Input parameters for fair value assessment of Performance Share Plan 18 Subsequent events There were no events or developments that could have materially affected the measurement and presentation of the Company’s assets and liabilities as of 31 March 2022. Valuation date 31 Mar 22 19 Jul 21 – 31 Mar 25 Performance period Start share price Novem Group S.A. €16.46 Remaining duration of performance period 1 3.0 years TO OUR SHAREHOLDERS Expected annual volatility 44.9% 0.1% Risk-free annual interest rate Expected target achievement for internal target EBIT margin 100% 2 NON-FINANCIAL REPORT Fair value per virtual share €8.96 17 Commitments, contingencies and pledges 3 GROUP MANAGEMENT REPORT The Company entered an English law governed inter- creditor agreement together with some of its subsidiar- ies and several ﬁnancial institutions, with the Company as the original borrower of the facilities agreement and an external bank as the original facility agent and secu- rity agent. 4 CONSOLIDATED FINANCIAL STATEMENTS Contingent liabilities constitute off-balance-sheet contingent liabilities recognised in the amount of the valuation as of the reporting date. Contingent liabili- ties included a guarantee assumed for third parties amounting to €16 thousand. The probability of claims on this guarantee was assessed as low based on past experience. 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 130 RESPONSIBILITY STATEMENT CONTENTS We, Günter Brenner (Chief Executive Oﬃcer), Dr. Johannes Burtscher (Chief Financial Oﬃcer), Christine Hollmann (Director Financial Audit and Tax) and Frank Schmitt (Director Consolidation and Internal Audit), conﬁrm, to the best of our knowledge, that the annual accounts which have been prepared in accordance with the legal requirements and generally accepted account- ing principles applicable in the Grand Duchy of Luxem- bourg, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt and loss of Novem Group S.A. and that the Group Management Report includes a fair review of the development and performance of the business and the position of Novem Group S.A., together with a description of the principal risks and uncertainties that they face. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT Luxembourg, 27 June 2022 Novem Group S.A. Management Board 3 GROUP MANAGEMENT REPORT Günter Brenner Dr. Johannes Burtscher Frank Schmitt 4 Christine Hollmann CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 131 INDEPENDENT AUDITOR‘S REPORT CONTENTS To the Shareholders of Novem Group S.A. (formerly: Car Interior Design S.à r.l.) 19, Rue Edmond Reuter 5326 Contern, Luxembourg and ISAs are further described in the Responsibilities of the réviseur d’entreprises agréé for the audit of the ﬁnancial statements section of our report. We are also independent of the Company in accordance with the International Ethics Standards Board for Account- ants’ Code of Ethics for Professional Accountants (“IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the ﬁnancial statements, and have fulﬁlled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our opinion. the shares in aﬃliated undertakings amounting to €674,159,408.84 as at 31 March 2022, representing 72% of the total assets, are valued at cost less any durable impairment in value. As described further in Note 5.2, loans to aﬃliated undertakings amounting to €250,034,722.20 as at 31 March 2022, representing 27% of the total assets, are valued at cost less any durable impairment in value. Report on the audit of the ﬁnancial statements 1 At least annually, the Company evaluates the carrying value of the investments. Impairment losses are meas- ured and recorded based on the difference between the estimated recoverable amount and the carrying amount of the asset. Impairment of shares in and loans to aﬃliated undertakings is considered a key audit matter due to their weight of the total assets and the business industry of these investments. Impairment is reversed when the existing reasons for which the value adjustments were made have ceased to apply. TO OUR SHAREHOLDERS Opinion We have audited the ﬁnancial statements of Novem Group S.A. (“the Company”), which comprise the bal- ance sheet as at 31 March 2022, and the proﬁt and loss account for the year then ended, and the notes to the ﬁnancial statements, including a summary of signiﬁcant accounting policies. 2 NON-FINANCIAL REPORT Key audit matters Key audit matters are those matters that, in our profes- sional judgment, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period. These matters were addressed in the context of the audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 3 GROUP MANAGEMENT REPORT In our opinion, the accompanying ﬁnancial statements give a true and fair view of the ﬁnancial position of the Company as at 31 March 2022, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relat- ing to the preparation and presentation of the ﬁnancial statements. Our answer Our audit procedures over the impairment of the shares in and loans to aﬃliated undertakings included, among others: 4 CONSOLIDATED FINANCIAL 1. Impairment of Shares in and loans to • Obtaining and reading the latest capital call to which Novem Group S.A. subscribed or the shareholders’ agreements to conﬁrm the acquisition cost of each investment and the movements during the year. Obtaining and reading the latest ﬁnancial state- ments of each investment in order to identify whether any going concern issue or liquidity issue exists at the investment level and ultimately if the investment is recoverable. STATEMENTS aﬃliated undertakings Basis for opinion Risk identiﬁed • 5 We conducted our audit in accordance with EU Regula- tion N° 537/2014, the Law of 23 July 2016 on the audit profession (the “Law of 23 July 2016”) and with Inter- national Standards on Auditing (“ISAs”) as adopted for Luxembourg by the Commission de Surveillance du Sec- teur Financier (“CSSF”). Our responsibilities under the EU Regulation Nº 537/2014, the Law of 23 July 2016 Novem Group S.A. (“Novem”), as the ultimate holding of a Group holding several aﬃliated entities, holds a num- ber of shares in and loans to aﬃliated undertakings, which are operating mainly in several markets special- ised in the supply of trim parts and decorative functional elements of vehicle interiors in the premium sector. As described in Note 5.1 to the ﬁnancial statements, ANNUAL ACCOUNTS • Assessing the valuation model prepared by Manage- ment and its impairment test for the determination 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 132 CONTENTS of the recoverable amount of the investments. Recomputing the fair value of equity interests of the investments prepared by Management and comparing the carrying value of the investments to the fair market value of equity interests in order to determine whether an impairment or a reversal of impairment exists. Assessing the valuation of guarantees provided by the Company to direct or indirect aﬃliated companies. material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard. Responsibilities of the réviseur d’entreprises agréé for the audit of the ﬁnancial statements • • The objectives of our audit are to obtain reasonable assurance about whether the ﬁnancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of the révi- seur d’entreprises agréé that includes our opinion. Rea- sonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with EU Regulation N° 537/2014, the Law of 23 July 2016 and with the ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. Responsibilities of the Management Board and of those charged with governance for the ﬁnancial statements 1 The Management Board is responsible for the prepara - TO OUR SHAREHOLDERS tion and fair presentation of the ﬁnancial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presenta- tion of the ﬁnancial statements, and for such internal control as the Management Board determines is neces- sary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. We also assessed the adequacy of the Company’s disclosures in respect of the accounting policies on impairment as disclosed in Note 2 and Note 5 to the ﬁnancial statements. 2 NON-FINANCIAL REPORT Other information 3 The Management Board is responsible for the other information. The other information comprises the infor- mation included in the Management Report and the corporate governance statement but does not include the ﬁnancial statements and our report of réviseur d’entreprises agréé thereon. The Management Board is also responsible for pre- senting the ﬁnancial statements in compliance with the requirements set out in the Delegated Regulation 2019/815 on European Single Electronic Format, as amended (“ESEF Regulation”). As part of an audit in accordance with EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scep- ticism throughout the audit. We also: GROUP MANAGEMENT REPORT 4 In preparing the ﬁnancial statements, the Management Board is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Man- agement Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. • Identify and assess the risks of material misstate- ment of the ﬁnancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suﬃcient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre- sentations, or the override of internal control. CONSOLIDATED FINANCIAL Our opinion on the ﬁnancial statements does not cover the other information and we do not express any form of assurance conclusion thereon. STATEMENTS In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a 5 ANNUAL ACCOUNTS Those charged with governance are responsible for overseeing the Company’s ﬁnancial reporting process. • Obtain 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 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 133 CONTENTS purpose of expressing an opinion on the effective- ness of the Company’s internal control. Evaluate the appropriateness of accounting poli- cies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communi- cate to them all relationships and other matters that may reasonably be thought to bear on our independ- ence, and where applicable, related safeguards. We have checked the compliance of the ﬁnancial statements of the Company as at 31 March 2022 with relevant statutory requirements set out in the ESEF Regulation that are applicable to the ﬁnancial state- ments. For the Company, it relates to: • • Conclude on the appropriateness of Management Board’s use of the going concern basis of account- ing and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁcant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncer- tainty exists, we are required to draw attention in our report of the réviseur d’entreprises agréé to the related disclosures in the ﬁnancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of the réviseur d’entreprises agréé. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the ﬁnancial statements, including the disclosures, and whether the ﬁnancial statements represent the underlying transactions and events in a manner that achieves fair presentation. Assess whether the ﬁnancial statements have been prepared, in all material respects, in compli- ance with the requirements laid down in the ESEF Regulation. • Financial statements prepared in valid xHTML format From the matters communicated with those charged with governance, we determine those matters that were of most signiﬁcance in the audit of the ﬁnancial statements of the current period and are, therefore, the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter. 1 In our opinion, the ﬁnancial statements of the Company as at 31 March 2022, identiﬁed as 2022-03-31-Novem Annual_Report_2021-22, have been prepared, in all material respects, in compliance with the requirements laid down in the ESEF Regulation. TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT We conﬁrm that the audit opinion is consistent with the additional report to the audit committee or equivalent. Report on other legal and regulatory requirements We conﬁrm that the prohibited non-audit services referred to in EU Regulation No 537/2014 were not provided and that we remained independent of the Company in conducting the audit. 3 We have been appointed as réviseur d’entreprises agréé by the General Meeting of the Shareholders on 30 June 2021 and the duration of our uninterrupted engage- ment, including previous renewals and reappointments, is 1 year. GROUP MANAGEMENT REPORT • • Luxembourg, 27 June 2022 4 The Management Report is consistent with the ﬁnan- cial statements and has been prepared in accordance with applicable legal requirements. Ernst & Young Société anonyme Cabinet de révision agréé CONSOLIDATED FINANCIAL STATEMENTS The corporate governance statement, included in the Management Report , is the responsibility of the Man- agement Board. The information required by article 68ter paragraph (1) letters c) and d) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended, is consistent with the ﬁnancial statements and has been prepared in accordance with applicable legal requirements. 5 ANNUAL ACCOUNTS We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, includ- ing any signiﬁcant deﬁciencies in internal control that we identify during our audit. Yves Even 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 134 Additional 6 information FINANCIAL CALENDAR CONTACT CONTENTS 18 August 2022 25 August 2022 30 November 2022 16 February 2023 01 June 2023 Q1 2022/23 Results Investor Relations [email protected] Annual General Meeting 2021/22 HY 2022/23 Results Q3 2022/23 Results IMPRINT FY 2022/23 Preliminary Results FY 2022/23 Results 1 TO OUR SHAREHOLDERS 29 June 2023 Published by All information is constantly updated and available. Please visit the investor section on the Company website: https://ir.novem.com Novem Group S.A. 2 19, rue Edmond Reuter 5326 Contern, Luxembourg www.novem.com NON-FINANCIAL REPORT 3 Concept and layout GROUP MANAGEMENT REPORT Novem Group Date of publication 4 CONSOLIDATED FINANCIAL STATEMENTS 30 June 2022 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 136 GLOSSARY CONTENTS Adj. EBITDA is deﬁned as proﬁt for the year before income tax result, ﬁnancial result and amortisation, depreciation and write-downs as adjusted for certain adjustments which management considers to be non- recurring in nature, as Novem believes such items are not reﬂective of the ongoing performance of the business. Days payables outstanding (“DPO”) is deﬁned by dividing trade payables (as shown in the consolidated statement of ﬁnancial position, but excluding tooling) by net costs series incurred in the three months. Net ﬁnancial debt is deﬁned as gross ﬁnancial debt less cash and cash equivalents. Free cash ﬂow is deﬁned as the sum of cash ﬂow from operating and investing activities. Days sales outstanding (“DSO”) is deﬁned by dividing trade payables (as shown in the consolidated state- ment of ﬁnancial position, but excluding tooling) by rev- enue generated from the sale of series trim elements in the last three months. Net leverage ratio is deﬁned as the ratio of net ﬁnancial debt to Adj. EBITDA. Adj. EBIT is deﬁned as EBIT as adjusted for certain adjustments which management considers to be non-recurring in nature, as Novem believes such items are not reﬂective of the ongoing performance of the business. 1 Total operating performance is deﬁned as the sum of revenue and increase or decrease in ﬁnished goods. TO OUR SHAREHOLDERS EBITDA is deﬁned as proﬁt for the year before income tax result, ﬁnancial result and amortisation, deprecia tion and write-downs. - Total working capital is deﬁned as the sum of inven- tories, trade receivables and contract assets excluding expected losses less trade payables, tooling received advance payments received and other provisions related to tooling. 2 Adj. EBITDA margin is deﬁned as Adj. EBITDA divided by revenue. NON-FINANCIAL REPORT EBIT is deﬁned as proﬁt for the year before income tax result and ﬁnancial result. Adj. EBIT margin is deﬁned as Adj. EBIT divided by revenue. FAAC stands for Financial assets measured at amor- tised cost. Net ﬁnancial debt is deﬁned as the sum of liabilities from bonds and liabilities to banks less cash and cash equivalents. 3 GROUP MANAGEMENT REPORT Articles of Association means the articles of associa- tion of the Company. FAFVTPL stands for Financial assets measured at fair value through proﬁt or loss. Shareholder’s Rights Law is the Luxembourg law of 24 May 2011 on the exercise of certain shareholder rights in listed companies, as amended. Capital expenditure is deﬁned as the sum of cash paid for investments in property, plant and equipment and cash paid for investments in intangible assets exclud- ing currency translation effects. FLAC stands for Financial liabilities measured at amor- tised cost. 4 CONSOLIDATED FINANCIAL Takeover Law is the Luxembourg Law on Takeovers of 19 May 2006. STATEMENTS FLFVTPL stands for Financial liabilities measured at Companies’ Law is the Luxembourg law of 10 August fair value through proﬁt or loss. 2015 on commercial companies, as amended. Trade working capital is deﬁned as the sum of inven- tories non-tooling and trade receivables related to non- tooling less trade payables related to non-tooling. Gross ﬁnancial debt is deﬁned as the sum of liabilities to banks, hedging and lease liabilities. 5 Days inventory outstanding (“DIO”) is deﬁned by dividing inventories (as shown in the consolidated statement of ﬁnancial position, but excluding tooling) by revenue generated from the sale of series trim ele- ments in the last three months. ANNUAL ACCOUNTS LkSG stands for Lieferkettensorgfaltspﬂichtengesetz. Transparency Directive is the Directive 2004 / 109 / EC, as amended. LMC is an independent and exclusively automotive- focused global forecasting and market intelligence service provider. 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 137 DISCLAIMER CONTENTS Novem Group S.A. (the “Company”) has prepared this Annual Report solely for your information. It should not be treated as giving investment advice. Neither the Company, nor any of its directors, oﬃcers, employees, direct or indirect shareholders and advisors nor any other person shall have any liability whatsoever for any direct or indirect losses arising from any use of this Annual Report. While the Company has taken all reasonable care to ensure that the facts stated in this Annual Report are accurate and that the opinions con- tained in it are fair and reasonable, this Annual Report is selective in nature. Any opinions expressed in this Annual Report are subject to change without notice and neither the Company nor any other person is under any obligation to update or keep current the information contained in this Annual Report. Where this Annual Report quotes any information or statistics from any external source, you should not interpret that the Company has adopted or endorsed such information or statistics as being accurate. This Annual Report con- tains forward-looking statements, which involve risks, uncertainties and assumptions that could cause actual results, performance or events to differ materially from those described in, or expressed or implied by, such statements. These statements reﬂect the Company’s current knowledge and its expectations and projections about future events and may be identiﬁed by the con- text of such statements or words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “project” and “target”. No obligation is assumed to update any such statement. Numbers were rounded to one deci- mal. Due to rounding, the numbers presented may not add up precisely to the totals provided. 1 TO OUR SHAREHOLDERS 2 NON-FINANCIAL REPORT 3 GROUP MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS 5 ANNUAL ACCOUNTS 6 ADDITIONAL INFORMATION NOVEM ANNUAL REPORT 2021/22 138 NOVEM ANNUAL REPORT 2021/22

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