Annual Report • Mar 29, 2018
Annual Report
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I N D U S H o l d i n g A G
KEY FIGURES 2017 — PROFILE – GOALS – VALUE CREATION CONTENTS
INDUS and its portfolio companies use megatrends and the new digital possibilities to continue their sucessful development. An important factor in this are acquisitions in the "right" industries and investments in products and technologies.
With the emissions scandal and the discussions about driving bans in metropolitan areas, the topic of e-mobility has currently become the focus of attention once again. For the cooperation project of four of INDUS' portfolio companies, this can only be of advantage.
The experience of the holding company is just as important to the portfolio companies as the funds they potentially have access to. The four members of the Board of Management complement each other perfectly and positively put their know-how at the portfolio companies' disposal.
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To Stephan Gemkow, Chairman of the Haniel Board of Management, the key term to securing entrepreneurial sustainability is "agility". Developing this trait is an important task – especially for companies rooted in tradition.
JÜRGEN ABROMEIT Chairman of the INDUS Holding AG Board of Management
Dear Readers,
"2030 is still a long way off, but by then we'll have everything under control." Wrong! The times when a company could be successful by taking this attitude are definitely over. Tomorrow, somebody somewhere might have what seems like an insignificant idea which, in the blink of an eye, turns an entire business sector upside down.
In the insurance and banking sector we can see this playing out in live before our eyes: overnight the media was full of reports about fintechs and crypto currencies. The questions we ask ourselves are: how will the major players set about integrating these ideas from the bright new upstarts in their business models?
But let's instead take a moment to consider our own field, the [INDUS]trial sector. Machine components built by 3D printers, moving around in driverless, environmentally friendly vehicles; operating remotely on patients on operating tables 20,000 kilometers away – these are just three doors into a world which is currently opening up for our SME portfolio companies. This is not a threatening world but an exciting world full of opportunity. And if we take time to look at it realistically, the decision to exploit these opportunities is not a courageous decision but it is a smart one. This is because the future will not wait its turn. And at this point, my promise to our portfolio companies is that we will continue to assist you in exploiting this future. We provide support in the form of ideas, knowledge and financial power – all fully in accordance with your own requirements. And my message to employees is that we will take you with us as we make our way into the unknown.
I hope you enjoy reading this magazine. Jürgen Abromeit
Industrial companies – whether in the automotive or engineering sec tors – are software-driven to a high degree. The future is being created virtually and production is even able to deliver very small, customized batch sizes in automated manner. Population growth, urbanization and the high-level of mobility are driving growth, in particular in infrastructurerelated markets. These include roads, airports, telecommunication, sewage systems, energy supply – and those, who have positioned themselves correctly in these areas, will be among the winners.
Current resource issues and the direction of policy-making with its focus on sustainability in the second decade have led to a boom time today for the environmental markets. German environmental technology is in demand and, in the area of energy technology, German companies are making an impact globally with their innovative solutions. The sector covering the GreenTech area employs 2.7 million people – an increase of more than one million compared two decades ago.
Despite the high level of technology in processes, the ideas behind this continue to come from people. Many of them are IT specialists, others develop security solutions, and others produce using what are now established procedures such as additive manufacturing. In the two million new jobs in the health sector, many are doing their bit to ensure that society can cope with the demands of the demographic change.
HOW THE FUTURE WILL CHANGE THE I N D U S G R O U P PORTFOLIO. One strength of INDUS Group is its cross-sectional nature. Overall, the portfolio companies span broadly across the key industries. This broad span is shifting. Digitalization means that the " tech" factor is becoming a must. And the megatrends mean that the Group is beginning to focus on new service areas.
The secret is out, and has been for a long time: The economy is currently at the start of an upheaval process, which will unsettle even the established sectors. We are not saying that (technological) change in industry is anything new. What is new, however, is that the current digital revolution extends across all areas of life with no exceptions; and in doing so is taking hold more profoundly and more comprehensively than all which went before. And above all else, it is happening extremely quickly!
What does this mean for INDUS and its companies? 10% +X EBIT ratio, that's the margin benchmark. And the portfolio companies are also looking to grow. This will only work with companies whose products are still in demand in the future and with processes which lose neither time nor money. This is because competition has become tougher as a result of sector boundaries blurring due to the change and new competitors are lining up next to the old.
The advantage for INDUS holding is that it can observe the developments from outside as the portfolio companies within the group operate independently. At the same time, INDUS Hold-
The automation specialist IEF-Werner has been an addition to the Automation, Measuring Technology and Control Engineering segment of the portfolio since 2015.
ing remains well-informed regarding the day-to-day experience of their subsidiaries, of which there are currently 45. And if you also include their subsidiary companies within the list, the range of information available to the Board of Management within the group encompasses 187 companies worldwide. This means that management gains a broad overview of issues affecting the economy now and in the future.
And the Board of Management has its eyes wide open and is asking questions. What is currently happening at a global level, in politics, and in the markets? And where will this take the economy? COMPASS 2020 enabled INDUS to respond to the anticipated developments as early as six years ago. An example of this was the aim of Group companies to adopt a more international structure. Today, the 100 largest German companies already achieve around 60% of their sales abroad; for engineering companies the proportion is even higher at 80%. The INDUS portfolio companies have understood this and today are even more consistent in following their customers into the markets.
The same applies to the theme of technology. In discussions with the Board of Management, directors described quite openly the challenges and tasks arising from digitalization which their business models now face. For example, in the automotive technology segment, these discussions are currently very extensive as manufacturers have here been operating in a new phase for a long time – and not solely related to drive systems. Successful companies need to be one thing in particular in this challenging market: innovative.
And then there are also the megatrends. An aging society, increasing mobility, urbanization, growing resource awareness – the perspectives we use to define mega trends differ, but the consequences for the economy are the
CreaPhys GmbH, a spin-off of TU Dresden has been reinforcing M.BRAUN's competitiveness in the field of organic electronics since 2016.
same. There will be a significant shift in a profile of industry in the coming years. For example due to the environmental sector: The German Federal Ministry for the Environment is assuming that the number of employees in the sector will rise to 2.7 million by 2030. That is 900,000 more than in 2006. By 2020, one million people more will be working in the renewable energies sector alone.
To keep pace with the changing times in terms of the portfolio spectrum and to leverage growth potential from the megatrends, INDUS has recently fine-tuned its support criteria once again and developed two "market templates" which it is using for its future-oriented portfolio monitoring. The first relates to the future path of the existing companies and is managed under the "Future Fields" slogan. This focuses on supporting portfolio companies in incorporating and integrating the trends in their business models. The tools are familiar: targeted acquisitions by subsidiaries, the offer of innovation support (via the development bank) and, where required, the transfer of innovation know-how (via the tool box and cooperations).
The six key future fields for INDUS are linked to the existing segments and indicate the direction in which there is particular development potential for the companies of the Group: industry 4.0/digitalization, medical engineering for an aging society, innovative construction techniques, green tech, public and private security, and intelligent logistics infrastructure. Each of these fields offers excellent points of reference for the portfolio companies. In order to exploit these, you need to have the courage to enter completely new territory – for example by acquiring young companies with entirely new core competencies.
when the company strengthened its competence in the area of digital infrastructure by investing in ZweiCom. In order to enhance its competitiveness, M.BRAUN acquired CreaPhys in 2016, a young company operating in the area of organic electronics. And with regard to the issue of GreenTech, for example, the portfolio companies of REMKO with their heat pump, and ELTHERM with their highly efficient EL-Point point heating system, have led the way in demonstrating how a future field can be exploited successfully using new and advanced products.
The second market template is referred to as "Growth Industries". It is derived from the future fields and the Board of Management use it to help identify and select companies, which INDUS has specifically cast an eye on for strengthening the portfolio. In this case the clusters are: technology for infrastructure/logistics; automation, measuring technology and control engineering; energy and environmental technology; medical engineering/life science and construction and safety technology. The Board of Management is using this to target established companies which have already proven successful in their markets and who are therefore able to demonstrate a high-level dynamic response in exploiting potential in their areas of business. However, support for growth acquisitions at the second level is also possible if a portfolio company approaches the holding company accordingly.
In terms of growth sectors, INDUS has most recently been involved very successfully in the area of automation, measuring technology and control engineering. In the summer of 2015, the holding company acquired IEF Werner, an automation specialist with a high level of development intensity in the areas of high-precision servo presses and micro assembly technology. M+P INTERNATIONAL, the supplier of measurement and test systems for vibration testing, followed in January 2017. Just a few months later the group was joined by the PEISELER Group, an engineering specialist in the manufacturing of high-precision indexing devices and rotary tilt tables for machine tools.
It is clear that the overall character of the portfolio will soon change with the development of the existing portfolio companies and targeted growth acquisitions. The consequence of this will be that sooner rather than later the segmentation of the group will change. This is a good sign as it shows that INDUS is also moving in the right direction with their two templates.
| TECHNOLOGY FOR | AUTOMATION/MEASUR | ENERGY/ |
|---|---|---|
| INFRASTRUCTURE | ING TECHNOLOGY/ | ENVIRONMENTAL |
| AND LOGISTICS | CONTROL ENGINEERING | TECHNOLOGY |
| MEDICAL ENGINEERING/ LIFE SCIENCE |
CONSTRUCTION AND SAFETY TECHNOLOGY |
WIESAUPLAST leaves joint venture in the UNITED STATES and establishes WIESAUPLAST USA LLC. in Novi, Michigan.
SCHÄFER establishes a location in the UNITED STATES that will take up business operations starting in January 2018.
The newly acquired companies M+P INTERNATIONAL and PEISELER also have locations in the UNITED STATES, in Grand Rapids, Michigan, and Verona, New Jersey, respectively.
S.M.A. expands capacities at its SOUTH AFRICAN location in East London with a factory extension.
In addition to its CSP power plant projects in China and Israel, ELTHERM is implementing a large scale project in MAROCCO.
INDUS PORTFOLIO COMPANIES AROUND THE WORLD – HIGHLIGHTS 2017. Domestic markets are tightening for the SME industry. That is why the majority of INDUS portfolio companies have been successively expanding their business abroad for a number of years now. Last year again brought many changes for the Group. These changes in turn increased growth potential.
PEISELER increases activities in Asia and establishes a national subsidiary in Taipeh, TAIWAN.
Together with SVT Brandschutz, HAUFF-TECHNIK opens an office for the Asian market in SINGAPORE .
SELZER transfers production for CHINA to a newly constructed plant in the Shanghai metropolitan region.
AURORA and KIEBACK each establish a sales office for the Asian market in Shanghai, CHINA .
With M+P INTERNATIONAL, another INDUS portfolio company is now directly represented on the CHINESE market.
ROLKO founds a joint venture for the manufacture and processing of aluminum components to strengthen its CHINESE location.
MIGUA collaborates on international large scale projects via UAE locations such as Indira Gandhi Hospital in INDIA , the Waterfront shopping mall in SRI LANKA and the DUBAI mall.
MIKROP increases its competitiveness by opening a new plant in SERBIA in 2017.
HAUFF-TECHNIK establishes a national subsidiary in SWITZERLAND at the beginning of 2018.
New portfolio company M+P INTER-NATIONAL covers European market with locations in GREAT BRITAIN and FRANCE .
A GROUP OF COMPANIES ARE DEVELOPING SYSTEMS FOR THE e - B U S O F T H E FUTURE. Today, the vehicle industry is not only addressing the question of which technologies will shape the drive system of the future. Just as important is the question of how the different technologies can work together optimally in increasingly complex vehicles. In the e-Bus cluster project, a group of companies are solving this question together. This includes four portfolio companies of the INDUS Group.
A manufacturer does not automatically end up with the best system by simply assembling the best parts. What is equally important is that the individual components work together correctly as a system. When developing new solutions it is therefore an advantage if you already keep this in mind right from the development phase.
This is exactly what is happening in the e-Bus cluster project. Currently, around a dozen companies – led by a project management team and with academic and technical support from experts at the Fraunhofer Institute – are working on a system solution for the electrically-powered omnibus. To this end, they are pooling their specialist knowledge from the areas of information communication technology, automotive technology and energy management. The aim is to develop systems for the optimization of e-busses for local public transport. The intention is that these busses should be environmentally friendly and energy efficient, offer passengers a special level of comfort and operate particularly safely in traffic.
As early as this year, the synchronized industrialized solutions – which at the same time are independent from one another – are expected to be ready for application. Preparations for approaching customers are already in progress. Starting from this autumn, four roadshows are planned
in Germany and one in the Netherlands. Further information about the project is also available on the website www.ebus-cluster.de.
The networking of suppliers of different types with a focus on innovation is unusual. So how have the companies come together? The reason was the Genius Cab Cluster, a multi-award-winning, preceding project, in which the INDUS subsidiary AURORA developed an innovative operator's cab for agricultural machinery in collaboration with other partners. This success did not go unnoticed in the Group. Some lively discussion took place – with the result that AURORA and KIEBACK-SCHÄFER made the decision to combine their core competencies and launch a similar project together. Fellow subsidiaries SMA and M+P INTERNATIONAL were also attracted by the project. The common area for all was exploiting the megatrends of digitalization, urbanization and mobility. The focus was on efficiency and Green Tech.
These are precisely the fields in which INDUS supports its subsidiaries with its development bank model. Thus, the directors approached the Board of Management with their plan. Soon after they were able to launch the project, with additional funding on board, new network contacts and the commitment from holding company to support the project in an advisory capacity.
Partners were quickly found for the project – scheduled to run for three years – which meant that rapid implementation was possible. Over the course of this the two initiators were able to contribute significantly to the project. For example, together with the subsidiary HEAVAC, AURORA had recently developed a highly-efficient and environmentally-friendly heat pump, which significantly increases the range of the e-busses due to reduced energy consumption, for a bus manufacturer. Heat pumps regulate the air
conditioning, which is important in the vehicles. The AURORA subsidiary AFK is able to supply the necessary control modules and convectors, the latter of which are responsible for warming the air within the bus.
KIEBACK-SCHÄFER takes care of the interior and exterior design of the busses and of the well-being of the passengers. For example, attractive and well thought out lighting contributes to passenger well-being. This adjusts the temperature of the relevant bus zone and in so doing controls the passenger flow. However in the driver's area also, light is used to ensure safe operation of the instruments. The KIEBACK-SCHÄFER subsidiary DMS, which creates the components virtually using 3D models, is helping in the development of the ideas. 3D technology not only saves on the production of hardware components but also enables customers to realistically experience the subsequent design of the busses as early as the planning phase.
Two other key players from the INDUS Group SMA and M+P INTERNATIONAL. SMA's contribution are the environmentally-friendly and weight-optimized air conditioning lines. M&P adds its competencies for determining valid measurements, for example relating to the strength of the component structures.
The complexity of the overall e-Bus solution and the fact that the themes are intertwined is demonstrated by the range of contributions from the other partners. Cellofoam is helping with heat distribution, heat storage and fire protection; FarHym is contributing in the fields of lightweight construction, ceiling systems and interiors; Hymer is helping in many areas including ceiling systems; Kiel is working on the seats; Bitzer is helping with air conditioning technologies and Schunk with setting-up an efficient charging system including the infrastructure.
Close collaboration, also directly related to each company's core business in each case, has so far enabled project partners to achieve very good results. The next step is the construction of a test vehicle, which can be driven and tested by companies. However, even now, feedback from customers is very positive. They are impressed by the focused pioneer project from the suppliers and are eagerly awaiting the result. In the meantime, the portfolio companies are continuing to work intensively on their project with the confidence that their e-Bus will be transporting people on public transport to their destination in comfort, safety and with minimum impact on the environment by the end of this decade.
AURORA's highlyefficient and environmentallyfriendly heat pump significantly increases range of e-busses with its low energy consumption.
[QUESTION] Why is INDUS placing so much emphasis on paving the way to innovation for portfolio companies?
JOHANNES SCHMIDT In view of the high rate of change, it is also becoming increasingly important that our portfolio companies are ready to tackle even disruptive innovation – i.e. to enter into development with a higher level of risk. The subsidy offer, which is part of our development bank model, has made it easier for them to exploit existing new technologies and new markets. There is now a very strong take-up of the program among portfolio companies. I am delighted by this because it not only advances individual companies, but it also helps the INDUS Group as a whole to move forward.
[QUESTION] What is the budget you have available for this?
JOHANNES SCHMIDT In addition to the normal R&D budget, which all of our portfolio companies have factored in, we have additionally budgeted a maximum of 1.5% of our EBIT for supporting companies with eligible projects.
[QUESTION] How are portfolio companies using the money specifically?
JOHANNES SCHMIDT One current example involves BETEK, a company from our SIMON group. BETEK has just launched a project for improving carbide tools, which are used for example for tunneling in stone mines. For this, the tools are coated with the help of a thermal process so that they are harder than steel in the end, but are more cost effective than tools manufactured entirely from special carbides. The company also wants to use the know-how it acquires for further innovations.
[QUESTION] How can you be certain that you are supporting the right projects?
JOHANNES SCHMIDT You can never be certain when you are entering new territory. However, we do a lot to ensure that our decision-making is right. Before approving support, we have a project explained to us in detail. If projects are complex, we also call on independent experts. At the same time, we check the market opportunities of an innovation idea in great detail. If these hurdles are overcome, the probability of success is very high. So far, we have not made any major mistakes using this method.
DR. JOHANNES SCHMIDT
All German political decisionmakers agree: To ensure the country's future sustainability, the infrastructure needs to be profoundly invested in. Transportation ways and roads must be expanded and more construction work is needed to ensure a safe and operational course of life in the private and public sectors.
1960 – now: approx. +300%
now – 2050: approx. +100%
The concentration of population in conurbations demands innovative sustainable technologies, a different ecological understanding, political measures to support social integration, and new mobility concepts.
10 MILLION INHABITANTS
Medical findings and the use of digital technology for recording and processing healthrelated data is facilitating "personalized" treatments and preventive care tailored precisely to patient requirements.
Approx. 45%
of German smartphone users currently use health apps
and another 45% can imagine using them in the future. Apps are most frequently used (27% of respondents) for recording physical and fitness data such as blood pressure, steps taken or heart rate. A further 26% can imagine using such apps in the future.
Tokyo & New York
The increasing data volumes and exchange of data in industry bring enormous challenges. At the same time, it opens up the opportunity to be among the leaders in the digital age.
2 29 41
1950 2015 2030
"We already have the template for our investment targets firmly pinned down. The sectors and fields which we are looking at will be good for our portfolio structure in the future. In view of an overheated market and low levels of interest rates, it may well prove a challenge to get the companies at the right price. This is where our long-term performance promise "buy, hold & develop" helps us. We are looking at the long-term prospects of portfolio companies and also that they are able to maintain their identity. This is a particularly good argument for sellers, who are looking to place their life's work in safe hands."
"The steadily increasing complexity and scope of regulatory standards poses a particular challenge for our SME portfolio holdings, which operate internationally. We can help them in identifying and avoiding risks at an early stage – for example with a training program covering all aspects of customs and foreign trade, antitrust and competition law, and combating corruption. In the same way, however, we can also advise them on accounting and financing issues or on hedging against increasing foreign currency and raw material risks, and create network connections from which they can benefit when setting up an international location."
"Our understanding of the role we have as a companion to our SME portfolio companies is probably unique in this form. It gives us the opportunity to be close to our companies without assuming operational responsibility and specifying corporate targets. At the same time, we are in a position to highlight opportunities and possible directions to our companies, which in some circumstances they may not be able to recognize from their perspective. And in terms of project implementation, companies can call on our support at any time – whether it is commercial, method-based or any other form of support. We are seeking to provide the best possible support to entrepreneurs in the management of their enterprises. And we are breaking new ground to do this!"
"Our companies also need to be watchful, even if things are currently going really well for them. It is particularly at times when order books are full that the work needed to ensure that remains the case is overlooked. From a macroeconomic perspective, the potential for setbacks is increasing. For this reason it is becoming increasingly important not just to focus on growth but also on efficiency. Skilled workers are also an important factor in terms of success and need to be looked after in all respects. The reason being, that the individuals needed by the company for the future are increasingly sought after."
T O D AY, P R O G R E S S I S P L A C I N G C O R P O R AT E C O N C E P T S U N D E R PARTICULAR SCRUTINY. How are companies dealing with this? And how are other holding companies pursuing a long-term business approach? An interview with Stephan Gemkow, Chairman of the Haniel Board of Management.
[QUESTION] Digitalization and technical progress are currently changing the economy fundamentally. What are your thoughts regarding this situation?
STEPHAN GEMKOW The current changes are more dramatic and faster than all previous periods of change. I therefore have mixed feelings regarding the current situation. On the one hand, it presents the chance to implement business models for which no technical opportunities previously existed. On the other, it is difficult for industry and domestic policy makers to realize these opportunities, as both remain far too entrenched in their learned patterns of behavior.
[QUESTION] What do you mean by learned patterns of behavior?
GEMKOW Our companies are used to a more structured and analytical ap
proach. Suddenly, they are required to develop a high level of agility without knowing exactly how to do that. We have a similar issue in politics. Their task is to create the right overall conditions. We were once export world champions in machinery construction and engineering. If the focus now shifts on to new technologies, the role of policy making is to address these things with the same level of rigor. Artificial intelligence, blockchain, virtual reality – it is these and similar themes which will determine the future.
[QUESTION] In your view, how much pressure is there for Haniel to innovate and act?
GEMKOW A great deal. In particular in light of the fact that our company is built on very traditional values. In our everyday work, we pay a great deal of attention to error prevention and precision. This is comfortable
because it is numbers-based and there is little room for discussion. However, being firmly embedded in such principles often conflicts with the attributes we need to deal with change: speed, agility and courage to break new ground. The progress will force us to do this. Essentially, my view is that progress – and in this case in particular digital change – will open up the strategic gap in every company – and this must be filled. For me, therefore, it is important that all the companies in our group are fully focused on dealing with change.
[QUESTION] How are you addressing the transformation process in the group?
GEMKOW There is no blueprint for the management of change. Therefore, we very quickly agreed within the group that a one-size-fits-all approach in the digital field would not work. We have therefore had digital agendas with relevant sub-strategies developed by our companies. We also founded our Schacht One unit. It supports our divisions as an internal stimulus in the development and implementation of digital ideas and business models. A third approach is to specifically enter into venture capital investments, which we use as learning and development opportunities. Of course, in this case we also expect a certain return on capital. However, what is more important to us is being able to enter into new business models at an early stage and being able to assess the risks and opportunities which these present us with.
[QUESTION] On Schacht One: How are companies responding to what is offered?
GEMKOW So well, that, in fact, the unit has been able to shift work prianswers to the questions about the future originate from the dialog between top management and the managers of the respective group companies.
orities. Today our portfolio companies have digital, methodological knowledge available in-house and are in most cases are also developing things, such as applications, themselves. In the future, the unit will therefore be focusing on the much more complex fields of blockchain, big data and digital manufacturing and will be available to the divisions as a resource. This is because they also have to keep on developing their digital agendas independently.
[QUESTION] Independent development sounds simple in theory …
GEMKOW That's right. In practice it is quite a task. We are therefore starting this at all levels and keep discussing this topic. One example of this is at our annual management conference: In terms of content, this is a well-prepared, intensive work meeting these days. At management level, we are undertaking digital journeys – these are trips made together as a conference to visit companies we can learn from. And the individual companies are also doing their part. TAKKT has recently appointed dozens of digital workers, is conducting training programs and is sending employees away to our progress units. ELG has established its own innovation company. And in our Haniel Academy, we are running comprehensive education and further training programs. Overall, I can say that I am seeing approval rather than resistance. People understand how important the topic of change is.
[QUESTION] To what extent will the new world of work also change corporate cultures?
GEMKOW Cultures will have to change because the conditions are changing massively. However, in many areas this process will need
With digitalization, the way we work changes, too. The traditional office hours nine to five rarely are convenient working hours for a technical specialist. Companies will have to get used to this.
more time than we realize at the moment. Let's take the topic of autonomous driving for example. If we take time to think about it realistically, given the good condition of most of even the older cars today, it will still take some years before new forms of mobility can be seen in transportation. This means we do have the time to change, but we must address it. I view our greatest challenge as the intelligent management of both the digital and analog worlds as they exist in parallel together. Both are real and important. However, we are currently living through a period of transition. As part of this we have to weigh up the risks and opportunities well. It is still the case that only very few digital companies are earning real money. For example, Amazon has been on the market for 15 years without being really profitable in terms of trading. And, in contrast to many other companies – in particular in the digital sector – we are operating with genuine group equity, which means that we have to keep a particularly close eye on the issue of risk.
[QUESTION] More machines, fewer people. Is that the future?
GEMKOW The increase in machines will not be stopped. This provides highly industrialized countries with a unique opportunity to move away from the problem of poor competitiveness due to costs. For us in particular, technology makes sense because labor is expensive. And if it does not happen in Germany it will happen abroad, albeit with German companies. It is all the more important, therefore, that we are set up correctly for the future. Otherwise, traditional activities will disappear as a result of rationalization and the new ones will emerge elsewhere.
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 –
[QUESTION] In which direction should Haniel employees move? Where will Haniel be in ten years time?
in use planned
GEMKOW We will be more agile. This is particularly important to me because it represents the greatest challenge for us as a family holding company. Our Schacht One project and also the capital venture activities show me that agility is good for us and increases the attractiveness of our group. Today, we are also actively approached as a contact partner for future issues. We shall continue along this path and in ten years will therefore be more varied, more diversified, more digital, more global and more networked.
[QUESTION]
WHY IS ADVANCING TECHNOLOGY GOOD AND WHAT DOES IT MEAN FOR THE DEMANDS ON PEOPLE IN COMPANIES?
Simple jobs are more and more taken over by automated processes. For us humans, this means we will have to be more flexible. And this makes us more important.
[QUESTION] Three questions to finish with: Haniel's company magazine "Enkelfähig" focuses on the needs of future generations, how do you maintain this focus in a company?
GEMKOW By maintaining a longterm perspective, by being aware of your strengths and weaknesses, and by working on your weaknesses. The latter refers to using competencies which you need for the future to close the strategy gap.
[QUESTION] Why is advancing technology good and what does it mean for the demands on people in companies?
GEMKOW Advancing technology is neither good nor bad; it is quite simply a fact we have to deal with as companies. Otherwise, there will be no alternatives later on. It determines the direction of travel for us and opens up options for new business models. In terms of people in companies there will be less room for mediocrity. Education, training and lifelong learning will therefore become even more important.
[QUESTION] Why will companies with a strong set of values also be among the most successful in the future?
GEMKOW I firmly believe that a strong set of values will become more important than ever before because this period of radical change is able create a great deal of uncertainty. A stable focus and a reliable basis help to deal with such changes. In this respect, especially value-led companies will have an advantage in the future. To some extent values are a bit like a brand. And brands develop a particular significance in an increasingly comparable world. And assuming we live by them, a set of values creates a strong trust profile, both internally and externally. And collaboration is based on trust, and in turn, success is based on collaboration.
has been the Chairman of the Haniel Board of Management since August 1, 2012. After spending his initial years working as a corporate consultant, the MBA (Diplom-Kaufmann) held various positions at Lufthansa, six of which as Chief Financial Officer, since 1990. Gemkow is Supervisory Board Chairman of TAKKT AG, Member of the Administrative Board of Flughafen Zürich AG and Member of the Board of Directors of JetBlue Airways Corporation, New York.
In 2017, INDUS Group portfolio companies have been working on twelve development bank projects across all segments, including
the seeing robot: a smart handling system for mixed components (ASS)
HEATforming: an innovative forming process for high-strength steels (BILSTEIN & SIEKERMANN)
Digitalization of products and services: portfolio companies are working on projects ranging from IoT in the e-Bus, measurement data optimization using BigData, to the smart disinfection cloth and modular cloud solutions services (AURORA, IPETRONIK, IMECO, HORN)
INDUS is consolidating in the strategic growth field of Automation, Measuring Technology and Control Engineering with acquisitions:
The international presence of portfolio companies will continue to be driven by the consolidation of international activities; these include Europe, Asia, North America and Africa. In 2017 alone, 13 new international locations were added to the portfolio.
| _________ __ |
|---|
The Shareholders' Meeting of INDUS on May 24, 2017 in the Congress Center North of the Koelnmesse was attended by around 600 participants. An accompanying exhibition provided guests with information regarding current projects in the area of automation. The 2018 Shareholders' Meeting will also take place in the Congress Center North of the Koelnmesse on May 24.
The fifth INDUS industrialists' conference will be on June 30. In relaxed surroundings, managers of the INDUS portfolio companies will take the opportunity to conduct face-to-face discussions among themselves. Following this, the INDUS holding company will host the annual summer celebration, which is taking us to Cologne this year.
As part of the summer celebration, INDUS will be celebrating the extension to the main building following a construction period lasting 17months. The new building will provide work places, which have been developed to the very latest standards, for 18 employees as well as three conference and meeting rooms.
Axel Meyer joined the INDUS Board of Management as a new member on October 1. In light of the Group's growth and innovation strategy, he will support the technology department, in particular in the area of production and investment.
INDUS and INDUS portfolio companies also received numerous awards in 2017, including
Nina Wolf Senior Manager Corporate Communications Phone: +49 (0)2204/40 00-73 Email: [email protected]
Julia Pschribülla Manager Investor Relations Phone: +49 (0)2204/40 00-66 Email: [email protected]
INDUS HOLDING AG Kölner Straße 32 51429 Bergisch Gladbach
P.O. Box 10 03 53 51403 Bergisch Gladbach
Phone: +49(0)2204/40 00-0 Fax: +49 (0)2204/40 00-20 Email: [email protected] www.indus.de
PUBLISHER INDUS Holding AG, Bergisch Gladbach
CONZEPT/DESIGN Berichtsmanufaktur GmbH, Hamburg
Photos
Catrin Moritz, Bettina Engel-Albustin, fotolia, gettyimages, INDUS Group
VIDEOS Videograph GmbH, Bielefeld
Gutenberg Beuys Feindruckerei GmbH, Langenhagen
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KEY FIGURES 2017 — PROFILE – GOALS – VALUE CREATION CONTENTS
PORTFOLIO STRUCTURE BY YEARS (in % /number of portfolio companies)
| 5 TO 10 YEARS | ||
|---|---|---|
| 4 / 2 |
MORE THAN 10 YEARS 7 6 / 3 4
2017 SALES BY SEGMENT (in % / EUR million)
METALS TECHNOLOGY 2 4 / 385.6
EBITDA 215.3 200.9 186.4 EBIT 152.9 144.9 136.3 EBIT margin (in %) 9.3 10.0 9.8 EBIT adjusted 163.7 155.4 145.8 EBIT margin adjustet (in %) 10.0 10.8 10.5 Group net income for the year (earnings after tax) 83.1 80.4 68.3 Operating cash flow 145.0 137.9 157.3 Cash flow from operating activities 124.0 114.5 130.9 Cash flow from investing activities -110.0 -104.4 -112.8 Cash flow from financing activities -3.9 -14.9 -3.1 Earnings per share (in EUR) 3.37 3.27 2.78 Cash flow per share (in EUR) 5.07 4.69 5.36 Dividend per share (in EUR) 1.50* 1.35 1.20 Dividendenrendite (in %) 2.5* 2.6 2.7 Ausschüttungsquote (in %) 43.9* 42.7 41.9 DEC. 31, 2017 DEC. 31, 2016 DEC. 31, 2015 Total assets 1,653.2 1,521.6 1,419.8 Group equity 673.8 644.6 595.4 Equity ratio in % 40.8 42.4 41.9 Net debt 399.0 376.6 356.3 Cash and cash equivalents 135.9 127.2 132.2 Total assets of INDUS Holding AG 1,450.8 1,360.2 1,274.2 Equity of INDUS Holding AG 855.6 806.9 761.2 Equity ratio INDUS Holding AG (in %) 59.0 59.3 59.7 Portfolio companies (number as per Dec. 31) 45 44 44 Employees within the Group (number as of Dec. 31) 10,210 9,451 8,334
in EUR million 2017 2016 2015
Sales 1,640.6 1,444.3 1,388.9
* Subject to approval at ASM on May 24, 2018
… is a leading specialist in sustainable corporate investment and development in the medium-sized company sector of the Germanspeaking countries. We acquire mainly owner-managed companies and support them with long-term orientation regarding their entrepreneurial development.
Our portfolio companies are characterized in particular by their strong position in specialized niche markets. As a growthoriented financial investor, we ensure that our companies retain the identity and special strengths that are inherent in their medium-sized status.
| CORPORATE PERFORMANCE | (in EUR million) | ||
|---|---|---|---|
| 2017 | 2016 | ||
| Revenue | 1,640.6 | 1,444.3 | |
| Other operating income | 16.5 | 20.2 | |
| Own work capitalized | 5.1 | 6.2 | |
| Changes in inventory | 5.2 | 11.1 | |
| Results based on shares valued at equity | 1.1 | 1.0 | |
| Financial income | 0.3 | 0.5 | |
| Interest income | 0.2 | 0.5 | |
| Business performance | 1,669.1 | 1,483.8 |
| ADDED VALUE | (in EUR million) | |
|---|---|---|
| 2017 | 2016 | |
| Business performance | 1,669.1 | 1,483.8 |
| Material expenditure | -745.9 | -648.7 |
| Other operating expenditure | -228.0 | -203.5 |
| Gross added value | 695.2 | 631.7 |
| Depreciation | -62.4 | -56.0 |
| Net added value | 632.8 | 575.7 |
The INDUS Group has developed successfully over the last five years with COMPASS 2020. The portfolio has grown through attractive acquisitions, and the portfolio companies are focusing on becoming more international and innovative. This has been acknowledged by the shareholders and investors with a significant increase in the share price.
Over the last year, INDUS has refined the direction of COMPASS once more, increasing the focus on technology. The portfolio companies are turning their attention to growth areas, with the support of the holding company where necessary.
Rudolf Weichert Axel Meyer Jürgen Abromeit Dr. Johannes Schmidt
INDUS has once again enjoyed a successful year in 2017. We are very satisfied that our Group has been able to report record results for the fifth year in a row. However, this was certainly in line with our projections and consequently also with your expectations. What is of greater importance to us is that our portfolio companies are doing the right things. They are using the current economic situation to do good business and in doing so are not neglecting to prepare for the serious challenges which lie ahead.
"In which areas can we adapt our business model in order to remain successful and become even more successful?" This is the question which all of our portfolio companies are addressing. Their readiness to change is the basis on which portfolio companies are making decisions from which you, the shareholders, stand to benefit in the years ahead. We, as the holding company, are supporting this in a variety of ways.
Let us stick with the present to begin with. When including acquisitions over the past year, sales rose by 13.6% to EUR 1.64 billion. Profitability was not able to entirely keep pace with this significant increase in sales but did also improve by 5.5% to EUR 152.9 million.
The two repositioning projects in the Automotive Technology and Metals Technology segments had a significant negative impact on earnings over the previous year. The price of adjustments required in these cases were more extensive than anticipated. However, we are now able to anticipate that, by the summer, we will have turned this around. For both segments this means overall that they were not able to achieve their earnings targets for 2017. In addition to the charges against earnings from the two repositioning projects, profits were also squeezed by currency fluctuations, in particular in South Africa, Brazil and Mexico.
However, companies in the other areas performed all more strongly. In particular the Construction/Infrastructure and Engineering segments came in with figures significantly above expectations. The Medical Engineering/Life Science segment delivered a high level of stable earnings contributions. The pleasing overall result illustrates how well INDUS is structured as a group. Partial, and temporary, charges against earnings are compensated for very well by good performance in the overall portfolio.
When adjusted for non-operational charges against earnings from the initial consolidations, the EBIT margin still achieves the target level of 10%. Taken as a whole, we can therefore continue to be very satisfied with the commercial development of the Group.
In order to also ensure this strong position is maintained in the future, our portfolio continues to move in the direction of growth markets. For example, over the past year we were again able to acquire two very good companies. The acquisitions of M+P INTERNATIONAL and PEISELER mean the Group has been enhanced by two very promising companies from the future field of Automation, Measuring Technology and Control Engineering, in which technology plays a major role.
"Our portfolio companies are competitive and will exploit the good economic situation for their continued growth in 2018."
We shall continue to look out for appropriate acquisitions in future in this area and in the growth industries of Infrastructure and Logistics Technology, Energy and Environmental Technology, Medical Engineering/Life Science and in Construction and Safety Technology. In doing so, we shall not stray from our proven, long-term course. However, our current assessment of purchase prices in the M&A market is that they are significantly overheated with the result that, in cases of doubt, we also opt not to submit an offer. Although we are keen to grow, we are in no rush and are patient enough to be able to wait for the economically right time to purchase. In parallel with our growth investments, we are supporting our portfolio companies to help them develop further using what are now proven methods. For example, as early as January of this year, we were able to provide our subsidiary AURORA with capital for the purchase of electronic specialists EE ELECTRONIC EQUIPMENT B.V.
Support for innovation activities in the future fields remains very important to us. We are currently supporting twelve portfolio company projects focused on exploiting new technologies or markets. One of the priorities in this case is the digitalization of products and services which to some extent also goes hand in hand with business model expansion. Our
offer relating to the transfer of methodological knowledge is also being very well received by portfolio companies.
Following a good start to the year we are also looking ahead to 2018 in optimistic mood. Given similar conditions, our group companies will be able to expand their market position. In terms of sales we are expecting a value of between EUR 1.65 billion and EUR 1.70
billion and in terms of earnings we prefer to be slightly more conservative in our estimates with a value of between EUR 154 million to EUR 160 million. As always, contributions from potential acquisitions are not included in this. While the two repositioning projects referred to will be concluded towards the middle of 2018, we have however once again factored in a charge against earnings for the current year. The EBIT margin of 10% +X remains our target value even though in the growth phase the EBIT adjusted for accounting and initial consolidation effects assumes greater importance for the assessment of operational performance.
Recent weeks have shown how right we have been with our cautious assessment of the market development. The United States in particular remains a highly unpredictable factor under its current leadership. The national protectionist trade policy currently being pursued by the government has the potential to trigger a significant chain reaction at the end of which may lie a significantly changed pattern of global trade. Other geopolitical hot spots also entail relevant risks for business. This includes the Brexit situation, which continues to rumble on with its significant potential repercussions for our engineering segment. The outcome of the Italian election with its feared right wing populist movement and anti-European shift must be regarded as equally critical. It is therefore all the more important that our portfolio companies further increase their competitiveness by means of innovation internationalization as well as intelligent acquisitions.
"By exploiting new technologies and markets our portfolio companies will open up new scope for development."
As the Board of Management, we would like to thank our shareholders for the trust they have shown in our company. Our share is an investment security for the long term. We are therefore delighted that you continue to support us with your capital as we develop. In appreciation of your contribution, we shall again be proposing an increased dividend of EUR 1.50 at this year's Annual Shareholders' Meeting.
Once again, we would like to thank our partners, the management boards of our portfolio companies and the portfolio company employees – which now number more than 10,000 – for the high level of commitment they have shown in keeping the INDUS Group on track for success. We look forward to continued success together once again in the current year.
Bergisch Gladbach, March 2018
Jürgen Abromeit Axel Meyer Dr. Johannes Schmidt Rudolf Weichert
professional qualifications of the Board of Management members may be found on our internet page. For information concerning memberships on other Supervisory Boards, see page 169.
Jürgen Abromeit (born 1960) has been a member of the Board of Management of INDUS Holding AG since 2008. He assumed the position of Chairman of the Board of Management in July 2012. After completing his professional training, the bank manager held a number of positions at Dresdner Bank and Commerzbank in corporate and investment banking before moving over to steel manufacturer Georgsmarienhütte Holding (GMH) as chief financial officer in 1998. During his eleven years with GMH, he assisted in a large number of corporate acquisitions, assuming operational management at various companies in the mechanical engineering sector during the integration phase. In his last position he was responsible for the steel and engineering segments at GMH as divisional manager.
Axel Meyer (born 1968) has been a member of the INDUS Holding AG Board of Management since October 2017. After graduating with a degree in industrial engineering, he began his career at the Schuler Group in the massive forming segment – first in international sales and then as division manager. Between 2003 and 2008, he went from managing partner to management board member at the management consultancy firm IMAGIN Prof. Bochmann AG in Eppstein im Taunus. Axel Meyer then returned to Schuler AG as technological head for cutting and forming systems. He was then appointed managing director of Schuler Pressen GmbH and head of the Schuler Group service division in Göppingen.
Dr. Johannes Schmidt (born 1961) has been a member of the Board of Management of INDUS Holding AG since 2006. After graduating with a degree in applied mathematics and completing his doctorate in the field of mechanical science, Dr. Schmidt initially assumed development tasks at Richard Bergner GmbH, a Schwabach-based manufacturer of electrical instruments, before ascending to become managing director in the course of his twelve years at the company. In 2000, he moved to ebm-papst Landshut GmbH, a manufacturer of ventilation motors and fans, to become its sole managing director. During his tenure there, his main achievements included advancing the development of new product platforms and internationalization of production sites.
Rudolf Weichert (born 1963) has been a member of the INDUS Holding AG Board of Management since June 2012. Before joining the INDUS Board of Management, he was a partner at accounting firm KPMG for nine years. He spent three of these years in Detroit, Michigan, where he worked mainly with companies in the automotive, engineering and materials trading industries. Mr. Weichert, who holds a business degree, worked for KPMG for about 20 years, primarily in the firm's Düsseldorf offices, where he worked mainly with multi-national manufacturing corporations.
Members of the Supervisory Board are appointed for a period of five years; re-elections are permissible. Candidates must not be above the age of 70 at the time of their election or re-election. Mr. Joachim Selzer's mandate came to an end on May 24, 2017. He was not eligible for reelection due to age restrictions stipulated in the articles of association. Prof. Dr. Nadine Kammerlander was appointed to the INDUS Holding AG Supervisory Board for the first time on May 24, 2017. The terms of members Helmut Späth, Dr. Jürgen Allerkamp, Dr. Ralf Bartsch, and Prof. Dr. Nadine Kammerlander will come to an end at the end of the 2022 Annual Shareholders' Meeting; Dr. Dorothee Becker's term will end at the end of the 2019 Annual Shareholders' Meeting and Carl Martin Welcker's at the end of the 2020 Annual Shareholders' Meeting.
HELMUT SPÄTH CHAIRMAN OF THE SUPERVISORY BOARD
Helmut Späth (born 1952) is a businessman (former auditor and tax advisor) and, as Chief Executive Officer at Versicherungskammer Bayern, was responsible for the finances and accounting departments until the end of 2017. He has been a member of the INDUS Holding AG Supervisory Board since July 2012.
DR. JÜRGEN ALLERKAMP VICE CHAIRMAN OF THE SUPERVISORY BOARD
Dr. Jürgen Allerkamp (born 1956) is a fully qualified lawyer. In January 2015 he was appointed Chairman of the Management Board of the Investitionsbank Berlin. Previously he held the position of Chief Executive Officer at Deutsche Hypothekenbank (Actien-Gesellschaft) in Hanover and was a member of the Management Board of Nord/LB from 1997 through 2010. He was appointed to the INDUS Holding AG Supervisory Board for the first time in 2007.
Helmut Späth (Chairman) / Dr. Jürgen Allerkamp / Hans-Joachim Selzer (until May 24, 2017) / Dr. Dorothee Becker (since May 24, 2017)
Dr. Jürgen Allerkamp (Chairman, Financial Expert) / Dr. Ralf Bartsch / Prof. Dr. Nadine Kammerlander (since May 24, 2017)
* Detailed information concerning the professional qualifications of the Supervisory Board members may be found on our internet page. For information concerning memberships on other Supervisory Boards, see page 169.
Prof. Dr. Nadine Kammerlander (born 1983) has a degree in physics and a doctorate in business economics. She has worked as a consultant to McKinsey & Company and as an assistant professor at the University of St. Gallen. In November 2015 she became a Chaired Professor of Family Business at WHU – Otto Beisheim School of Management, Vallendar, Germany. Prof. Dr. Nadine Kammerlander has been a member of the INDUS Holding AG Supervisory Board since May 2017.
DR. RALF BARTSCH MEMBER OF THE SUPERVISORY BOARD
Dr. Ralf Bartsch (born 1959) is a fully qualified lawyer and business manager. Since 2003 he has been Management Board Spokesman for the SCHLAU/HAMMER Group, Porta Westfalica. Previously, Dr. Bartsch worked for NORD Holding, Hanover, and for an international law firm specializing in capital markets and corporate law. He has been a member of the Supervisory Board of INDUS Holding AG since 2007.
DR. DOROTHEE BECKER MEMBER OF THE SUPERVISORY BOARD
Dr. Dorothee Becker (born 1966) is an economist. She is the Managing Director of the SME Gebr. Becker GmbH in Wuppertal. She has been a member of the Supervisory Board of INDUS Holding AG since June 2014.
HANS JOACHIM SELZER MEMBER OF THE SUPERVISORY BOARD (UNTIL MAY 24, 2017)
Hans Joachim Selzer (born 1943) holds a degree in industrial engineering, is an entrepreneur and former owner of Selzer Fertigungstechnik GmbH in Driedorf, a portfolio company of INDUS Holding AG. He has been a member of the INDUS Holding AG Supervisory Board since July 2012.
CARL MARTIN WELCKER MEMBER OF THE SUPERVISORY BOARD
Carl Martin Welcker (born 1960) is managing partner at the medium-sized mechanical engineering company Alfred H. Schütte GmbH & Co. KG in Cologne. He has been a member of the Supervisory Board since February 2010.
Dear shareholders,
I would like to take this opportunity to inform you of the Supervisory Board's work over the past fiscal year.
In the year under review the Supervisory Board diligently fulfilled its duties under applicable law and the company's articles of association. The Supervisory Board continually advised the Board of Management, supervised its management of the company, and ensured that all actions taken were legal and proper and served their intended purpose. The Board of Management fulfilled its informational duties at all times and regularly, promptly and comprehensively informed the Supervisory Board, both in writing and orally, of all issues relating to strategy, planning, business performance, risk exposure, risk development, and compliance that were of material importance to the company and the INDUS Group. This included also information concerning the straying of actual developments from previously reported goals and of actual business developments from their planned course.
The members of the Supervisory Board always had sufficient opportunity to critically review, in their committees and plenary sessions, the reports and proposed resolutions presented by the Board of Management and to introduce suggestions of their own. This kept them continually informed of current business performance and asset development. Matters to which the Supervisory Board devoted its attention included, in addition to financial, investment, and personnel planning, the company's risk exposure and risk management. In particular cases the Supervisory Board gave its consent to certain business transactions when the law, the articles of association or rules of procedure so required. Between board meetings, the chairman of the Supervisory Board and the chairman of the Audit Committee engaged in an intensive exchange of information and ideas with the Board of Management and kept themselves informed of significant company developments.
In fiscal year 2017, four ordinary meetings were held in the presence of the Board of Management. In addition, an extraordinary meeting was held in the form of a telephone conference. The Supervisory Board regards its individualized disclosure of participation in meetings of the full Supervisory Board and of its committees as an exercise of good corporate governance. All meetings and ballots held by the Supervisory Board or its committees had the full participation of all Supervisory Board and Board of Management members.
| PARTICIPATION | IN % | PARTICIPATION | IN % | ||
|---|---|---|---|---|---|
| Supervisory Board | Personnel and Nomination Committee | ||||
| Helmut Späth | 5/5 | 100 | Helmuth Späth | 2/2 | 100 |
| Dr. Jürgen Allerkamp | 5/5 | 100 | Dr. Jürgen Allerkamp | 2/2 | 100 |
| Dr. Ralf Bartsch | 5/5 | 100 | Dr. Dorothee Becker (since 24.05.2017) | 1/1 | 100 |
| Dr. Dorothee Becker | 5/5 | 100 | Hans Joachim Selzer (until 24.05.2017) | 1/1 | 100 |
| Prof. Dr. Nadine Kammerlander (since 24.05.2017) | 3/3 | 100 | Audit Committee | ||
| Hans Joachim Selzer (until 24.05.2017) | 2/2 | 100 | Dr. Jürgen Allerkamp | 3/3 | 100 |
| Carl Martin Welcker | 5/5 | 100 | Dr. Ralf Bartsch | 3/3 | 100 |
| Prof. Dr. Nadine Kammerlander (since 24.05.2017) | 2/2 | 100 |
In addition to the four ordinary and one extraordinary meeting, a constituent meeting of the newly formed Supervisory Board was held on May 24, 2017, following the Annual Shareholders' Meeting. Prof. Dr. Nadine Kammerlander was elected to the Supervisory Board by the shareholders to replace Mr. Hans Joachim Selzer, who was not up for reelection due to age restrictions stipulated in the articles of association. Mr. Helmut Späth and Dr. Jürgen Allerkamp were confirmed as Chairman and Deputy Chairman of the Supervisory Board, respectively, during the constituent meeting. Dr. Dorothee Becker has replaced Mr. Hans Joachim Selzer in the Personnel and Nomination Committee. Prof. Dr. Nadine Kammerlander sits on the Audit Committee as an additional member.
Transactions of importance for the Company were discussed with the Supervisory Board also outside of its regular meetings to ensure that it was always involved in decisions of fundamental importance. There were no indications that Supervisory Board or Board of Management members had conflicts of interest, which must be promptly disclosed to the Supervisory Board and of which the Annual Shareholders' Meeting is to be informed.
The focus of the first meeting held on March22, 2017, was the presentation and discussion of the 2016 annual financial statements of the company and the Group and passage of the associated resolution. Focal points of the Audit Committee included a) the examination of company acquisitions, b) associated purchase price allocations, c) existing rest purchase price commitments, d) valuation of goodwill, e) earnings position development, and f) appropriate consideration of the audit focal points stipulated by the German Financial Reporting Enforcement Panel (Deutsche Prüfstelle für Rechnungslegung). At the Audit Committee's recommendation and after thorough debates with the auditor, Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne, the Supervisory Board approved the consolidated financial statements and adopted the annual accounts for fiscal year 2016. The Board of Management also provided information on the main investment targets over the last fiscal year and explained in detail the annual risk management and compliance reports. The Board of Management then presented INDUS Group's economic position as of February 2017.
The Supervisory Board voted on the Board of Management's proposal regarding the two-stage acquisition of the PEISELER Group, a supplier of high-precision indexing devices and rotary tilt tables for machine tools. PEISELER supplies machine tool manufacturers and end consumers around the globe in the mechanical engineering and shipbuilding, medical engineering, watchmaking and electrical, aircraft and turbine construction and automotive industries. 80.00% of the shares were acquired as part of the first stage of the acquisition, with the contract being signed on April 18, 2017, and contract completion on May 23, 2017. The Board of Management also reported on the successful majority acquisition of M+P INTERNATIONAL (76.56%), an innovative and internationally operating developer of measurement and test systems for vibration testing and analysis. Its measurement and test systems can be applied in fields ranging from aerospace technology to energy and environmental engineering. The Supervisory Board approved the acquisition during the meeting of December 14, 2016. The contract was signed on January 30, 2017 and the contract completed on March 1, 2017.
Other votes held were the Board of Management's dividend proposal and the agenda for the Annual Shareholders' Meeting on May 24, 2017. As a result of the structured recruitment process conducted before the meeting, the Personnel and Nomination Committee nominated Prof. Dr. Nadine Kammerlander to replace Mr. Hans Joachim Selzer on the Supervisory Board. Mr. Selzer was not eligible for reelection due to age restrictions stipulated in the articles of association. Following Prof. Dr. Nadine Kammerlander's introduction, the Supervisory Board accepted the candidate. Mr. Helmut Späth, Dr. Jürgen Allerkamp and Dr. Ralf Bartsch were nominated for reelection to the Supervisory Board.
One day before the Annual Shareholder's Meeting on May 23, 2017, the Supervisory board convened for its second ordinary meeting, in which the members attending the meeting acquainted themselves with the status of current proposals. Since no counterproposals had been submitted, the Supervisory Board dealt in depth with the report concerning business developments in the months from January to April 2017. The Board of Management also reported on developments regarding the two repositioning projects in the Metals and Automotive Technology segments and clarified the Forecast I for portfolio companies, which was based on the results in March 2017. Overall, the current outlook confirmed the earnings projection for the whole of 2017.
Following the results of the recruitment process presented by the Personnel and Nomination Committee, the personal introduction and general discussion, the Supervisory Board approved the appointment of Mr. Axel Meyer as the fourth member of the Board of Management from October 1, 2017. This was followed by the regular update of the Supervisory Board's resolution regarding targets for the ratio of female staff on the Supervisory Board and the Board of Management.
The subject matter of deliberations also included the on-going status proceedings in which the Regional Court (Landgericht) of Cologne is reviewing, upon the application of a private shareholder, the Supervisory Board's composition in terms of its conformity with stock corporation law. The Board of Management again provided information regarding the initial decision of the Regional Court of Cologne in favor of the plaintiff. Following an in-depth discussion, the Supervisory Board and Board of Management resolved to appeal the decision at the Higher Regional Court of Düsseldorf.
During an extraordinary meeting held in the form of a telephone conference on July 28, 2017, the Board of Management explained the current and planned developments of both repositioning projects in the Metals Technology and Automotive Technology segments in detail. The Supervisory Board also dealt with the six-month figures up to June 30, 2017, as well as the current outlook for the whole of 2017.
The third ordinary meeting was held on September 13/14, 2017. The Board of Management began by providing information concerning the INDUS Group's economic performance in the first eight months of fiscal year 2017, and reporting in detail on the two repositioning projects and the integration of FICHTHORN in the SELZER Group in special reports. Taking into consideration the current Forecast II for the portfolio companies, the Board of Management confirmed the annual outlook for 2017.
The Chairman of the Audit Committee provided information regarding the topics of the meeting of the Audit Committee on September 13, 2017, in which Dr. Werner Holzmayer and Mr. Marcus Lauten participated as representatives of the auditing firm of Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft of Cologne.
The agenda of this two-day meeting included introduction and discussion of an analysis for developing the entire portfolio and the individual segments since the introduction of the COMPASS 2020 strategy, and the segment strategies derived from COMPASS 2020. The Board of Management also introduced relevant areas of action in its opinion in the accompanying work areas finances and organization with a focus on the further improvement of early risk recognition and reduction. The Supervisory Board signaled its full support for the Board of Management's strategy in view of its announced portfolio development and accompanying measures.
The last meeting of the year, which was held on November 30, 2017, covered the updated outlook for fiscal year 2017 based on results up to October 2017 and planning for 2018. The Board of Management reported in detail on current developments in the individual segments. The below-plan developments in the Automotive Technology and Metals Technology segments stood against the very positive developments in the Construction/Infrastructure and Engineering segments. The Board of Management explained the corporate planning for fiscal year 2018, including plans for investment and financing. In the ensuing discussion, the Board of Management considered the details of the planning process. The Supervisory Board approved the annual plans in their entirety and without correction.
The Board of Management informed the Supervisory Board of the signing of a purchase contract on November 21, 2017, for the acquisition of the Dutch company ELECTRONIC EQUIPMENT B.V. by AURORA. The contract for this expansion acquisition was completed on January 25, 2018.
The chairmen of the committees reported on issues and results related to the committee meetings held on the same day. Dr. Werner Holzmayer and Marcus Lauten attended the Audit Committee meeting as representatives of Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne.
Another topic reviewed was the ongoing status process. The members of the Supervisory Board again focused on the German Corporate Governance Code this reporting year. The Supervisory Board voted on the definition of specific targets for the composition of the Supervisory Board and the definition of the following specialist profiles for the entire committee:
| SPECIALIST AREA | EXPLANATION |
|---|---|
| Strategy | Proven experience in creating and implementing corporate strategies |
| Technology | Profound knowledge and experience in technology areas relevant to the portfolio companies |
| Innovation | Profound knowledge and experience in the definition and implementation of innovation strategies |
| Internationalization | Proven experience with the setup and management of company units overseas or comprehensive personal experience overseas |
| Mergers & Acquisitions | Proven knowledge and experience in performing M&A processes |
| Management | Long-term, successful management experience at management or board level |
| Finances | Comprehensive knowledge and experience in accounting and accounting for complex corporate groups, corporate financing and financial risks |
| Risk management | Profound experience in designing and monitoring risk management systems |
| Remuneration systems | Practical experience in designing and applying performance-based remuneration systems |
The Board of Management and the Supervisory Board submitted an updated declaration of compliance pursuant to Section 161 of the German Stock Corporation Act (AktG), which is publicly available on the company's website.
The main task of the two Supervisory Board committees is to prepare decisions and topics for the board's full sessions. Decision-making powers may be transferred to the committees for this purpose insofar as the law permits. The chairmen of the committees reported to the Supervisory Board regularly and in detail on their committees' work. The chairman of the Supervisory Board holds the chairmanship of the Personnel Committee and Nomination Committee, but not the chairmanship of the Audit Committee. The personnel make-up of the two committees is presented in the Annual Report under the heading "Management Bodies".
The Audit Committee met three times during the fiscal year 2017: March 22, September 13 and November 30, 2017. Taking part in the meetings, in addition to members of the Board of Management, were representatives of Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne. The auditor declared to the Audit Committee that there were no facts or circumstances present that would constitute grounds for assuming a lack of impartiality on his part. The Audit Committee obtained the auditor's statement of independence as required, verified his qualifications, entered into the remuneration agreement and established the focus of the audit. The main topics of the consultations were the 2017 annual financial statements, a review of the risk management and compliance reports, the audit of the financial statements and the accounting methods for Switzerland.
The Personnel and Nomination Committees prepared the Supervisory Board's personnel decisions in two meetings in fiscal year 2017, which were held on March 22, and November 30, 2017. Where necessary, decisions were made or resolutions were recommended to the Supervisory Board. The meeting focused on the recruitment process for a suitable new candidate for the Supervisory Board and a fourth member for the Board of Management, a remuneration system concept, in particular suggestions for determining bonuses for Board of Management members and other contractual matters. Details regarding compensation for the Board of Management members can be found in the remuneration report.
The accounting and law firm of Ebner Stolz GMBH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne, appointed auditor of the separate and consolidated financial statements by resolution at the Shareholders' Meeting of May 24, 2017, audited the annual financial statements and management report of the Group and of INDUS Holding AG pursuant to the Supervisory Board's instructions. The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The auditor provided the annual financial statements with an unqualified audit certificate. The auditor also confirmed that the risk management system complied with the provisions of law, and that there are no identifiable risks that might jeopardize the company as a going concern. As planned, the interim financial reports were not audited.
The consolidated financial statements and Group management report, the annual financial statements and management report, the sustainability report, and the audit reports were presented to all Supervisory Board members on time. These were discussed in detail at the Supervisory Board meeting held on Thursday, March 22, 2018 for adoption of the financial statements. This meeting was attended also by the auditor Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne, which reported on the main results of the audit and remained available to answer additional questions. The Supervisory Board discussed all of the submissions and audit reports in depth. Based on the final result of our own audit of the documents submitted to us and the Audit Committee's recommendations, the Supervisory Board raises no objections, and concurs with the Group auditor's findings. The Board endorses the financial statements prepared by the Board of Management and approves the consolidated financial statements. The Supervisory Board concurs with the Board of Management's proposed appropriation of distributable profit.
The Supervisory Board would like to thank the members of the Board of Management and all employees of the portfolio companies and of INDUS Holding AG for the extraordinary dedication they have displayed in the past fiscal year.
Bergisch Gladbach, March 22, 2018
For the Supervisory Board Helmut Späth Chairman
Following a relatively cautious start, the INDUS share was able to pick up momentum in the second half of the 2016 fiscal year performing well above average in a very volatile market environment. In doing so, it significantly outperformed the SDAX and DAX indexes (INDUS approx. +21%, SDAX +6.5%, DAX +11.7%). The high price level therefore achieved at the end of 2016 provided a solid basis from which to start the fiscal year 2017. Extremely strong performance in the first half of 2017 took the INDUS share towards an alltime high. The INDUS share remained at this high level over the course of the year until around August. The share price then settled at the mid-range performance level against the DAX and SDAX and was subject to their fluctuations in an ongoing sideways movement up to the end of the fiscal year.
The INDUS share benefited from the first quarter of 2017 and rose sharply, performing significantly above average. The share had already achieved a plus of 17.3% by the end of March and significantly outperformed the reference indexes as a result (SDAX +6.0%, DAX +7.2%). The publication of
| KEY SHARE DATA | (in EUR) | ||
|---|---|---|---|
| 2017 | 2016 | 2015 | |
| Earnings per share Group | 3.37 | 3.27 | 2.78 |
| Cash flow per share Group | 5.07 | 4.69 | 5.36 |
| Dividend per share | 1.501 | 1.35 | 1.20 |
| Dividend yield in % | 2.5 | 2.6 | 2.7 |
| Sum disbursed in EUR millions | 36.7 | 33.0 | 29.3 |
| 12-month high | 65.10 | 54.15 | 50.12 |
| 12-month low | 50.48 | 36.75 | 36.37 |
| Price at year-end | 59.502 | 51.64 | 44.51 |
| Market capitalization on Dec. 31 in EUR millions |
1,454.83 | 1,262.6 | 1,088.3 |
| Average daily turnover in number of shares |
31,116 | 35,578 | 53,308 |
1) Subject to approval at Annual Shareholders' Meeting on May 24, 2018
2) Basis: Closing prices in XETRA trading on 2017 reporting date
3) based on complete capital stock of 24,450,509 shares
the company's excellent 2016 financial figures in particular, and confirmation of the forecast for the year 2017 following the first quarter helped increase demand among investors and caused a further rise in the share price in the first six months. This upward trend continued to the end of June, peaking on June 19, 2017 at a new all-time high of EUR 65.10 – an increase of 26.1% compared to the start of the year.
Over the third quarter, the INDUS share price maintained the high level within a range of EUR 62 to EUR 65 up to the end of October. The positive sideways movement was supported by the announcement relating to the acquisition of two hidden champions and by the continued strong business performance of portfolio companies, despite the necessary repositioning of two portfolio companies. In the fourth quarter, the INDUS share performance was subject to more pronounced fluctuations to which the SDAX and DAX reference indexes were also exposed. The intensity of the INDUS share fluctuation was heightened by a selective, short-term market slump in October, presumably caused by a fall below the technical support level of between EUR 60 and EUR 61, however with no associated company announcement. At the start of November, the update of a positive analyst report is likely to have then caused a sharp rise in the share price.
Expansion in advanced national economies in particular, but also in emerging countries, as well as the favorable economic forecasts supported the positive stock market performance from which the INDUS share also benefited. This was counteracted by ongoing geopolitical uncertainty, the Brexit issue – which continues to simmer away, customs tariffs on selective goods being discussed by the United States and also the expanding emissions scandal in the automotive industry. Despite the manifold influencing factors, the INDUS share price was able to hold its ground at the year end at just under EUR 60. At the end of fiscal year 2017, the share closed with a marked annual gain of roughly 15% (SDAX +24.9%, DAX +12.5%).
From a long-term perspective, the INDUS share performance also confirms of the direction of the COMPASS 2020 strategy with more than a three-fold increase in market capitalization since 2012 (+223%, incl. capital increase 2013).
SHARE PRICE PERFORMANCE OF THE INDUS SHARE IN 2017 INCL. DIVIDENDS (in %)
Following the second half of 2016, the positive share price performance continued in particular in the first half of 2017 and resulted in a brisk demand which, however, was met with rather limited supply. On average, according to the statistics of the German Stock Exchange, 31,115 shares were traded per day on XETRA and the German regional exchanges during the fiscal year. That was, in total, more than eight million shares in 2017. There was major trading outside the exchanges as well: According to Bloomberg, another 6.4 million shares were transferred directly between buyers and sellers and over alternative trading platforms. Roughly 56% of trading volume was on XETRA and regional German stock markets, according to Bloomberg, and was trad-
Source: Company information
ed at the level of the previous year. The renewed decline in average daily trading volume in fiscal year 2017 is a reflection of investor preference for investing in robust securities, and holding on to them, in uncertain times.
INDUS Holding AG's largest shareholder remains Versicherungskammer Bayern in Munich. In line with its long-term capital investment strategy, it holds 19.4% of the capital stock (according to the Board of Management's knowledge). The other anchor is formed by a group of private investors who are represented jointly. The spokesman for this group of proxy shareholders is Hans Joachim Selzer of Driedorf, Germany. This group holds 5.8% of INDUS shares, according to its own statements. Epina GmbH & Co. KG, Gütersloh, reported reaching the 3% threshold for the first time on 14 November 2017 and since then has been one of the larger shareholders of INDUS Holding AG. The rest of the company's share capital (71.8%) is held by a broad range of investors. INDUS Holding AG currently does not hold any treasury shares.
INDUS practices a stable dividend policy. Shareholders participate in company profits through regular dividend distributions. The amount of dividends is generally based on net profit for the year, but a dividend should be paid even in weaker years insofar as financially feasible. The dividend policy provides that up to 50% of profits are to be reinvested in the company and up to 50% distributed. A necessary condition for this is that INDUS Holding AG show an accumulated profit on its annual financial statements. As of December 31, 2017, the holding company had EUR 83.5 million in accumulated profits. The Board of Management and the Supervisory Board will therefore propose a dividend payout of EUR 1.50 per share (EUR 1.35 in the previous year) at the Annual Shareholders' Meeting. This brings the total distribution amount EUR 36.7 million and a distribution ratio of 43.9%.
INDUS SHARE DATA
| SIN / ISIN | 620010 / DE0006200108 | |
|---|---|---|
| Stock exchange code | INH.DE | |
| Share class | No-par-value bearer unit shares | |
| Stock exchanges | XETRA, Düsseldorf, Frankfurt (regulated market) Tradegate Exchange, Berlin, Hamburg, Hanover, Munich, Stuttgart (free exchange) |
|
| Market segment/Indices | Prime Standard / SDAX | |
| Designated Sponsors | Commerzbank, Bankhaus Lampe, HSBC Trinkaus & Burkhardt |
|
| Subscribed capital | EUR 63,571,323.62 | |
| Authorized Capital 2014 | EUR 31,785,660.51 | |
| Number of shares | 24,450,509 | |
| March | — Deutschlandkonferenz, Baden-Baden |
|---|---|
| April | — Rheinland roadshow, |
| Cologne and Düsseldorf | |
| July | — Hamburg roadshow |
| — DSW investor forum | |
| August | — Commerzbank Sector Conference, |
| Frankfurt/Main | |
| September | — Prior Capital Market Conference, |
| Dreieich-Götzenhain | |
| October | — London roadshow |
| — Zurich roadshow |
| Bankhaus Lampe | — February 2018 |
|---|---|
| — Buy, target price EUR 72.00 | |
| Commerzbank | — February 2018 |
| — Buy, target price EUR 78.00 | |
| Deutsche Bank | — February 2018 |
| — Buy, target price EUR 68.00 | |
| Equinet Bank | — November 2017 |
| — Neutral, target price | |
| EUR 64.50 | |
| HSBC | — February 2018 |
| — Buy, target price EUR 78.00 | |
| LBBW | — November 2017 |
| — Buy, target price EUR 70.00 | |
| M.M. Warburg | — February 2018 |
| — Hold, target price EUR 66.00 | |
| Independent Research | — March 2018 |
| — Buy, target price EUR 74.00 | |
A key topic in the dialog with the capital market in 2017 was the information concerning the current business trend and further steps towards implementation of the COMPASS 2020 strategy. Over the reporting period, the Board of Management sought a continuous exchange of views with existing and potential investors in the reporting period, both in Germany and abroad. For this purpose it used finance events along with conferences and roadshows in and outside Germany.
In addition to regularly publishing up-to-date information about INDUS, the Board of Management also regularly met for personal discussions and interviews with multipliers, analysts and business reporters. INDUS maintains dialog with private investors through the Annual Shareholders' Meeting and through personal contact. Interested investors may also stay abreast of current events through the INDUS Newsletter and the INDUS app. By actively cultivating relations with the capital markets, INDUS underscores its commitment to transparent and regular communication. INDUS has been a member of Deutscher Investor Relations Verband e.V. (DIRK), German Investor Relations Association, since 2009. The financial calendar appearing on the cover of this Annual Report provides an overview of the most important dates for the current fiscal year. The financial calendar is regularly updated and is available also on the company's website.
Julia Pschribülla Manager Investor Relations Phone: +49 (0)2204/40 00-66 Email: [email protected]
Scheduled dates for 2018 and other IR information can be found at: www.indus.de/en/investor-relations
INDUS is now in its sixth' year of being guided by COMPASS 2020. The Group made good to excellent progress in each of the years so far. Between the beginning of 2013 and the end of 2017, we made a total of 28 acquisitions: 9 growth acquisitions to strengthen the Group's structure and 19 second-level purchases to strengthen our existing portfolio companies. And in January 2018, AURORA acquired EE Electronic Equipment, the 20th strategic acquisition.
factor in decisions. The reason: Rapid digitalization is driving up development pressure on our portfolio companies. In connection with this, technological expertise will be a key factor for our current and future portfolio companies.
For INDUS acquisitions this means:
* incl. capital increase 2013
Our portfolio companies made good progress on their internationalization efforts. The majority of INDUS companies are now working intensely on their activities in foreign markets. Over the last years, many have invested in the expansion of existing locations or established new locations. Some even entered into new international partnerships. INDUS portfolio companies now have locations in 30 countries around the world.
Over the course of last year, we have narrowed down our strategy program further and made "Innovation" a strategic
| PORTFOLIO PORTFOLIO STÄRKUNG ENHANCEMENT |
WACHSTUMS GROWTH AKQUISITIONEN ACQUISITIONS |
INTERNATIO NALISIERUNG NALIZATION |
|---|---|---|
| INNOVATION | NEUE NEW TECHNOLOGIEN TECHNOLOGIES |
NEUE NEW MÄRKTE MARKETS |
|---|---|---|
| MEHR MORE F&E R&D |
MEHR MORE KOOPERATION & COOPERATION & NETZWERK NETWORKING |
During the restructure of our criteria, we took up the area of security technology in our acquisition checks last year, for example. Previously this had not been included on our checks grid.
For the support we offer our portfolio companies this means:
In order to ensure that we can offer this extra support for our portfolio companies, in 2017, we expanded our workforce both at Board and employee level.
01/2017 INDUS acquires approximately 76% of M+P INTERNATIONAL Mess- und Rechnertechnik GmbH, based in Hanover. With this supplier of measurement and test systems for vibration testing, INDUS strengthens its position in the growth area of measuring technology and control engineering.
04/2017 INDUS acquires 80% of PEISELER Group in Remscheid, further expanding its Engineering segment. This second acquisition is also active in the target market of automation, measuring technology and control engineering.
2 2 INDUS Annual Report 2017
INDUS believes that real entrepreneurial success cannot be measured in quarterly figures, but rather by long-term development. The entrepreneurial factors that are not included in the economic aspects are particularly important: the environment, employees, and the way we do business. These are the values that our portfolio companies, who act independently in their daily business, adhere to, as can be seen in the examples provided in our sustainability report.
Sustainable operations create competitive advantages, increase enterprise value and make for a stronger corporate culture. Last year INDUS further professionalized its commitment to sustainability on the basis of this conviction.
For us, the pursuit of sustainability is a matter of treating economic, social and ecological goals as equal in importance. We seek to create lasting value while facilitating good work and treating the environment with care. It is our conviction that our development is sustainable only if we are satisfying the needs of the present while at the same time ensuring that we are not doing so at the expense of the future.
The portfolio companies of the INDUS Holding AG have independently assumed responsibility for pursuing a sustainability-oriented business development policy. They set independent goals, develop action plans and evaluate their own achievements. The holding company provides an extensive information service that entails collecting sustainabilityrelated data and delivering it to the Group companies. INDUS Holding AG also provides advice to the portfolio companies as required, helping them to effectively improve their "sustainability balance".
As an asset management company, INDUS Holding AG's tasks also include providing constant assistance for the portfolio companies and new acquisitions of portfolio companies. Thus the holding company acts as an internal service provider for the portfolio companies. This means the holding company's resource consumption along the value chain is restricted to acquisition, use and disposal of energy, office materials and equipment, and any other business equipment required by a management company.
The holding company is not responsible for monitoring the relevant sustainability criteria in the portfolio companies' value chain. Nevertheless, each portfolio company has been through the due diligence process before being acquired by the INDUS Group (hereinafter: INDUS). The real net output ratio and the associated sustainability risks are checked during this process.
Innovation results in new products, services and even approaches for new business models, which in turn create competitive advantages for our portfolio companies against their competitors. The constant technological and process developments in manufacturing processes at our portfolio companies and the technological advances made by manufacturers in the manufacture of machines and plants increase the quality of products and lead to a reduction in the energy consumed, thereby lowering both emissions and costs.
Ongoing and new measures to support the holding company's sustainability strategy will be detailed in the following chapters. Our work in the field of sustainability has met with a positive response both in the business world and in the capital market environment. This is also reflected in the corresponding sustainability ratings: INDUS was again awarded a top "A" grade in the CDP Climate Scoring in November 2017. And it enjoys "Prime" status in the sustainability ratings of oekom research AG.
The basis for successful work on sustainability issues, and ultimately for long-term business success, is knowledge of our stakeholders and their interests. Only with such knowledge can we be assured of making the right decisions and aligning our actions accordingly. A structured process was applied to identify the main stakeholders. Potentially relevant stakeholders were identified, for instance by looking at the value chain, and prioritized based on their influence on the INDUS Group and the influence of the INDUS Group on them. A structured examination of our stakeholders' needs brought five relevant groups into focus:
— Investors: They provide us with equity and borrowed capital and expect from us a clear strategic direction, realization of our earnings outlooks, a stable balance sheet and transparent reporting.
The holding company and the portfolio companies, where appropriate, maintain regular contact with all five stakeholder groups. Various forms and channels of communication are used. In the 2016 fiscal year, the fields of action and key topics identified internally were compared with the opinion of select portfolio companies in an informative discussion. In fiscal year 2017, the stakeholder dialog with institutional investors and family-run companies was ramped up. Both stakeholder groups were questioned on their views and perceptions of the INDUS sustainability strategy and sustainability reporting. One of the aims was to verify the sustainability aspects identified as material during prior analyses and observations.
[3] INTERNATIONALIZATION
[4] THE ROLE OF SHAREHOLDERS
To identify those aspects of sustainability that are relevant to INDUS, we performed a materiality analysis in 2016 with the Board of Management's participation. The results of this analysis have now been verified during the stakeholder dialog mentioned before. We were also able to confirm the seven key topics identified in the course of last year's reporting:
The three key topics of investments, innovation and internationalization are points of strategic focus by the holding company and may exert a major leveraging effect on the success of the individual company and of the Group as a whole. The four other topics relate to equally important policy areas that are directly associated with the tasks and values that a healthy SME-oriented or -managed company identifies with. The focus of this year's report is the portfolio companies' and INDUS Holding AG's social commitment.
Underlying the key topics identified above are fields of action from which concrete measures can be derived. We have placed these fields of action in a materiality matrix. This matrix reflects the importance that the various fields of action, considered on a consolidated basis, have for the internal and external stakeholders in INDUS Holding AG and the portfolio companies. The fields of action were classified within the matrix through assessments by the sustainability team and the Board of Management and were compared with the assessments of the internal and external stakeholders. As a result of the discussions held with investors and former family-run companies in 2017, the action fields energy and resource efficiency, employee dialog and promotion of new employees were given higher priority. The materiality matrix was revised to reflect this and approved by the Board of Management.
According to the CSR Directive Implementation Act (CSR-RLUG), INDUS Holding AG is obliged to report on sustainability issues from the fiscal year 2017. Of relevance in this context, aside from general data concerning the company's business model (cf. the section "Introduction to the Group" in the management report), is data on legally required aspects, which were identified and verified during the stakeholder dialog. The key topics are as follows:
Environmental protection is an aspect of the resource efficiency key topic, and social concerns are covered in the social commitment key topic. Employee concerns and respect for human rights are covered in the key topic personnel. Combating corruption and bribery are aspects of the key topic shareholder's role.
At INDUS Holding AG, sustainability occupies the highest level of priority. This means that the Board of Management directs the development of the holding company's sustainability strategy. The topics of discussion between the Board of Management and the managing directors of the portfolio companies include relevant sustainability issues, perception of the company internally and externally, non-financial performance indicators and the portfolio companies' achievement of goals. In addition, CSR topics are highlighted and discussed during every annual industrialists' conference. In 2016, INDUS Holding AG integrated an incentive for progress in sustainability issues into the Board of Management remuneration system.
As a part of the annual company planning process, risks and opportunities are assessed according to the likelihood of their occurrence and possible amount of ensuing damage, and documented for plant or site level by the managements of the portfolio companies with the aid of a risk management reporting tool. Measures to counter the risks are then derived. Sustainability risks are documented as a separate risk category, but they are fully integrated in the existing risk management system. Countermeasures are introduced where necessary for the holding company, or independently of the holding company at portfolio company level for the portfolio companies. Material risks resulting from business relationships, products or services, or own operations in accordance with Section 289c (3) no. 3 and 4 of the German Commercial Code (HGB) and how these risks are dealt with are – where reportable – documented in the risk and opportunities report (cf. management report, "Risk and Opportunities report"). In the reporting year there were no individual risks related to sustainability issues that exceed the materiality limits to report.
Our sustainability report was drafted in accordance with the criteria listed in the German Sustainability Code (DNK). Our report uses the EFFAS (European Federation of Financial Analyst Societies) performance indicators pursuant to DNK recommendations. Out of 16 key figures we have not reported on four. More information is available at the end of the key figure overview. From 2018 we will standardize all of the key figures to match EFFAS criteria and include them in our due diligence process for new acquisitions and take them into consideration during the analysis.
The key figures that have been gathered pertain to fiscal year 2017 and are compared to those for the previous year (if figures are available for the previous year). To collect the data for the non-financial performance indicators, the existing internal financial data reporting system in use at INDUS Holding AG was used and supplemented with the appropriate surveys. The collection of companies from which sustainability-related data were collected differs from those within the Group's scope of consolidation. It does, however, contain all direct INDUS portfolio companies along with important investments at the sub-subsidiary level (exclusive of acquisitions in the year under review). The previous year's figures are not adjusted for effects from changes to the scope of consolidation (like for like approach). Changes to the scope of consolidation create no material distortion of the results in the current fiscal year in the year-on-year comparison. As compared to the previous year, the following material changes were made to system limits and content definitions in the key figures:
Wirtschaftsprüfungsgesellschaft Ebner Stolz audited the INDUS Group non-financial explanation and the EFFAS key figures, reported in accordance with DNK (marked in the key figure overview).
The portfolio companies' direct impact on the environment in terms of resource consumption, emissions, waste, transport and energy consumption, and the associated direct and indirect greenhouse gas emissions can all be classified as comparatively low according to industrial benchmarks. The portfolio companies operate for the most part in the manufacturing sector using mechanical work processes. Our portfolio companies' production locations are primarily situated in the EU and Switzerland. They are therefore subject to high standards and legal requirements as far as plant safety and environmental protection are concerned. Those portfolio companies whose production may have a relevant environmental impact, such as those with galvanization and painting processes, are subject to corresponding statutory regulations and monitoring processes. The majority of these portfolio companies already have formal environmental management systems in place, such as ISO 14001. Direct effects on the environment emanating from INDUS Holding AG as an organizational unit are negligible.
Responsible use of natural resources ranks high in importance within the INDUS Group. The managing directors of the portfolio companies independently develop rules and measures – as appropriate for the specific environment and in harmony with their corporate philosophy – for conserving resources: this includes not just production processes, but also product development (relevant examples can be found in the chapter "Resource Efficiency").
As part of the standardized due diligence process, INDUS Holding AG ensures that at least the statutory requirements are observed and that appropriate management system precautions are in place to avoid events that would impact the environment. The Board of Management's direct and close involvement in the due diligence process means strategic sustainability issues are actively introduced to the process.
INDUS does not invest in companies with high energy consumption or high emissions, or companies whose focus lies in the weapons industry. INDUS Holding AG's acquisition profile was revised and refined in the 2017 fiscal year – and includes sustainability issues.
The holding company insures all portfolio companies against risks relating to natural disasters, business interruptions, liability, product liability and transport damages with the appropriate cover.
The portfolio companies work with approval management systems as well as defined and documented operational processes with rules and regulations, which take the individual needs and underlying conditions into consideration. In addition, some of the portfolio companies have implemented certified management systems. The companies therefore meet regulatory requirements and actively contribute to ensuring the health and safety of their own workforce, suppliers, service providers on site and the immediate neighborhood.
The topics of energy efficiency and emissions reductions span a cross-section of all areas. The necessity to counter climate change is something that INDUS has clearly recognized. INDUS Holding AG has therefore set itself the goal of reducing its direct and indirect emissions (Scope 1 & 2) in absolute terms by 12% by 2020 and by 42.5% by 2040 (as compared in each case to the base year 2014).
Indicators to be reported in accordance with DNK are total energy consumption (EFFAS E01-01), greenhouse gas emissions (Scope 1 and 2, EFFAS E02-01), total waste produced (EFFAS E04-01) and the percentage of waste that is recycled (EFFAS E05-01). We report greenhouse gas emissions in accordance with the guidelines of the Greenhouse Gas Protocol (GHG Protocol). In line with the GHG Protocol, we report Scope 2 greenhouse gas emissions using both the location and the market-based method. If no specific method is mentioned in the following passages, then the method used will be the market-based method. In the year under review, Scope 1 and 2 emissions (EFFAS E02-01, according to the operational control approach, pursuant to the GHG Protocol, only the holding company's emissions are covered) were slightly reduced overall, despite the further expansion of resources in the holding company. The Group's total energy consumption (EFFAS E01-01) on the other hand has increased due to growth, despite numerous energysaving measures. Due to the Group's growth, an increase in the total waste produced was also recorded (EFFAS E04-01). The recycling ratio (EFFAS E05-01) was recorded for the first time in 2017, so a year-on-year comparison is not possible for this figure.
In future, the Group will continue to work on increasing resource efficiency in order to reduce not only our environmental impact at our locations and with our products, but also in upstream and downstream processes.
The portfolio companies keep airborne and noise emissions of any significance within tight limits so that the subsequent risk of potential complaints is low. The portfolio companies take their product responsibilities seriously and minimize health, safety and environmental risks according to the influence they have along the product's entire lifecycle – from product development, production and customer processing right through to use by the end consumer and disposal.
The companies of the INDUS Group independently act in accordance with their responsibilities as members of society and as befits the regional contexts in which they operate. They support cultural, scientific and social projects in their immediate vicinity, for instance with student grants or donations to schools and daycare centers (cf. "Social Commitment"). The companies make no political donations.
In line with the applicable legal framework conditions, the portfolio companies have complaint management systems in place with an appropriate escalation process. This allows relevant complaints to be recorded and evaluated so that appropriate measures can be taken for the continuous improvement of processes and products. Legitimate complaints from the local area are reviewed during annual reporting sessions. The same applies for any provisions that may be necessary to cover warranties.
Social concerns indicators to be reported pursuant to DNK include payments to political parties (EFFAS G01-01). No such payments were made in the year under review. The portfolio companies maintain regular dialog with communal and regional stakeholders through initiatives such as open days, work experience placements and plant tours. Various activities took place in the year under review. Many of the portfolio companies also work with workshops for the disabled. No legitimate complaints were received from the local vicinity in the reporting year. INDUS Holding AG will promote discourse around this topic within the Group in future by making it a topic at the annual industrialists' conference and through internal non-financial reporting.
REDUCTION of direct and indirect emissions (Scope 1 & 2)
42.5% by 2040
INDUS HOLDING AG has set the goal to reduce its direct and indirect emissions (Scope 1&2) by 12% (absolute) by the year 2020 and by 42,5% (absolute) by the year 2040 (base year 2014).
INDUS Holding AG's portfolio companies respect the human rights of their employees, suppliers, business partners and other stakeholders in their everyday business activities. They work for the most part with qualified professionals in the German-speaking market and in other countries in Europe and beyond. The risks of sub-market pay rates, unreasonable work hours, and limitations on freedom of association or equality of rights are countered within the INDUS Group with appropriate regulations in the company-specific codes of conduct. Nor does INDUS Holding AG have any information about such risks on the part of its direct suppliers.
Qualified and committed employees are an important prerequisite for the portfolio companies' and the holding company's long-term success. Gaining, keeping and training staff is therefore an important task for both the portfolio companies and INDUS Holding AG.
The portfolio companies set themselves individual goals to fulfill this task. These include:
The portfolio companies offer their employees a needs-oriented range of further training opportunities, and in some cases the option of completing a dual (academic and practical) study program or dispatch to company locations abroad. At the same time, the portfolio companies maintain a general exchange with schools (e. g., girls' days), universities and universities of applied sciences (e. g., through internships and theses). Within the companies, employees are involved in the improvement of operating processes through continuous improvement processes or employee suggestion systems.
As part of the due diligence process carried out for company acquisitions, the holding company confirms that the company to be acquired observes basic social and ethical principles and in particular appropriate working conditions. Our requirements, including those relating to, inter alia, employee concerns in the holding company, are documented in our Code of Conduct (see below). All of the portfolio companies have drafted their own company-specific codes in which they set minimum standards for employee rights and by which to secure rights to humane work both internally and externally, i. e., also by suppliers. Each member of the INDUS Holding AG Board of Management is also directly responsible for specific direct portfolio companies. In addition to close involvement in the economic and strategic development of the company, this also includes regular on-site visits (including at sub-subsidiaries).
Indicators relating to employee concerns and respect for human rights to be reported pursuant to DNK include average training expenditure per employee (EFFAS S02-02), age structure (EFFAS S03-01), number of SA8000 certified locations (EFFAS S07-02 II), and the number of female employees (EFFAS S10-01) and female staff in management positions (EFFAS S10-02). The age structure at the portfolio companies (EFFAS S03-01) and average development expenditure per employee (EFFAS S02-02) was recorded for the first time in 2017. A year-on-year comparison is therefore not possible for this indicator. The number of female employees in the total workforce (EFFAS S10-01) has risen slightly, while the number of female staff in management positions (EFFAS S10-02) has dropped slightly. Some portfolio companies are OSHAS 18001 (an international standard for occupational health and safety management systems) certified or are about to receive their first certification, but no portfolio company is as yet SA8000 certified (EFFAS S07-02 II). SA8000 is an international standard for working conditions, but it is somewhat uncommon in the sectors in which the INDUS portfolio companies are active. INDUS Holding AG intends to expand the information base for personnel activities within the companies in 2018 and deliver the results to the Group. HAUFF was declared a TOP 100 Employer in 2017.
The share of sales generated by the INDUS Group outside of Europe is growing. This means that the ratio of business dealings in countries with a higher corruption risk is also increasing. The increase in the share of sales in countries with a higher corruption risk is primarily from sales made in China, Mexico, Russia, South Africa, and Turkey.
We at INDUS HoldingAG and the managements of our portfolio companies regard proper conduct in business transactions as part of our basic corporate duties. The management of portfolio companies are responsible for ensuring conduct is in compliance with laws and guidelines as well as for the consistent introduction and pursuit of any countermeasures that may be required in case of misconduct. Conduct that does not comply with laws or guidelines is recorded as part of INDUS Holding AG's compliance reporting. Countermeasures introduced by portfolio companies are monitored by the holding company. The basic principles underlying such conduct are described for INDUS Holding AG in its Code of Conduct and for the portfolio companies in their individual codes, and they apply both to action within the organization concerned and to dealings with external stakeholders. They provide also that monetary gifts from third parties can be neither accepted nor given. Companies do not make political donations or gifts to governments. INDUS Holding AG is not a member in any industry associations or other relevant organizations, and has no direct or indirect influence on any legislative procedures.
The holding company also offers regular compliance training for executives of the portfolio companies (cf. the section "Shareholder's role"). In 2017, the focus was on data protection, cyber crime, and foreign trade – in addition to more general compliance topics. Annual and event-related compliance reporting documents the correctness of business activities.
In its acquisition processes for the acquisition of portfolio companies, the holding company makes certain through its due diligence processes that the compliance requirements codified in its Code of Conduct are complied with. The Board of Management's direct and close involvement in the due diligence process means strategic sustainability issues are actively introduced to the process.
Indicators to be reported relating to combating corruption and bribery pursuant to DNK are expenses and fines following claims and processes due to anticompetitive conduct, anti-trust and monopoly violations (EFFAS V01-01), sales by country with a higher corruption risk (EFFAS V02-01), and payments to political parties (EFFAS G01-01). For the year under review no relevant expenses, payments of fines and no non-monetary penalties for non-compliance with laws or regulations have been observed, nor were there any instances of corruption. There were also no expenses and/ or fines following claims or processes due to anticompetitive conduct (EFFAS V01-01). Fines resulting from other offenses amounted to approximately EUR 86,000 (above the materiality limit of EUR 10,000 per company). In 2017 the sales figure in countries with a higher corruption risk was on a par with the previous year (EFFAS V02-01). No payments were made to political parties (EFFAS G01-01).
For 2018 INDUS has planned a continuation of its training program for the companies in governance, risk and compliance matters. One of the focal points will be raising awareness among second management level employees at the portfolio companies.
PROVIDING A REASONABLE SOCIAL BENEFIT
The individual companies within the Group take on social tasks in addition to their business tasks. INDUS Holding AG supports and values voluntary commitments. This is in keeping with INDUS Group's conception of itself, and it enhances the reputation of the Group.
The INDUS Group portfolio companies are firmly rooted in their regional contexts. The people working in these companies come from the region. They create the value generated by the companies using the regional infrastructure. It is only natural, therefore, that the INDUS portfolio companies would then do their part for an intact community. Important goals of the portfolio companies include:
The portfolio companies regularly become involved in their regional environments and outside of their regions through donations and sponsoring.
In the future, responsibility for social commitment will continue to be decentralized and rest with the portfolio companies. We expressly do not seek a Group-wide framework for the direction and scale of social commitment. The holding company would like, rather, to promote the exchange of effective approaches within the Group.
ASS Maschinenbau, Overath, has been working together with Lebenshilfe-Werkstätten Leverkusen/Rhein-Berg for more than 10 years. These workshops help people with mental and physical disabilities achieve a higher quality of life by offering them suitable professional occupations. Lebenshilfe workshops assemble and process several thousand components for ASS each year. The tasks are varied and Lebenshilfe employees receive specific professional training and use workbenches adapted to their specific abilities and needs. The in-depth involvement at ASS with these workbenches resulted in an idea for a new and innovative business field, Auxilio®. This includes professional work aids such as automatic counters or assembly aids and orthetics and prosthetics for the disabled. The first product catalog was produced at the end of 2017. ASS was therefore able to use its social commitment as a driver for innovation.
In October 2017, AURORA initiated a project for 10th and 11th grade students at the Karl-Ernst Gymnasium high school in the neighboring town of Amorbach. With the general theme "Mobility in rural areas", the youngsters developed ideas for innovative concepts and solutions over three afternoons using the "Design Thinking" method. The project was carried out by AURORA and the Joachim and Susanne Schulz Foundation with conception and methodology support from INDUS Holding AG. The aim of the series of workshops was to increase the existing contact between the school and the company. The youths presented the results of their work to the Foundation management, AURORA's management and the local press. One result of the workshop that has already been implemented: The prototype of the e-bus cluster led by AURORA is now called ColumBUS. The Joachim and Susanne Schulz Foundation student research forum aims to support local public educational institutes in the regions of Amorbach and Mudau economically in a sustainable manner and over the long term. At the end of 2017, it was named one of the five award winners in the national concept competition organized by Stiftung Jugend Forscht and the Joachim Herz Foundation.
ACTIVELY REPRESENTING THE INTERESTS OF THE OWNERS
In its capacity as a financial holding company, INDUS Holding AG takes care of financial consolidation and supports the portfolio companies with capital and advice within the existing range of possibilities. The holding company regularly documents the portfolio companies' successes.
As a proponent of SME sector principles, the holding company values its reputation very highly. A good reputation makes INDUS more attractive to sellers of companies and lowers financing costs. And conversely, compliance violations, fines, unrealistic goals and unfair market practices result in a loss of trust among investors, employees and business partners. The holding company makes strenuous efforts to protect the reputation of INDUS with special measures to monitor governance, risk and compliance matters (GRC). Apart from that, INDUS Holding AG has formulated the following goals in its role as a shareholder:
To make funds available to the portfolio companies on attractive terms, the holding company maintains broad access to financing sources, for which it cooperates with a selection of solid commercial banks. It also obtains longterm repayment schedules with the aid of, among other things, capital market-based financing instruments. The Board of Management fosters an awareness of sustainability issues through regular dialog with the managements.
INDUS Holding AG adheres to its decentralized management structure and it fundamental "buy, hold & development" strategy.
USING RESOURCES SPARINGLY AND WITH AWARENESS
INDUS Holding AG strives to make its portfolio companies sensitive to the ecological consequences of their operational decisions. It makes funds available for investment in efficiency measures and is ready to assist the portfolio companies in an advisory capacity on the cross-sectional topic of energy efficiency.
For the INDUS portfolio companies, the use of resources is a factor with an appreciable effect on their economic success: This is true first and foremost of the use of raw and other materials and, in a different form, of the use of energy and disposal services. The portfolio companies' interest in sparing use of natural resources is accordingly great.
The companies are at the same time subject to the ever more stringent requirements of the environments in which they operate; legislators are making the regulatory framework ever tighter. Customers also wish for production methods that conserve resources and products produced by them.
Decentralized responsibility for implementing the various energy efficiency measures lies with the portfolio companies. Where necessary, INDUS Holding AG provides support, for instance with a free energy consultation. The majority of the consultations in 2017 centered on new construction and expansion projects. ELTHERM's expansion, which was built and put into operation in 2017, for example, will be heated using heat pump technology – that is without the use of any fossil fuels. The same applies to the holding company's expansion.
In addition, the individual portfolio companies are working in various ways to increase their use of secondary (recycled) raw materials. WEIGAND BAU, for example, uses a mobile bentonite recycling plant. The portfolio companies also use environmentally friendly substitution raw materials when possible and avoid the use of toxic materials. One example of this would be the switch made at WEINISCH from pre-treatment processes using chrome to the chrome-free processes.
The Group's specific emissions have been reduced by 3.6% (Scope 1 & 2 on the part of the portfolio companies, as compared to the previous year). The holding company's emissions were reduced by as much as 16.2% (154.2 to CO2e in 2017 as compared to 184 to CO2e in 2014) by using "green electricity". In 2017 the holding company also compensated for its remaining emissions again with investments in projects to lower emissions.
The Group will continue to work intensively in 2018 on increasing its efficiency in the use of resources. The holding company has been offering assistance for portfolio companies to compensate for their CO2 emissions since 2016. In subsequent years, the Group will also come to grips with the requirements arising from national and international climate protection plans.
ANNUAL COMPARISON OF EMISSION INTENSITY IN 2016 AND 2017 (tCO2 e Scope 1+2 portfolio companies/EUR million value-added)
SECURING A CENTRALLY IMPORTANT BUSINESS RESOURCE
In accordance with INDUS Holding AG's business model, responsibility for the portfolio companies' personnel matters is decentralized and rests exclusively with the portfolio companies.
INDUS Holding AG employs a team of specialized employees to whom specific tasks are allocated and who perform only the central functions within the holding company. The two fundamental tasks of the team are to look after the interests of the holding company as shareholder and to provide the companies within the Group with the best possible advice, and to support them as needed, within the scope of a financial holding company.
Short decision paths, a strong team orientation and flat hierarchies are important characteristics of the decentralized corporate culture that is typical of the SME sector. The Board of Management maintains regular contact with all holding company employees. Great value is placed on a respectful atmosphere – both internally and externally. In their dayto-day activities, all team members are mindful of the importance of maintaining a high level of professionalism and stable processes. INDUS Holding AG has drafted a code of conduct for its employees that codifies responsible SMEappropriate principles that are binding upon all employees of the holding company.
The managements of the portfolio companies manage those employed by their companies in accordance with responsible SME-appropriate principles. Each portfolio company has drafted its own company-specific code of conduct to underscore these principles. With competition for managers and skilled workers becoming ever more intense, the topic of employer attractiveness is gaining greatly in importance even in SMEs. Good employees bring ideas, motivation, and entrepreneurial thinking to the company and are elemental to its business success. Careful cultivation of this resource and securing it for the long term are among the most important tasks of a company.
The portfolio companies pursue a large number of different measures aligned with their individual priorities. They train according to their own needs and, if possible, beyond them. Over a number of years, HAUFF has established a structured training program that covers all educational paths, from commercial apprenticeships to dual study programs. The portfolio companies are also very committed to employee training and development. AURORA, for instance, has designed its own operational training program.
The INDUS Group also takes application-oriented research developments into consideration when researching new concepts to increase employer attractiveness. Through the holding company's cooperation with the Excellence Center for Industry 4.0 at the Technical University of Munich, the portfolio companies have access to a current research project that is investigating employer branding in the digital world. INDUS Holding AG has set itself the goal of advancing this type of information exchange in the future, too.
PAVING THE WAY TO FURTHER GROWTH
INDUS Holding AG provides its portfolio companies with the funds to expand their international market presence so that they can successfully accompany their existing customers into the global markets and tap into new growth markets.
In 2016, the share of sales generated outside Germany and Europe amounted to 26.1%, an increase from the previous year. The share of sales generated in other European countries also increased (23.0% in 2016 as compared to 22.0% in 2015). The portfolio companies were able to stabilize longterm customer relationships, develop new customer relationships, and realize additional potential for added value by means of a stronger international presence (local for local). Outside Europe, the portfolio companies are specifically interested in developing distribution capabilities in the BRIC countries Brazil, Russia, India and China, at the same time creating added value in Germany and Europe. An example of internationalization activity in fiscal year 2017 is the construction and startup of production at Chinese locations for BETEK and BILSTEIN & SIEKERMANN. In September 2017, MIKROP moved its production activities in Serbia from a location they had rented for more than 10 years to a newly constructed plant, creating a modern and safe workplace for around 100 employees.
Upon request from the management, INDUS Holding AG can provide the portfolio companies with advice regarding expansion activities abroad, in order to reduce the risk of bad investments – for example, due to incorrect market assessment. When the situation warrants, the holding company will also put them in touch with local lawyers, insurers and banks or refer them to contacts within the Group.
As a part of what the holding company offers its portfolio companies, it is further developing its advisory and support services for company acquisitions at the sub-subsidiary level. In support of this process, networks are being formed between the portfolio companies and external networks are being made available.
ENHANCING THE PORTFOLIO COMPANIES' ABILITY TO INNOVATE
INDUS Holding AG assists its portfolio companies in their management of innovation, so that they may successfully take advantage of the opportunities presented by industrial change. To that end, it makes additional capital available to these companies and advises them in regard to the direction and operationalization of their innovation strategies.
A key condition for the portfolio companies' organic growth is their ability to innovate. This enables the portfolio companies to continually develop and improve their products and services. Upon request from the management, the holding company can also provide advice for developing new technologies beyond these incremental innovation activities, and for breaking into new markets and application fields. The holding company also supports R&D projects of portfolio companies that demonstrate a greater degree of innovation and higher investment risk with additional financial resources, assuming the function of a development bank. Up to 1.5% of the annual consolidated EBIT is available to the portfolio companies, in addition to the existing R&D budget, for such projects. The holding company's Board of Management approved EUR 2.2 million in internal development funds for innovation projects in 2017.
The intention is to enable the portfolio companies to develop their innovation capabilities in a structured and effective manner. The holding company provides methodological support, such as exchanging information and setting up a
network. In 2017 the holding company provided such methodical support by working in an advisory capacity with several portfolio companies. In addition to methodological support in determining a direction for the innovation strategy, we also focused on innovation operationalization, using appropriate processes and structures. The results of these activities culminate in innovation projects for the portfolio companies that are financially supported by INDUS Holding AG. Due to high demand for advice from the portfolio companies, the holding company expanded its advisory personnel resources in the area of technology and innovation.
Activities designed to build or strengthen networks, especially at the R&D level, also were continued and escalated. Regular working group meetings were held on the topics additive manufacturing (3D printing) and current trends in the automotive sector.
The cooperation with the Competence Center for Digitalization/Industry 4.0 with the Technical University of Munich and the cooperation with the EBS University for Economics and Laws were both amplified. Another cooperation was initiated in 2017 with the Institute of Dynamics and Vibration Research at Leibniz Universität Hannover. The results of this cooperation include studies and project work as accompanying measures for innovations projects as well as the inclusion of INDUS in the university's teachings, during seminars for instance.
In 2018, the focus will be on expanding the methodological support program to other portfolio companies. INDUS Holding AG also intends to increase the network and cooperation activities in certain areas in 2018. One such area will likely be industry 4.0 solutions, such as networking and digitalization solutions for production processes.
STRENGTHENING THE GROUP AND PORTFOLIO COMPANIES THROUGH ACQUISITIONS
To further expand the Group, INDUS Holding AG and the portfolio companies are constantly looking for financially healthy SMEs that have the ability to successfully develop in their markets on a long-term basis. At the holding company level, the Board of Management and the acquisition team follow a structured acquisition process.
Our portfolio is meant to represent a cross-section of successful production industries in the SME sector. For this reason, we look in particular for companies in economic fields that we have identified as the sectors of the future, such as, for example, Medical Engineering/Life Science. Within the target sectors, we watch market developments closely and continually refine our concrete acquisition profile, basing it in part on sustainability considerations. Pursuant to its COMPASS 2020 strategy, for example, the Board of Management is focusing more intensely on the field of energy and environmental technology as an additional growth industry. We engage in an active risk management process before we acquire a company, studying not only the usual economic, technological and market-related risks but also the risk situation in such fundamental areas as the environment, employee concerns and compliance issues.
Another important factor we consider for an acquisition is reputation. The new company's image, core business and culture should add lasting value to the INDUS Group and have a positive effect on the attractiveness of INDUS for investors and potential sellers of companies.
In 2017 we directly acquired M+P INTERNATIONAL and PEISELER, two growth companies and our portfolio company AURORA acquired Electronic Equipment, a strategic second-level addition. We invested in total EUR 32.4 million in company acquisitions. Another EUR 79.0 million were invested in property, plant and equipment. The acquisitions contributed 3.1% to our growth in sales.
In the 2018 fiscal year, we wish to successfully continue the holding company's acquisition strategy of the last several years. That means the direct acquisition of one to two growth companies by the holding company. For this we have allocated an investment budget of not less than EUR 50 million. As in the past, the new Group companies are expected to be viably positioned for the long term in terms also of sustainability considerations.
Julia Pschribülla Manager Investor Relations Phone: +49 (0)2204/40 00-66 Email: [email protected]
| KEY TOPICS | KEY FIGURES | UNIT | 2017 | 2016 | AUDITED |
|---|---|---|---|---|---|
| Investment | Direct acquisitions1 | number | 2 | 1 | |
| Add-on aquisition (on sub-subsidiary level)1 | number | 0 | 7 | ||
| Investments in company acquisitions1 | in EUR millions | 32.4 | 29.9 | ||
| Investments in property, plant and equipment1 | in EUR millions | 79 | 70 | ||
| Inorganic growth in sales1 | in % | 3.1 | 3.9 | ||
| Innovation | Expenses for research and development1 | in EUR millions | 16.4 | 14.6 | |
| Approved internal subsidies for innovation projects1 | in EUR millions | 2.2 | 0.9 | ||
| Current cooperative relationships with universities and research institutions3 |
number | 29 | 44 | ||
| Received public subsidies for research projects3 | in EUR '000 | 283.4 | 283.1 | ||
| Industrial property rights applied for in the year under review3 | number | 241 | 239 | ||
| Internatio | External sales in Europe (exclusive of Germany)1 | in % | 22.9 | 23 | |
| nalization | External sales outside Europe1 | in % | 27.3 | 26.1 | |
| Employees in Europe (exclusive of Germany)1 | in % | 13.8 | 13.5 | ||
| Employees outside Europe1 | in % | 12.9 | 12.1 | ||
| Shareholder's | Equity ratio1 | in % | 40.8 | 42.4 | |
| role | EBIT margin1 | in % | 9.3 | 10.0 | |
| Organic growth in sales1 | in % | 10.5 | 0.1 | ||
| Direct portfolio companies1 | number | 45 | 44 | ||
| Average length of time portfolio companies have been affiliated with the INDUS Group1 |
in years | 14.6 | 14.3 | ||
| Total monetary value of significant fines (> EUR 10,000)3 | in EUR '000 | 86.5 | 0 | ||
| Expenses for legal suits/action due to anti-competitive behavior, violations of anti-trust laws and monopoly legislation3 |
in EUR | 0 | – | ||
| Non-monetary penalties for non-compliance with laws and regulations3 |
number | 0 | 0 | ||
| Share of sales in regions with a Transparency International Corruption Index <603 |
in % | 18.7 | 18.5 | ||
| Number of all portfolio companies with SA 8000 certification3, 4 | in % | 0 | – | ||
| Personnel | Female executives (first and second management levels)3, 5, 6 | in % of FTE | 15.6 | 16.2 | |
| Female employees as a share of the total workforce3, 5, 6 | in % of own FTE | 31.3 | 30.3 | ||
| Temporary workers as a share of the total workforce3, 5, 6 | in % der FTE | 3.9 | 3.2 | ||
| Trainees3, 5, 6 | in FTE | 273 | 248 | ||
| Participants in dual study programs3, 6 | number | 65 | 55 | ||
| Reportable accidents at work (exclusive of commuting accidents)3 | number | 329 | 277 | ||
| Fatal accidents at work (exclusive of commuting accidents)3 | number | 0 | 0 | ||
| Percentage of employees of INDUS Holding AG who have received its Code of Conduct2 |
in % | 100 | 100 | ||
| Age structure and distribution (number of FTE by age group)3, 6 | number in 10-year intervals |
253/1629/2136 2309/2356/664* |
– | ||
| Average expenditure for training per FTE per year3, 6 | in EUR | 296.2 | – |
| KEY TOPICS | KEY FIGURES | UNIT | 2017 | 2016 | AUDITED |
|---|---|---|---|---|---|
| Social | Legitimate complaints from the local area3 | number | 1 | 1 | |
| engagement | Percentage of companies that cooperate with social institutions (workshops for disabled persons, etc.)3 |
in % | 42.0 | 38.8 | |
| Local donations and sponsoring (culture, education, sports, social affairs)3 |
in EUR '000 | 227.2 | 214.9 | ||
| Non-local donations and sponsoring (culture, education, sports, social affairs)3 |
in EUR '000 | 169.6 | 172.8 | ||
| Payments to political parties as percentage of total sales3 | in % | 0 | – | ||
| Resource | Holding company's Scope 1 emissions2, 7 | in t CO2 e |
154.2 | 147.4 | |
| Efficiency | Holding company's Scope 2 emissions (market-based, GHG protocol Scope 2)2, 7 |
in t CO2 e |
0 | 7.8 | |
| Holding company's Scope 2 emissions (location-based, GHG protocol Scope 2)2, 7 |
in t CO2 e |
56.1 | 52.5 | ||
| Holding company's Scope 3 emissions2, 7 | in t CO2 e |
437.0 | 324.5 | ||
| Portfolio companies' Scope 1-3 emissions2, 7 | in t CO2 e |
2,892.1 | 2,607.5 | ||
| Portfolio companies' emissions intensity (Scope 1 & 2)3, 7, 8 | in t of CO2 e/million EUR value-added |
122.4 | 122.9 | ||
| Waste intensity3, 8 | in t of CO2 e/million EUR value-added |
27.3 | 23.5 | ||
| Total weight of waste3 | in t | 17,470.7 | 14,379.0 | ||
| Share of total waste that is recycled3 | in % | 50.9 | – | ||
| Total water withdrawal intensity3, 8 | in m3 /million EUR value-added |
708.2 | 693.5 | ||
| Total energy consumption3 | in MWh | 218,904 | 205,843 |
Reporting limits/scope of consolidation:
1) Scope of consolidation IFRS consolidated financial statements | 2) INDUS Holding AG (exclusive of portfolio companies) | 3) Scope of consolidation sustainability excl. of INDUS Holding AG | 4) SA 8000 is an international standard designed to improve the working conditions of workers and defines minimum requirements on social and labor standards. | 5) The number of employees is expressed in full-time equivalents; part-time employees are accounted for proportionately according to the contractual work hours. | 6) Personnel figures as due date value as of Dec. 31, 2017 or Dec. 31, 2016. | 7) Included in the calculation besides CO2 were nitrous oxide (N2O), methane (CH4) and partly fluorinated hydrocarbons (F gases). | 8) The value-added is not equivalent to consolidated gross profit (company performance less cost of materials and other operating expenses)
* Age below 20 years / between 20 and 30 / between 30 and 39
** Age between 40, and 49 / between 50 and 59 / above 60
| KEY FIGURES | DECLARATION |
|---|---|
| EFFAS V04-12 Total investments in research on ESG-relevant aspects of business |
Due to the business models of the portfolio companies, R&D activities are primarily reflected in the corresponding expenses. Investments (in terms of expenses recorded as fixed assets) are generally very limited for R&D and only necessary once the developed products and solutions are industrially manufactu red. This key figure is therefore of little importance at INDUS. |
| EFFAS E13-01 Improvement rate of product energy efficiency compared to previous year |
This key figure can only be determined for some of the portfolio companies. The portfolio companies partially produce goods that either consume no energy during the use phase or will be processed further. The aggregated key figure is not meaningful for the INDUS Group. And collecting this information would require considerable effort. |
| EFFAS S06-01 Percentage of total suppliers and supply chain partners screened for compliance in accordance with ESG criteria |
There is currently no sufficient database available. The definition of ESG criteria for the supply chain is the responsibility of the portfolio companies. There are currently no Group-wide ESG criteria for the evaluation of partners and suppliers within the supply chain. A meaningful inquiry into this key figure is therefore currently not possible. |
| EFFAS S06-02 Percentage of suppliers and supply chain partners audited for ESG compliance |
There is currently no sufficient database available. The definition of ESG criteria for the supply chain is the responsibility of the portfolio companies. There are currently no Group-wide ESG criteria for auditing suppliers and partners within the supply chain. A meaningful inquiry into this key figure is therefore currently not possible. |
4 4 INDUS Annual Report 2017
COMBINED MANAGEMENT REPORT 45
[46] [57] [82] [8 9] [97] INTRODUCTION TO THE GROUP R E P O R T O N T H E E C O N O M I C SITUATION FURTHER LEGAL INFORMATION OPPORTUNITIES AND RISKS FORECAST REPORT
INDUS is a financial holding company with a portfolio of 45 SMEs based in German-speaking Europe. As a specialist in the field of sustainable investment in and development of companies, the Group acquires for the most part ownermanaged companies and assists them in their business development on a long-term basis. We intend to further expand our portfolio in the years to come through targeted acquisition of "hidden champions" in growth markets.
INDUS Holding AG (hereafter: INDUS) is among the leading specialists in the acquisition and long-term support of small and medium-sized manufacturing companies in German-speaking Europe. As a long-term investor, its investment activity is focused primarily on successful SMEs.
The number of the company's investments has gradually increased since its founding in 1989. As of the reporting date, its portfolio comprised 45 companies (previous year: 44). In 2017, the Group acquired M+P INTERNATIONAL and PEISELER. As part of the measures to optimize the Automotive Technology segment, FICHTHORN merged with the internationally active company SELZER on October 1, 2017. In total, 187 fully consolidated enterprises (previous year: 173) belong to the INDUS Group.
All direct INDUS investments have their registered seats in Germany (41) or Switzerland (4). The INDUS Group has a global presence through sub-subsidiaries, branches, portfolio companies and representative offices in 30 countries on five continents. All foreign companies are managed directly by the portfolio company they belong to. The direct portfolio companies in Switzerland are also responsible for their own companies abroad. Detailed information on the portfolio companies may be found in the list of shareholdings.
INDUS has been a listed company since 1995. Its shares are traded on the Frankfurt and Düsseldorf exchanges on the regulated market and over the counter in Berlin, Hamburg, Hanover, Munich, and Stuttgart. The INDUS share is listed in the SDAX stock market index. INDUS fulfills the Prime Standard transparency requirements in its financial reporting. Its share price increased by roughly 15%, to EUR 59.50, in the course of 2017.
In terms of its competitive position, INDUS's stance is that of a long-term oriented investor without exit strategy. This sets the company apart from the buy-and-sell and turn-around investors in particular, who as a rule limit their financial involvement to brief periods. Among both listed and unlisted German companies, INDUS sees itself as one of the leading holding companies.
INDUS has its registered offices in Bergisch Gladbach in North Rhine-Westphalia. The holding company is managed by the Board of Management. A fourth member joined the Board in 2017. On October 1, 2017, Axel Meyer was appointed to the Board of Management, joining existing members Jürgen Abromeit (Chairman), Dr. Johannes Schmidt, and Rudolf Weichert. Meyer will be responsible for the technology area, in particular the production and investment fields. A fourth member was appointed to the Board of Management in order to secure the INDUS strategy over the long term. As of the reporting date, the holding company had 30 employees, not including the Board of Management (previous year: 26). These employees report directly to the Board of Management. They are all employed by INDUS Holding AG and work at the company's headquarters.
INDUS acquires only majority interests in other companies. The companies – both those recently added and existing portfolio companies – are exclusively SMEs operating in the manufacturing sector in Germany or Switzerland, and have good long-term development prospects. The Group primarily acquires owner-managed companies. Continuity and the company's identity as an SME are the main priorities in organizing the transfer of ownership. In the best case scenario, the company's former owners remain as managing directors of the company during the transition phase. Portfolio expansions enhance the development prospects of the entire Group and ensure that, over the course of time, the portfolio will constitute an up-to-date cross-section of the relevant industries with promising futures.
The INDUS business model is predicated on a high degree of portfolio diversification achieved with companies operating in diverse fields of business and technology, sales markets, and industry cycles. With their core capabilities they as a rule occupy interesting market niches in which they assume a leading position. Ideally, an INDUS portfolio company fulfills all of the criteria of a "hidden champion".
Within the limits of its possibilities as a majority shareholder and financial holding company, INDUS supports its portfolio companies in two ways: as a "development bank" and as an "advisor". As a development bank, INDUS provides its portfolio companies with capital – for investment in fixed assets and for development projects that enable strong future growth among the subsidiaries. INDUS also facilitates investment particularly in innovation and company acquisitions (acquisitions at the second or sub-subsidiary level). In its role as shareholders' representative and advisor, the Board of Management offers the managers of the portfolio companies a strategic "sparring" relationship as a means of providing counsel and to facilitate as needed the transfer of knowledge (best practice) through networks within the Group.
In sum, the INDUS business model can be described in a nutshell as "buy, hold and develop." This represents the intention to hold the company for a longer period and support it in its development.
The portfolio companies enjoy the advantage of being able to pursue long-term development under the aegis of a financially strong partner while maintaining their own identity as SMEs. With their equity investments in the otherwise little accessible SME business segment, shareholders in INDUS are able to make sound investments while profiting from regular dividend payouts.
As predominantly traditional industrial companies, the INDUS Group's portfolio companies operate under the influence of the general economy – in Germany, in Europe, and even in the international markets. At the same time, the individual companies are knowingly subject to sector-specific business cycles and are managed accordingly. Economic risks are spread across the Group as a whole owing to its diversified positioning, thereby balancing out the portfolio as a whole. This gives it a competitive advantage in the long term as compared to non-diversified holding companies.
Cost factors also are important for the success of the portfolio companies. Increasing globalization has thrust SMEs into direct price competition with foreign competitors that are able to produce under economically more favorable conditions. Material, energy and personnel costs are especially relevant cost variables. INDUS adapts by advising and helping the portfolio companies, on a case-by-case basis, to optimize their international positioning, including in organizational terms.
Another factor relevant to success is general technological development. Digital transformation is currently forcing manufacturing companies to undergo an additional process of intense development. In some cases this requires business model adjustments and a marked increase in the need for investment. Owing to the great importance of this external factor, INDUS is devoting increased attention to the topic of "investment in innovation."
Also important for the corporate success of INDUS are the developments in the capital markets: The situation in the stock exchanges and general interest rate trends determine the terms on which INDUS is able to secure equity and outside capital. Owing to its size, its broad access to capital markets, and its very solid credit rating (investment grade), the company is well prepared for fluctuations in the capital markets.
The Group's portfolio comprised as of the reporting date 45 portfolio companies, each of which is classified as belonging to one of five segments: Construction/Infrastructure, Automotive Technology, Engineering, Medical Engineering/Life Science, and Metals Technology. In fiscal year 2017, these were the reportable segments per IFRS, with no change from the previous year.
| BASIC DATA FOR THE SEGMENTS | (in EUR million) | ||||
|---|---|---|---|---|---|
| CONSTRUCTION/ INFRASTRUCTURE |
AUTOMOTIVE TECHNOLOGY |
ENGINEERING | MEDICAL ENGINEERING/ LIFE SCIENCE |
METALS TECHNOLOGY |
|
| Sales | 330.4 | 394.1 | 375.1 | 155.2 | 385.6 |
| Operating result (EBIT) | 49.4 | 14.7 | 53.5 | 20.8 | 24.2 |
| Companies | 11 | 9 | 11 | 5 | 9 |
| Employees | 1,714 | 3,557 | 1,830 | 1,540 | 1,538 |
Three quarters of the portfolio companies have belonged to the INDUS Group for more than ten years. The proportion of newer portfolio companies has increased in the recent years as a result of the clear growth strategy according to the COMPASS 2020 program, which was started in the fall of 2012.
The portfolio companies' annual sales figures range from just under EUR 10 million to more than EUR 100 million. Roughly 60% of the portfolio companies generate annual sales of at least EUR 25 million. Nearly a quarter generate less than EUR 15 million.
In regional terms, all of the portfolio companies are concentrated in sales territories with a politically and economically stable background. The portfolio companies' largest market for sales and revenue is currently Germany at 50%. The companies generate 23% of their revenue in the EU exclusive of Germany and 27% elsewhere abroad. The share of revenue generated abroad has increased consistently over the last years. The COMPASS 2020 strategy also calls for an increase in the proportion of revenue generated abroad in the years to come.
INDUS acquired two companies for the portfolio in the past fiscal year. Two existing INDUS portfolio companies were merged in order to serve the market more efficiently.
INDUS acquired M+P INTERNATIONAL Mess- und Rechnertechnik GmbH, Hanover, a provider of measurement and test systems for vibration testing, in January 2017. M+P Group is active in four areas: vibration testing, vibration and sound analysis, process monitoring, and the development and construction of special testing equipment. It has customers in the aerospace industry, the electrical engineering and electronics industry, and the automotive industry. Vibration analysis provides important information that can be applied to improve the design of products and equipment.
In April 2017, INDUS acquired the PEISELER Group, Remscheid, a provider of high-precision indexing devices and rotary tilt tables for machine tools. Today, PEISELER is a global supplier both to machine tool manufacturers and to end customers in the mechanical engineering and shipbuilding, medical engineering, watchmaking and electrical industry, aircraft and turbine construction, and automotive industries. The indexing devices and rotary tilt tables produced by PEISELER are used to fix and position workpieces. This permits flexibility in the sequencing of multiple work cycles in modern machining and manufacturing centers or transfer lines, thereby reducing set-up costs and completion times.
On October 1, 2017, the previously independent portfolio companies FICHTHORN and SELZER merged. They now operate under the name SELZER. The integration of FICHTHORN into SELZER was carried out as part of the optimization measures in the Automotive Technology segment. It was deemed necessary due to the constantly rising pressure on margins in the automotive industry. Both INDUS companies should benefit from the merger and work more effectively and efficiently in the long term.
No companies were disposed of and no businesses were discontinued in the fiscal year.
GROWTH
The INDUS Group owes its growth to the operational strength of its portfolio companies. On average, the Group has consistently recorded rising results over the past years. The EBIT margin has consistently been approximately 10%. The adjusted EBIT margin has usually amounted to 10% +X. A large portion of the income earned is available to the portfolio companies for further growth.
The value of the individual portfolio companies should increase in line with development, which in turn should result in value appreciation of the whole portfolio. To encourage this process, INDUS systematically provides its portfolio companies with capital that they can use for their further development.
INDUS sees further potential for the development of the Group in direct growth acquisitions: INDUS is constantly assessing buying options for other profitable industrial companies in the SME sector. Candidates of interest for the portfolio are companies that are active in future-oriented industrial niche markets and occupy leading positions in their markets. INDUS focuses on companies operating in the markets of the future to ensure that the Group will continue to maintain a balanced, and hence stable, structure in the future.
As owners, the shareholders are entitled to share in the success of their company though calculable profit distributions. To that end INDUS provides for regular payment of a dividend. The average target value of the dividend proposed by the Board of Management and Supervisory Board amounts to between 40% and 50% of the net retained profits.
INDUS GOALS 1 2 VALUE
ENHANCEMENT
DIVIDENDS PER SHARE* WITH PAYOUT RATIO FROM 2013 TO 2017 (in EUR/in %)
* Dividend payment of the fiscal year concerned ** Subject to approval at Annual Shareholders' Meeting on May 24, 2018 Payout Ratio
3 BALANCED PORTFOLIO STRUCTURE
INDUS applies definite investment criteria when acquiring companies: It continues to focus on successful manufacturing companies in the German-speaking SME sector with a stable business model and products that have strong growth potential. The companies achieve annual sales amounting to between EUR 20 million and EUR 100 million and generate a sustained return on sales (EBIT margin) of 10% and more. They are active in attractive domestic and international niche markets with growth potential. They are unencumbered by old liabilities and are in an exemplary position in terms of sustainability considerations.
When considering potential acquisitions, INDUS looks especially at the arrangements for succession in the families managing them. In particular cases, corporate spin-offs also may be of interest to INDUS, provided that they will be able later to establish themselves in the marketplace as independent companies operating according to SME principles.
The ability to acquire a majority of shares is a key factor in their acquisition. We consider it important that the senior management and executives of such companies maintain close ties to their holding companies beyond the purchase date.
In some cases, INDUS may also acquire companies in the early stages of development at sub-subsidiary level, if they have the potential to be particularly useful to the portfolio company due to their innovation or technological expertise.
INDUS avoids the direct acquisition of companies undergoing restructuring. Also excluded are involvements in subsidized industries and investments in the war technology and armaments sectors.
Exit strategies play no role at the time of INDUS's buying decisions, the "hold" principle being a key component of our corporate philosophy. However, to ensure stable performance and achieve the growth targets set for the individual company and the Group, separation remains an available option in exceptional cases – for example, if there has been a substantial change in the original environment and market conditions under which a portfolio company operates that a new form would make more financial sense.
For strategic acquisitions at the sub-subsidiary level, the investment decisions are linked to the portfolio companies' individual investment strategies, although INDUS is promoting more innovation-oriented acquisitions.
In the fall of 2012, the Board of Management of INDUS drafted the COMPASS 2020 strategy program for our common future. It has a term of eight years. With the first five years already behind us, the Group is right on schedule.
The strategy comprises in essence three levers:
The Board of Management is aiming to modernize the portfolio structure so that INDUS can continue to reach its profitability targets in future. The aim is to have the INDUS portfolio represent a cross-section of the growth industries that are relevant for the Group. To this end, the Board of Management has defined five growth industries that will be prioritized during acquisitions:
THE PREFERRED FIVE INDUSTRIES OF THE FUTURE FOR COMPANY ACQUISITIONS
All five industries have above-average to very good prospects for development according to the relevant expert assessments. One of the COMPASS 2020 aims is to have INDUS add one or two companies to the portfolio each year. The portfolio companies' investment strategies as they apply to the acquisition of strategic additions at the subsubsidiary level vary by company and are linked to the holding company.
In light of the digital transformation taking place in the economy, it is becoming clear that a review of the INDUS portfolio companies' business models may be in order. As specialists and market leaders in their various niches, it is especially the portfolio companies with potential for innovation that are urged to seize their opportunities early on so that they may maintain or improve their market positions or tap into new markets.
Pursuant to COMPASS 2020, INDUS supports the portfolio companies in this area by three different means:
Development funds: INDUS gives financial support to promising innovation projects and provides the funds the way a development bank does. The holding company allocates an annual budget of up to 1.5% of the consolidated EBIT for this purpose.
Imparting methodological knowledge: INDUS assists the portfolio companies in the development of their strategies for innovation and their systematic development of fields of innovation, providing them with advice as needed. The aim of the advisory services it offers is to further professionalize the portfolio companies' management of their efforts towards innovation. At the same time, the holding company provides methodological knowledge to prepare the portfolio companies for challenges such as those posed by the digital transformation of business models.
Know-how transfer and networking: INDUS provides the companies with experience, trend assessments, and knowledge. It also creates for the portfolio companies connections to other companies within the Group and to external institutions and entities that can provide help with issues relating to the fundamental development of fields of innovation or, on a cooperative basis, with specific innovation projects.
Markets today are global even for the SME sector. This requires of some of the INDUS Group's portfolio companies more vigorous development of their international activities.
Owing to globalization and changes in the strength of particular countries, regions, or markets, the portfolio companies – and ultimately the Group as a whole – must significantly increase their foreign sales in the medium term as a percentage of their total sales. To that end, INDUS supports the portfolio companies by the following means in particular:
Acquisition of companies at the second level: INDUS provides its portfolio companies with capital for the acquisition of strategic additions. The COMPASS program is predicated on three to four acquisitions annually.
Funds for the expansion of sales: INDUS provides its portfolio companies with funds for the construction and expansion of international production and distribution facilities.
Assistance with internationalization: INDUS offers its portfolio companies close support for their internationalization measures. That includes clarifying and resolving legal issues, building networks and establishing local organizational structures.
Each of the portfolio companies pursues its own international strategy, concerning which INDUS regularly engages in an intensified informative dialog with their managers. In these exchanges possibilities that exist for successful development of the portfolio companies are discussed openly and constructively.
As a financial holding company, INDUS does not intervene directly in the operational or strategic management of the portfolio companies. Instead, in its dealings with its portfolio companies, it does make use of the means available to it to effectively represent its interests as owner. The primary aims are to prevent excesses and damage to the Group, and protect the development of assets over the long term.
The portfolio companies keep INDUS continually informed of financial developments in their enterprises, to which end they provide monthly reports on their financial situations. INDUS also receives information focused on specific topics. This gives management at the holding company an insight into the situation at the portfolio companies. This information allows INDUS to derive an image of the overall situation of the Group.
The financial metrics that are consulted within the holding company to assess the situation correspond to the operational financial performance indicators that are customary for manufacturing companies. They are complemented with strategic financial performance indicators for direct use in investment decision-making.
INDUS monitors the performance of the companies in light of projections based on monthly figures. The control system provides an early warning when there are divergences from the plans. The subsidiaries employ individual control mechanisms, and, due to their different natures, individual key figures. The managing directors of the portfolio companies observe and analyze their markets and specific competitive environments, and report any material changes in either back to INDUS.
The target/actual performance comparison results obtained by INDUS as part of its regular financial reporting for the last fiscal year are to be found in the Report on the Economic Situation.
In addition to the obligatory information flows for consolidation, the Board of Management and the individual managing directors also regularly exchange information in a less formal manner about developments in the portfolio companies. Once a year a formal discussion is held between the Board of Management and individual managing directors.
Using the flow of information and the exchanges with the managing directors, the INDUS Board of Management can gain an overall view of the expectations and planning. The Board of Management uses this to create the planning for the necessary financial funds and then communicates the consolidated planning and expectations to their own shareholders and creditors. The business objectives of INDUS Holding AG are thus based primarily on annual targets set by the companies.
At the end of fiscal year 2017, the holding company had 30 employees (previous year: 26), not counting the members of the Board of Management. It is in INDUS's interest to maintain the productivity of its employees and to encourage their long-term loyalty to the company. To that end INDUS offers its employees the basic conditions of a modern, attractive employer in terms of healthcare, educational advancement and income.
The subsidiaries had 10,210 employees as of the reporting date (previous year: 9,451). Management of those employed by the Group companies is the responsibility solely of their managements. Accordingly, the portfolio companies direct their human resources work, in both quantitative and qualitative terms, on their own. Small and medium-size enterprises assume a high level of responsibility when it comes to training; this is especially true of the companies within the INDUS Group. In the Group as a whole, 434 trainees were employed in 2017; this equates to a training ratio of 4.3%.
As a strictly financial investor, INDUS does not engage in research or development work in the traditional sense. All activities, along with responsibility for ensuring that the portfolio companies have their fingers on the pulse of the times in terms of the technology and that their products embody and are strategically well positioned in their markets, lies in the hands of the subsidiaries.
INDUS is keenly interested in the long-term economic success of its portfolio companies. The INDUS Board of Management therefore regards the subject of innovation as one of the central keys to the healthy development of the companies. For this reason, the Board of Management has increasingly initiated support services in recent years that the portfolio companies can avail themselves of. These are:
Funds for digital transformation: Digital transformation is fundamentally changing the industrial environment. This presents the companies with both risks and opportunities. INDUS keeps extensive funds in reserve for its portfolio companies that the latter can use to advance new ideas. It seeks to promote in particular innovation activities that may be described as "disruptive". These aim to develop fundamentally new technologies that are not yet in use in an industry or market environment. Disruptive innovations tend to promise above-average earnings opportunities.
The Group's internal knowledge platform: Many of the INDUS portfolio companies are focusing their development resources on continuous (incremental) development of existing product programs. In this way they are securing their existing market positions and realizing additional earnings potential. To support this important element in their development work, INDUS maintains a knowledge platform for innovation and technology management. The portfolio companies can make use of this platform to satisfy their own individual requirements.
Sensitization: The management of the holding company watches the trends and developments in the markets across sectors and transfers the resulting knowledge to the portfolio companies through active dialog with their managements.
Methodological support: Innovation can be learned. Since fiscal year 2016, INDUS has offered its portfolio companies what it refers to as a "tool box". The underlying concept for it signifies methodical assistance in detecting opportunities for innovation.
Networking: To further such methodical support, INDUS forges helpful connections with research and industry for its portfolio companies.
To enhance its ability to effectively assist the companies in the field of research and development, and to do so with future prospects in mind, the holding company itself is continually seeking cooperative arrangements with science, research and industry.
The INDUS Group's research and development activities are reflected in the following figures: Expenses for R&D activities recognized in the INDUS Group's consolidated financial statements for 2017 amounted to EUR 16.4 million (previous year: EUR 14.6 million). This reflects a continual increase in the allocation of funds for this field, something that is expected to continue in the years to come
This is especially important also for the reason that an increasing percentage of the portfolio companies have positioned themselves in the market as systems suppliers and development partners. This necessitates, besides a larger real net output ratio, an increasing measure of R&D capability of their own.
The portfolio companies are currently well positioned with their own potential. Successful development partnerships are in place with both customers and suppliers. Cooperation with research institutes and universities is also being expanded in the companies' development activities. Some Group companies are already collaborating closely with prominent organizations. Forms of cooperation range from traditional customer-supplier relationships to contract research and participation by individual companies in publicly funded research projects.
When it comes to sustainability, the holding company and the portfolio companies share a canon of values. It is our shared conviction that sustainable conduct directly and indirectly conduces to business success:
Economically, INDUS relies on traditional financial key figures and hence by choice to conservative or stabilityoriented criteria. Its goal is to ensure its business success on a lasting basis in the interests of the Group, the shareholders, and other stakeholders. To that end the holding company provides a stable bottom line, an adequate liquidity, and a flexible financing basis. Socially, all members of the INDUS Group are oriented to the criteria applied by the traditional SME sector. Central to these is the principle of "responsibility" – for the survival of the company, but first and foremost for the people who ensure it. This is expressed in corresponding commitments pursuant to company-specific codes of conduct and in concrete measures for cultivating and improving various social aspects. Ecologically, INDUS has for some years been gradually increasing its transparency and supporting the portfolio companies in their commitment to the protection of resources, a concrete example of which is the funds it has provided for investment in efficiency measures. Regarding the topics of governance and compliance, the Board of Management and the Supervisory Board have long felt committed to responsible, transparent and sustainable value creation. They have consistently and nearly completely accepted the recommendations and suggestions of the German Corporate Governance Code since its introduction, thereby observing the rules of good corporate management and supervision.
INDUS will release its first non-financial explanation by December 31, 2017. This will be published in the Sustainability Report (which is part of the Annual Report).
The Board of Management and Supervisory Board of INDUS have committed themselves to thorough observance of the principles of good corporate governance. The two management and supervisory bodies therefore issue the appropriate "Declaration on Corporate Governance" on an annual basis. The current full declaration is available on the INDUS website under the heading Responsibility/Corporate Governance. The information provided corresponds to the requirements in clause 3.10 of the German Corporate Governance Code and Sections 289f (1) and 315d of the German Commercial Code (HGB).
The declaration of conformity that must be issued annually pursuant to § 161 AktG (Aktiengesetz, German Stock Corporation Act) constitutes a part of the Declaration on Corporate Governance. This was issued by the Board of Management and the Supervisory Board on Thursday, November 30, 2017. In it they state that, with one exception, INDUS Holding AG is in compliance with all of the recommendations made by the government commission for the German Corporate Governance Code. The exception relates to the recommendation of a limit for serving on the Supervisory Board. The full declaration on corporate governance can be viewed on the INDUS website under the heading "Responsibility/Corporate Governance."
INDUS can once more look back on a very successful fiscal year. The Group achieved a positive result for the fifth time in a row. Sales increased by 13.6%, to EUR 1.64 billion, and EBIT climbed to EUR 152.9 million, a 5.5% increase. The Group attained an operating EBIT margin of 9.3% and an adjusted EBIT margin of 10.0%. The above average performance of the Construction/Infrastructure and Engineering segments deserves a special mention. Both segments achieved margins above the target range. In the Automotive Technology segment, the companies were subject to the increasing pressure on margins in the automotive industry. And the profound repositioning being undertaken in this segment – and the Metals Technology segment – also had a negative impact.
Growth in the global economy picked up pace once more in 2017. At 3.8% (2016: 3.2% ) it was the highest level of growth recorded since 2011. Following a weak phase, growth began to pick up as early as the end of 2016, continuing apace until the late summer of 2017. Toward the end of the year, the relevant indicators showed the upward trend in virtually all large national economies leveling out.
In the advanced economies, production expanded particularly solidly in the six months around summer, following moderate growth at the beginning of the year. The targeted stimulation of investment had a decisive impact on boosting the basic economic trend. As did the ongoing and stable high level of consumer demand from private households. In the United States, the geopolitical risks, which numerous market participants associated with the change in government there, retreated from center stage for the time being. The economy made use of the overall positive general conditions and growth rates expanded significantly. In Japan, total economic production picked up again with the support of exports. The euro area economy also continued its expansion, driving the upward trend and extending bases. Production in Great Britain was moderate in comparison.
Following rather weak growth in past years, expansion in the emerging markets began to speed up again in 2017. One main factor for this was the resurgence of production in countries that export raw materials. They suffered considerably in 2015 and 2016 from the collapse in the prices of raw materials, and benefited from the significant rise in prices in 2017. For instance, Brazil was able to come out of its recession. And there was even a clear uptick in production in Russia, despite the effects of the sanctions imposed by the western industrialized nations. A slight slow down in expansion was recorded in China, in spite of the reduction of fiscal stimulus from the government and slower credit growth.
The German economy was able to continue its upward trend of the last four years for another, fifth year. After a positive start to 2017, economic momentum picked up again in the following months, driving the unadjusted gross domestic product up 2.3% (2016: 1.9%). Since the beginning of the long growth phase in 2006/2007, the German economy has only grown stronger than in the first three months of 2017 in 2010/2011. Then, this was due to catch-up effects following the economic crisis of 2008/2009. In light of the economic boom, production capacity utilization increased further, pushing many companies to full capacity. Capacities remained particularly stretched in the construction industry.
A key factor in this positive economic trend was once again private consumption, which was stimulated by a good employment situation, increases in real wages, and a low crude oil price. The persistent low interest rates also stimulated private household expenditures.
Exports continued to expand significantly and were up 4.3% in 2017 (previous year: 2.6%). Exports within the euro area and Asia increased, while exports to the rest of Europe and the United States declined. Imports increased by 4.8% (previous year: 3.9%). The unemployment rate fell to 5.7% in 2017 (previous year: 6.1%), showing tendencies of further decline. This is despite an increase in the domestic labor force of 550,000. Germany's inflation rate, measured against the consumer price index in December 2017, stood at 1.7% (previous year: 0.5%).
The global financial system remained robust in 2017. Despite numerous new geopolitical factors remaining uncertain (including Catalonia, Turkey, North Korea), the expectations of the financial market participants were colored by the positive economic outlook and positive expectations regarding fiscal policy. The American Federal Reserve Bank continued the course started in 2015 to normalize interest rates in 2017 and increased the base rate three times over the course of the year by a quarter of a percentage point each time. Following the last adjustment in December it ranged between 1.25% and 1.50%. The Federal Reserve Bank was reacting to the economic upturn in the United States, which enjoys virtually full employment and a persistently moderate rate of inflation. Despite this stabilization of interest rates abroad, the European Central Bank remained committed to its low interest rate phase. The deposit facility rate remained at -0.4% throughout the year.
On the international stock markets, the positive economic outlook was reflected in the expectation of greater profits, driving up most prices. They hit new peaks in both Germany and the United States. Over the course of the year, the Dow Jones gained 25.1% and the DAX gained 12.5%. The MSCI World Index, which includes the most important stock exchanges, increased by 20.0% over the year , and the MSCI Emerging Markets Index even recorded a 34.9% increase.
Positive economic data coming from the euro area and fading
hopes of economic policy impulses from the United States has caused the euro to appreciate considerably against the US dollar since spring. The euro climbed 14.4% against the US dollar over the course of the year, and stood at EUR/USD 1.2005 at the end of the year.
Overall the German economy saw a good start to the year 2017. Incoming orders rose continuously in the first half of the year. The greatest increase in demand among the main industrial groups was recorded in intermediate and consumer goods. Economic activity increased once again in the third quarter, and the companies expanded their investments in assets. Incoming orders increased by 3.6% calendar adjusted against the previous quarter, and an impressive 7.8% calendar adjusted year on year. The sharp increase in demand can be divided almost evenly between domestic and international demand. In the third quarter of 2017, the increase in production in manufacturing industries was 4.7% up year on year, adjusted for seasonal and calendar effects. The performance was spread evenly among the main industrial groups. With this exception of November, this positive overall performance continued until the end of the year.
The construction industry again performed better than expectations in 2017. According to the two leading trade associations, Hauptverband der Deutschen Bauindustrie (HDI) and Zentralverband des Deutschen Baugewerbes (ZDB), sales climbed by 5% to EUR 112.2 billion. Residential construction continued to deliver the strongest impulses, but utilization of capacities also remained high in commercial and public construction. In the first ten months of 2017, incoming orders were 5% higher than in the previous year. The order backlog therefore exceeded the already high levels of the previous year's quarters, despite intense construction activity. This dynamic picked up again at the end of the year: Companies with over 20 employees in the main construction sector reported a sales increase of 11% year on year last November. Due to the solid order situation, the main construction sector expanded the number of employees significantly in 2017 by 3%, bringing the figure up to 805,000.
The vehicle market performed reasonably well in 2017. According to the German trade association Verbands der Automobilindustrie (VDA), sales of German cars increased by 3% to 3.4 million vehicles in 2017. Sales rose for the fourth year in a row, hitting the highest figure for the decade. Vehicle production, however, declined slightly by 2% to 5.6 million units. The German car manufacturers' exports also fell slightly by 1% to 4.4 million vehicles. This equates to an export rate of 77.4%. The research activity shows that the German automotive industry is tackling current technological challenges head on: According to the European Commission, R&D expenditure among German manufacturers increased by 7% in 2017 to EUR 40.2 billion. There was also an uptick in demand from the international vehicle markets: Sales in China rose by 2.0% to 24.2 million vehicles. In Europe (EU28+EFTA) vehicles sales reached the highest level since 2007 at 15.6 million vehicles (+3.3%). Japan (+5.8%), Brazil (+9.4%), Russia (+11.9%), and India (+8.8%) also reported high levels of growth in 2017. Sales in the United States declined slightly. At 17.1 million vehicles the market contracted by 1.9%.
Following a period of stagnation in the previous year, the German engineering sector was also able to harness the positive overall mood in the industry and recorded significant growth in 2017. For the first time, the sector was able to achieve sales of EUR 224 billion. Adjusted for prices, production climbed by 3% in the first eleven months. The export performance was even better: In the first nine months, the sector exported goods worth EUR 124.4 billion, a 6% increase against the previous year. In total, for every four machines produced, three were exported in 2017. The EU remained the largest sales market, by a significant margin. The most important importers outside of Europe were the United States and – with a considerable increase – China. In light of the uncertainty regarding its future relationship with the EU, exports to Great Britain continued to fall, as expected. A solid fall period contributed to the good result for the year: For the three-month period September to November, incoming orders increased 12% year on year. A 14% increase was even recorded in November against the previous year.
According to the trade association Bundesverband Medizintechnologie (BVMed), international sales increased by 6% in the medial engineering sector in 2017. This is on a par with the prior-year growth rates. With a 2.8% increase, the domestic market developed more sluggishly. This is primarily due to declining prices (low levels of reimbursement) and rising costs (regulatory requirements). The new EU medical device regulation (MDR) is currently having the strongest impact on these two earnings levers. This regulation has increased the market access requirements, which has led many companies to consider taking numerous products off the market for economical reasons or to cancel or delay introducing new products they had planned to put on the market. Despite the ongoing pressure on prices, companies are increasing investment in their German production locations. This will strengthen their competitive position. Another factor weighing on developments at the moment is the personnel situation. In light of these difficult conditions, only 44% of German medical companies took on new personnel this year; some even cut jobs.
The metals industry remained on a solid growth trajectory in 2017. Production increased significantly in the first nine months compared with the same period in the previous year, and capacity utilization exceeded the multi-year average in October. Incoming orders also developed well and the sector recorded sales growth of 3.5% for the full year. Growth in the previous year was lower at 1.5%. In terms of earnings, the sector was only able to maintain the previous year's level. This was due to a number of factors, including rising labor costs, a shortage of skilled workers, and, in particular, the inability to pass on costs to customers.
The fiscal year 2017 was, overall, highly successful for the INDUS Group. Sales amounted to EUR 1.64 billion, equating to a 13.6% increase against the previous year, to which all segments contributed. The 10.5% organic increase in sales is particularly pleasing (after deducting growth effects from new acquisitions). At EUR 152.9 million, or +5.5%, the operating result (EBIT) was also up against the previous year, but it did not quite manage the same increase reported in sales. This is due to considerable negative effects on earnings from two repositioning offensives carried out in the Automotive Technology and Metals Technology segments, but also exchange rate losses that were up significantly against the previous year. Exchange rate developments had an impact on the operating result in the Automotive Technology segment worth approximately EUR 2 million. This in turn led to the EBIT margin falling below our own high expectations at 9.3% (previous year: 10.0%). The adjusted operating result amounted to EUR 163.7 million (+5.3%), and the margin for the adjusted operating result (EBIT) amounted to 10.0%. The adjustments concern earnings effects from company acquisitions.
Looking at the segments, both the Construction/Infrastructure and the Engineering segment recorded significant increases in their margins and record results. Margins in both segments exceeded the target range. We have therefore raised our target margin for the Construction/Infrastructure segment for 2018 by one percentage point. As communicated early on, the Automotive Technology and Metals Technology segments have not achieved the forecast target margins. This is due to the challenging economic environment (automotive sector) and repositioning activities at individual portfolio companies. Once the repositioning measures are completed in 2018, we will achieve sustainable result improvements in these segments.
| ACTUAL 2016 | PLAN 2017 | ACTUAL 2017 | EXTENT TO WHICH ACHIEVED | |
|---|---|---|---|---|
| GROUP | ||||
| Acquisitions | Acquisition of 1 company, 7 strategic additions |
2 growth acquisitions | 2 growth acquisitions | achieved in full |
| Sales | EUR 1,444.3 million (+4%, of which 0.1% organic) |
> EUR 1.5 billion | EUR 1,640.6 million (+13.6%, of which 10.5% organic) |
better than expected |
| EBIT | EUR 144.9 million | EUR 145-150 million | EUR 152.9 million | achieved in full |
| Investments in property, plant and equipment |
EUR 70.0 million | EUR 75 million | EUR 79.0 million | achieved in full |
| Equity ratio (in %) | 42.4% | >40% | 40.8% | achieved in full |
| Net debt/EBITDA | 1.9 years | between 2.0 and 2.5 | 1.9 years | achieved in full |
| SEGMENTS | ||||
| Construction/Infrastructure Sales |
EUR 274.5 million | Organic growth in the single-digit range |
EUR 330.4 million | better than expected |
| EBIT | EUR 39.2 million | Proportional earnings increase | EUR 49.4 million | better than expected |
| EBIT margin (in %) | 14.3% | 12-14% | 15.0% | better than expected |
| Automotive Technology | ||||
| Sales | EUR 372.2 million | Slight rise in sales | EUR 394.1 million | achieved in full |
| EBIT | EUR 20.3 million | Slight rise in earnings | EUR 14.7 million | not achieved |
| EBIT margin (in %) | 5.4% | 6-8% | 3.7% | not achieved |
| Engineering | ||||
| Sales | EUR 305.9 million | Moderate rise in sales | EUR 375.1 million | better than expected |
| EBIT | EUR 41.4 million | Slight rise in earnings | EUR 53.5 million | better than expected |
| EBIT margin (in %) | 13.5% | 12-14% | 14.3% | better than expected |
| Medical engineering/ Life science | ||||
| Sales | EUR 147.0 million | Slight rise in sales | EUR 155.2 million | achieved in full |
| EBIT | EUR 20.2 million | Slight rise in earnings | EUR 20.8 million | achieved in full |
| EBIT margin (in %) | 13.7% | 13-15% | 13.4% | achieved in full |
| Metals Technology | ||||
| Sales | EUR 344.4 million | Slight rise in sales | EUR 385.6 million | achieved in full |
| EBIT | EUR 29.9 million | EBIT at previous year level | EUR 24.2 million | not achieved |
| EBIT margin (in %) | 8.7% | 8-10% | 6.3% | not achieved |
In 2017, the INDUS portfolio welcomed two promising hidden champions in the engineering segment. In January 2017, INDUS acquired M+P INTERNATIONAL Mess- und Rechnertechnik GmbH, a provider of measuring and test systems for vibration testing and analysis that is based in Hanover. M+P has a strong international focus and promises to perform well in the years to come. The PEISELER Group joined the portfolio in May. PEISELER manufactures high-precision indexing devices and rotary tilt tables for machine tools. These new acquisitions fit perfectly in the areas targeted by INDUS.
Investments in property, plant and equipment, and intangible assets was increased once more. At EUR 79.0 million, INDUS portfolio companies invested more than ever before in 2017. The Group's financial position remained very stable in 2017. At 40.8% the equity ratio remains comfortable. Its traditionally favorable liquidity position gave INDUS enough economic strength for the capital investment it made or intended to make. The company has a considerable liquidity buffer and access to credit lines for this purpose. The debt repayment term (net debt/EBITDA) remained unchanged at 1.9 years, and below the required target range of 2 to 2.5 years.
Of course, the two repositioning offensives, with their overall noticeable impact on results, remained in the foreground in the past fiscal year. However, the Board of Management is very satisfied overall with the Group's performance in the past fiscal year. The company's favorable position provides the conditions for further successful development.
Non-financial performance indicators are not used as management variables by the Group.
Sales in the INDUS Group increased by 13.6% in the fiscal year, to EUR 1,640.6 million. Virtually all portfolio companies contributed to this impressive organic growth of 10.5%. With the expansion of the Group through further firstlevel acquisitions (M+P INTERNATIONAL and PEISELER) strengthened INDUS Group and increased sales growth further (inorganic sales growth of 3.1%).
The cost of materials developed at a slightly disproportionately higher rate and increased by 15.0%, to EUR 745.9 million, as compared to the previous year (previous year: EUR 648.7 million). This is due to the disproportionate increase in costs for purchased services. These relate mainly to purchased personnel services to process the high order backlog and sales. Slight increases in raw material prices were also recorded. The cost of materials ratio therefore increased for the fiscal year by 0.6 percentage points, to 45.5% (previous year: 44.9%).
Personnel expenses climbed slightly disproportionately, by 11.5% to EUR 479.6 million. The portfolio companies largely contributed to the organic growth in sales with their own personnel, but due to the sharp rise more services were purchased. Accordingly, the personnel expense ratio increased by 0.6 percentage points, to 29.2% (previous year: 29.8%).
Other operating expenses increased by 12.0%, or EUR 24.5 million, as compared to 2017. The higher volume of business had an impact here. Individually, the exchange rate losses, consulting and EDP expenses, and freight and maintenance expenses for machines all climbed.
Once the expense items are subtracted, the resulting operating result to date before depreciation/amortization (EBITDA) is EUR 215.3 million. As compared to the previous year, EBITDA increased by 14.4 million (7.2%). At EUR 62.4 million, depreciation/amortization was 11.4% higher than in the previous year. The greater need for depreciation/amortization is attributable to the new companies and associated depreciation/amortization of excess value for purchase price allocation purposes and to the persistently high level of investment.
| COMBINED MANAGEMENT REPORT — Report on the economic situation | 63 |
|---|---|
| --------------------------------------------------------------- | ---- |
CONSOLIDATED STATEMENT OF INCOME (in EUR million)
| DIFFERENCE BETWEEN 2017 AND 2016 |
|||||
|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | |
| Sales | 1,640.6 | 1,444.3 | 1,388.9 | 196.3 | 13.6 |
| Other operating income | 16.5 | 20.2 | 19.9 | -3.7 | -18.3 |
| Own work capitalized | 5.1 | 6.2 | 5.7 | -1.1 | -17.8 |
| Changes in inventories | 5.2 | 11.1 | 7.0 | -5.9 | -53.2 |
| Overall performance | 1,667.4 | 1,481.8 | 1,421.5 | 185.6 | 12.5 |
| Cost of materials | -745.9 | -648.7 | -651.6 | -97.2 | 15.0 |
| Personnel expenses | -479.6 | -430.2 | -392.0 | -49.4 | 11.5 |
| Other operating expenses | -228.0 | -203.5 | -192.4 | -24.5 | 12.0 |
| Income from shares accounted for using the equity method | 1.1 | 1.0 | 0.7 | 0.1 | 10.0 |
| Other financial income | 0.3 | 0.5 | 0.2 | -0.2 | -40.0 |
| EBITDA | 215.3 | 200.9 | 186.4 | 14.4 | 7.2 |
| Depreciation/amortization | -62.4 | -56.0 | -50.1 | -6.4 | 11.4 |
| Operating result (EBIT) | 152.9 | 144.9 | 136.3 | 8.0 | 5.5 |
| Net interest | -23.7 | -21.5 | -27.0 | -2.2 | 10.2 |
| Earnings before taxes (EBT) | 129.2 | 123.4 | 109.3 | 5.8 | 4.7 |
| Taxes | -46.1 | -43.0 | -41.0 | -3.1 | 7.2 |
| Earnings after taxes | 83.1 | 80.4 | 68.3 | 2.7 | 3.4 |
| of which allocable to non-controlling shareholders | 0.7 | 0.4 | 0.4 | 0.3 | 75.0 |
| of which attributable to INDUS shareholders | 82.4 | 80.0 | 67.9 | 2.4 | 3.0 |
This amounts to an operating result, or EBIT, of EUR 152.9 million for 2017. Due to the disproportionate increase in sales, the noticeable negative effects of the two repositioning measures, and the exchange rate effects, the EBIT margin came to 9.3%. The newly acquired portfolio companies M+P INTERNATIONAL and PEISELER imposed further burdens, of course. On the one hand, these two portfolio companies contributed EUR 30.6 million, or 15.6%, to the growth in sales. On the other, earnings were affected by the acquisitions owing to the surplus value depreciations and incidental acquisition costs.
Net interest fell by EUR -2.2 million, from EUR -21.5 million to EUR -23.7 million. This is due to higher interest expenses in the area "other interest." This expense item, which rose by EUR 1.5 million, includes the effects on income of the subsequent measurement of contingent purchase price commitment along with earnings after taxes due to noncontrolling shareholders from shares in limited partnerships and to stock corporations with call/put options. Changes in the market value of interest derivatives had no significant effect. Earnings before taxes (EBT) improved to EUR 129.2 million (previous year: EUR 123.4 million). Tax expenses rose by EUR 3.1 million, while the tax rate increased from 34.8% last year to 35.7%, primarily due to lack of loss carryforwards within the Group. Due to its business model, INDUS does not form tax groups.
Earnings after taxes reached EUR 83.1 million (previous year: EUR 80.4 million). This equates to a rise of 3.4% as compared to the previous year. Interests held by noncontrolling shareholders amount EUR 0.7 million (previous year: EUR 0.4 million). Earnings after taxes of the INDUS shareholders amounted to EUR 82.4 million. This equates to earnings per share of EUR 3.37 as compared to EUR 3.27 in the previous year.
In the interest of greater transparency in regard to operating performance, INDUS also reports an adjusted operating result (EBIT). The underlying reason for this is that INDUS' growth trend, and the regular acquisitions associated with it, result in non-operating charges against earnings. EBIT adjusted for these effects (after the effects of the acquisitions) increased by 5.3% to EUR 163.7 million. This results in a margin of 10.0% (previous year: 10.8%), whereby the effects of the repositioning are also perceptible here.
| RECONCILIATION | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE BETWEEN 2017 AND 2016 |
|||||
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | |
| Operating result (EBIT) | 152.9 | 144.9 | 136.3 | 8.0 | 5.5 |
| Depreciation of property, plant and equipment and amortization of intangible assets due to fair value adjustments from initial consolidations* |
8.3 | 6.4 | 5.0 | 1.9 | 29.7 |
| Impact of fair value adjustments on inventory assets/order backlogs from initial consolidations and incidental acquisition costs** |
2.5 | 4.1 | 4.5 | -1.6 | -39.0 |
| Adjusted operating result (EBIT) | 163.7 | 155.4 | 145.8 | 8.3 | 5.3 |
* Depreciation/amortization from fair value adjustments relate to identified assets at fair value in connection with acquisitions made by the INDUS Group.
** Impacts of fair value adjustments in inventory assets/order backlogs relate to identified surplus values included in the purchase price allocation and recognized after the initial consolidation.
The individual segments' shares of sales and earnings have changed further in their ratios to one another. The Construction/Infrastructure segment's contribution to sales has grown at 20.1% (previous year: 19.0%), as has the Engineering segment's at 22.9% (previous year: 21.2%). With a share of 24.0% (previous year: 25.8%), the Automotive Technology segment remains the largest contributor to sales. The Metals Technology segment, too, remains a robust contributor to sales with 23.5% (previous year: 23.8%). Both segments, however, have ceded ground as compared to the previous year. With shares between 20.1% and 24.0%, the four segments are almost equal. The contribution to sales from the Medical Engineering/Life Science segment declined somewhat at 9.5% (previous year: 10.2%).
At the earnings level, too, the Engineering and Construction/Infrastructure segments performed especially well again, as they did last year. The Engineering segment increased the contribution it made to the operating result (EBIT) last year (27.4%) by 5.5 percentage points to 32.9% of the INDUS result. The Construction/Infrastructure segment exploited the strong economic conditions in the sector and the initial consolidation of all of the HEITZ Group's contribution to earnings and increased its share to 30.4% (previous year: 26.0%). The contribution to earnings from the Automotive Technology and Metals Technology segments fell significantly below the prior-year figures at 9.1% (previous year 13.4%) and 14.9% (previous year: 19.8%) respectively. This was caused by the difficult conditions in the automotive technology sector and the known repositioning measures in both areas. For the Medical Engineering/ Life Science segment the earnings contribution ratio was, at 12.8% (previous year: 13.4%), slightly lower than for the previous year.
The INDUS Group's sales increases are attributable in almost equal measure to its domestic and international business. In relative terms, the international share of sales increased slightly, by 1.2 percentage points, to 50.3% (previous year: 49.1%). This puts the international share of INDUS' sales higher than the domestic share for the first time.
Domestic sales increased by 10.9%, to EUR 815.5 million, as compared to the previous year. International sales increased by a pleasing 16.4%, to EUR 825.1 million, the increase being attributable primarily to sales outside of the EU (+19.1%). Sales in the EU increased by 13.4%.
As in the previous year, the Construction/Infrastructure segment comprises eleven portfolio units. The companies operate in different areas within the construction industry. Their products and services range from reinforcements and construction materials, air conditioning and heating technology, network and cable laying to accessories for private housing construction. Traditional building construction and civil engineering are not included in the INDUS portfolio. The segment is disproportionately profitable. It is therefore INDUS's strategy to focus on boosting this segment by acquiring new companies.
Fueled by the general construction boom and a greater inclination towards investment by the public sector, the strong demand experienced in the Construction/Infrastructure segment continued unabated. The INDUS companies also benefited from this. Sales in this segment climbed by 20.4%, to EUR 330.4 million, on a yearly comparison (previous year: EUR 274.5 million). All of the companies in this segment contributed to the exceedingly strong business performance, without exception. Demand in the area of infrastructure in particular rose disproportionately. Due to the economic boom, some of the companies in the segment are working at full capacity. The shortage of skilled workers in the construction sector continued to increase and is posing challenges for our companies.
It should also be noted that the HEITZ Group, which was acquired in June 2016, was included with its full annual sales figures.
The excellent order situation, the INDUS portfolio companies' extremely high levels of productivity, and the construction boom pushed the operating result (EBIT) to a record high of EUR 49.4 million. This equates to an outstanding growth rate of 26.0%. At 15.0%, the EBIT margin also once again significantly surpassed the previous year's already very good figure (14.3%). All portfolio companies generated a positive operating result (EBIT). The greatest improvements in earnings were achieved in the subarea infrastructure/digitalization.
Investments in the segment from the previous year include the acquisition of the HEITZ Group and HAUFF-TECHNIK's acquisition of a 50% share in ZWEICOM. Investments in the reporting year related exclusively to investments in fixed assets, which were up EUR 2.1 million against the prior-year figure at EUR 13.4 million. This was due to the higher level of investment made by companies in the (digital) infrastructure area.
| KEY FIGURES FOR CONSTRUCTION/INFRASTRUCTURE | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE BETWEEN 2017 AND 2016 |
|||||
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | |
| SaLes with external third parties | 330.4 | 274.5 | 235.5 | 55.9 | 20.4 |
| EBITDA | 58.2 | 46.7 | 39.8 | 11.5 | 24.6 |
| Depreciation/amortization | -8.8 | -7.5 | -6.3 | -1.3 | 17.3 |
| EBIT | 49.4 | 39.2 | 33.5 | 10.2 | 26.0 |
| EBIT margin in % | 15.0 | 14.3 | 14.2 | 0.7pp | – |
| Investments | 13.4 | 35.4 | 8.9 | -22.0 | -62.1 |
| Employees | 1,714 | 1,466 | 1,183 | 248 | 16.9 |
The Automotive Technology segment comprises nine units (previous year: ten) whose products and services span the entire value chain in the automotive industry, from design and development, model and prototype construction to pre-series and small series production testing and measurement solutions, solutions for specialized vehicles, and seriesproduction of components for major manufacturers of cars and commercial or special-use vehicles.
The companies in this segment operate in an intensely competitive environment that is highly sensitive to developments in the vehicle market.
As part of the process of optimizing the Automotive Technology segment and in response to the constantly rising pressure on margins in the automotive industry, the INDUS portfolio company FICHTHORN was integrated into the internationally operating SELZER Group. The consolidation, which became effective October 1, 2017, serves the purpose of strengthening both INDUS companies.
The INDUS portfolio companies in the Automotive Technology segment had to face a number of difficult circumstances in the automotive industry. These ultimately resulted in the segment's failure to achieve its growth targets on the earnings side. Sales did increase by 5.9% to EUR 394.1 million, but this was largely in the low-margin area of automotive series production suppliers. The engineering companies (pre- and post-series production) in the segment, who had been performing well, are starting to feel the pressure the OEMs are facing, caused by the emissions and cartel scandals, that are leading to OEMs tightening their belts. There was also a significant atmosphere of caution in the engineering segment at the end of 2017, which we believe is due to upheavals in the sector and the associated restructuring of development budgets. Technological changes in the automotive industry are also a considerable cost factor that is passed on to suppliers, and affects and challenges the supply industry. All in all, the entire industry is now suffering under intolerable pressure on margins. The announced repositioning of a portfolio company in the series production business is proceeding according to plan and is due to be successfully completed in the course of 2018. Currency developments also had a negative impact worth EUR 1.8 million on the result for the financial year. As a result of the numerous negative effects, the operating result (EBIT) fell by EUR 5.6 million, or 27.6%. The EBIT margin deteriorated to 3.7%, following 5.4% in the previous year.
Once the repositioning work has been completed, we should be able to attain a margin between 5% and 7% in the automotive technology segment.
All investments in the segment decreased considerably as compared to the previous year: Last year's investments included shares acquired by WIESAUPLAST (Wiesauplast-PMC de México) and company divisions acquired by IPETRONIK (CAETEC). Investments in fixed assets rose by EUR 1.5 million against the previous year to EUR 30.3 million. This specifically includes an investment in a new construction for a foreign sub-subsidiary.
| DIFFERENCE BET WEEN 2017 | AND 2016 | ||||
|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | |
| Sales with external third parties | 394.1 | 372.2 | 367.7 | 21.9 | 5.9 |
| EBITDA | 36.5 | 39.9 | 39.6 | -3.4 | -8.5 |
| Depreciation/amortization | -21.8 | -19.6 | -18.2 | -2.2 | 11.2 |
| EBIT | 14.7 | 20.3 | 21.4 | -5.6 | -27.6 |
| EBIT margin in % | 3.7 | 5.4 | 5.8 | -1.7pp | – |
| Investments | 30.3 | 36.9 | 26.9 | -6.6 | -17.9 |
| Employees | 3,557 | 3,454 | 3,285 | 103 | 3.0 |
The Engineering segment comprises eleven units (previous year: nine). The companies in this segment develop complete conveyor systems, robotic gripping systems, produce valve technology, automation components, including those for final vehicle assembly, and equipment for clean room systems, and design trace heating systems.
In the year under review, two new INDUS portfolio companies were acquired for the Engineering segment. M+P INTERNATIONAL Mess- und Rechnertechnik joined INDUS in January. The M+P Group is a provider of measurement and test systems for vibration testing. The PEISELER Group (part of the portfolio since May 2017) manufactures high-precision indexing devices and rotary tilt tables for machine tools. These new acquisitions fit perfectly in the areas targeted by INDUS.
In INDUS's view, the impressive technical capabilities and quality of goods "engineered and made in Germany" promise future growth in the sub-fields of automation; measuring technology and control engineering, where INDUS seeks to make further acquisitions. The segment constitutes one of the mainstays of small and medium-scale industry and has good prospects.
Sales in the Engineering segment increased by EUR 69.2 million, or 22.6%, to EUR 375.1 million, a result to which virtually every company in the segment contributed. With some sales hitting record levels, individual companies were operating at absolute full capacity. The previously announced large international order relating to clean room systems made as big a contribution to the high level of sales as the sales of the two new portfolio companies M+P INTERNATIONAL and PEISELER, which together amounted to EUR 30.6 million. At EUR 12.1 million, or 29.2%, the operating result (EBIT) in this segment increased more than the sales. The high level of investment that was made in this segment over the past years is now perceptible in the results. The portfolio companies in the logistics area are particularly noteworthy; they continue to grow at a very high level. The segment's improved result is even more impressive when we take into account that M+P INTERNATIONAL's and PEISELER's results are still carrying significant negative effects from surplus value depreciations and incidental acquisition costs from the initial consolidation of the new portfolio companies. At 14.3%, the EBIT margin was up 0.8% points against the high prior-year figure.
Segment investments were significantly higher than in the previous year at EUR 43.4 million; that is because the financial year includes the acquisition of M+P INTERNATIONAL and PEISELER. Investments in fixed assets rose by approx. 32% and involved the majority of the portfolio companies. One portfolio company's production location was expanded.
| KEY FIGURES FOR ENGINEERING | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE BET WEEN 2017 | AND 2016 | ||||
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | |
| Sales with external third parties | 375.1 | 305.9 | 293.2 | 69.2 | 22.6 |
| EBITDA | 64.2 | 49.7 | 46.3 | 14.5 | 29.2 |
| Depreciation/amortization | -10.7 | -8.3 | -7.3 | -2.4 | 28.9 |
| EBIT | 53.5 | 41.4 | 39.0 | 12.1 | 29.2 |
| EBIT margin in % | 14.3 | 13.5 | 13.3 | 0.8pp | – |
| Investments | 43.4 | 9.7 | 16.8 | 33.7 | > 100 |
| Employees | 1,830 | 1,585 | 1,436 | 245 | 15.5 |
As in the previous year, the Medical Engineering/Life Science segment comprises five units. The companies in this segment produce orthotic devices and medical compression garments, develop lenses and optical devices, produce surgical accessories and rehabilitation technology, and sell hygienic products for both medical applications and household purposes.
This segment is for INDUS the subject of special strategic focus. It represents one of the four growth segments in which the Board of Management sees potential for future growth. Despite high cost pressures in the medical industry, the Medical Engineering/Life Science sector continues to offer above-average margins.
The Medical Engineering segment was able to continue pleasing upward trend of the previous financial year. Sales in the Medical Engineering sector were up 5.6%, or EUR 8.2 million, against the previous year. This puts sales in this growth segment at EUR 155.2 million in the reporting year. All portfolio companies in the segment contributed to the increase in sales, which can be attributed to improvements made to operative activities.
The operating result (EBIT) amounted to EUR 20.8 million, EUR 0.6 million higher than in the previous year (previous year: EUR 20.2 million). Fortunately, the segment's margin improved steadily over the course of the 2017 financial year. Following a rather weak first quarter (9.8%) – partially due to a department relocation – EBIT margins of 13.9% and 14.0% were attained in the subsequent quarters. This positive trend continued in the fourth quarter with a margin of 16.0%. With an EBIT margin of 13.4% for the entire year, the segment attained a very good result that was within the target range of 13–15%. All portfolio companies in the segment contributed to this success.
Investments were made exclusively in fixed assets in 2017 and, at EUR 7.4 million, were just higher than the previous year's figure. The most significant occurrences in 2017 were the investment in a foreign production site and the increasing level of investment in the automation of manufacturing processes.
DIFFERENCE BET WEEN 2017 AND 2016
| 2017 | 2016 | 2015 | ABSOLUTE | IN % |
|---|---|---|---|---|
| 155.2 | 147.0 | 132.3 | 8.2 | 5.6 |
| 27.6 | 26.8 | 24.9 | 0.8 | 3.0 |
| -6.8 | -6.6 | -5.2 | -0.2 | 3.0 |
| 20.8 | 20.2 | 19.7 | 0.6 | 3.0 |
| 13.4 | 13.7 | 14.9 | -0.3pp | – |
| 7.4 | 6.2 | 32.3 | 1.2 | 19.4 |
| 1,540 | 1,480 | 1,010 | 60 | 4.1 |
As in the previous year, this segment comprises nine units and serves a large number of specialized customers. The range of solutions is large and includes supplying for railroad engineering, producing carbide tools for road construction and mining, and manufacturing housings for laboratory diagnostics, blasting agents for the steel industry, and bolt welding technology, for example for structural connecting elements used in bridge construction.
The segment as a whole covers a very broad spectrum. To boost innovative growth areas, particularly those involving carbide, INDUS aims to increase growth through acquisitions and greater internationalization. Other sub-areas are the focus of further optimization.
The Metals Technology segment recorded a 12.0% (EUR41.2 million) increase in sales, to EUR 385.6 million, as compared to the previous year. This growth was generated in particular by the larger portfolio companies. At EUR 24.2 million, the operating result (EBIT) declined against the previous year's figure EUR 29.9 million, which equates to an EBIT margin of 6.3%. The restructuring processes underway at one portfolio company unit are radical and involve measures relating to strategy, location analysis, and cost optimization. The process is ongoing. The majority of the work is expected to be completed by mid-2018. The other portfolio companies in this segment achieved good to excellent results and, as suppliers to the construction industry and the Engineering segment, benefited from the favorable business climate in these areas.
Investments amounted to EUR 14.5 million. This figure is on a par with the last year, and investments were made exclusively in property, plant and equipment, and intangible assets. Machinery and equipment to increase automation in production were the focus of the purchasing activities.
| KEY FIGURES FOR METALS TECHNOLOGY | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE BET WEEN 2017 AND 2016 |
|||||
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | |
| Sales with external third parties | 385.6 | 344.4 | 359.9 | 41.2 | 12.0 |
| EBITDA | 37.7 | 43.1 | 41.0 | -5.4 | -12.5 |
| Depreciation/amortization | -13.5 | -13.2 | -12.4 | -0.3 | 2.3 |
| EBIT | 24.2 | 29.9 | 28.6 | -5.7 | -19.1 |
| EBIT margin in % | 6.3 | 8.7 | 7.9 | -2.4pp | – |
| Investments | 14.5 | 14.5 | 21.8 | 0.0 | 0.0 |
| Employees | 1,538 | 1,439 | 1,395 | 99 | 6.9 |
Financial management at INDUS Holding AG is concerned primarily with liquidity management, procuring equity and outside capital, and managing interest rate and currency risks. As an asset-managing financial holding company, INDUS engages in liquidity management without central cash pooling. For financial management purposes, INDUS relies mainly on long-term bank loans and promissory note loans.
Every single portfolio company has an individual financial and liquidity management system of its own, with INDUS available to them for advice.
INDUS can invest flexibly at any time owing to its comfortable liquidity base in combination with financing commitments from banks. For its financing purposes, INDUS relies on its long-term ties with a number of solid German financial institutions as partners. Factors stabilizing its long-term financing needs include broad diversification of the loan volume across many financial institutes, a balanced redemption structure, and use of a spectrum of alternative financing instruments. To contain market price risks, the Group employs interest rate and currency derivatives. These are used exclusively for risk-hedging purposes.
Financial and liquidity management has three objectives: securing sufficient liquidity reserves, risk limitation, and earnings and cost optimization. Securing liquidity assumes special importance since liquidity enables INDUS not only to meet its payment obligations at all times, but also to exploit acquisition opportunities with as little dependence on banks as possible.
The risk-limiting activities focus primarily on hedging against financial risks that might jeopardize the continued existence of INDUS. The most important financing sources are cash flows from current business operations (operating cash flow). The treasury department carefully monitors the use of funds by the subsidiaries and the investing of cash and cash equivalents.
Another objective of the individualized and joint finance and liquidity management system is to optimize net current assets (working capital). This frees up liquid assets, keeps debt levels low, and optimizes key financial indicators for the balance sheet structure (e. g., equity ratio) and return on capital. INDUS assists the companies in their management of working capital, with responsibility lying entirely with the companies.
INDUS does not have rating agencies assess their creditworthiness since lenders have so far not regarded such ratings as relevant. This also saves INDUS a considerable amount of time and money. The ratings undertaken by INDUS's principal banks are "investment grade".
INDUS continued in 2017 to use operating cash flow and long-term financing to cover its capital requirements. The main components continued to be long-term unsecured loan agreements, promissory note loans and, to a lesser extent, off-balance sheet financing instruments such as operating leases. These instruments are reasonably scaled to INDUS's business volume.
There was on the whole little change in the off-balance sheet financing instruments and obligations in 2017. INDUS uses as off-balance sheet forms of financing primarily rent and leasehold agreements, especially for EDP accessories and company cars. Future operating lease commitments amounted to EUR 72.0 million as of December 31, 2017 (previous year: EUR 68.3 million).
Liabilities to banks amounted to EUR 346.9 million as of the reporting date (previous year: EUR 386.6 million); almost all of these (99%) were incurred in euros. The volume of loans in foreign currencies is low and consists of one loan in Swiss francs worth EUR 0.7 million (previous year: EUR 2.7 million) and one in South African rands, worth EUR 1.0 million. Financial liabilities include liabilities amounting to EUR 6.7 million (previous year: EUR 8.1 million) from finance leases for real estate and machinery. These were incurred mainly for the acquisition of HAKAMA in 2010, which was transacted as an asset deal. There are promissory note loans totaling EUR 181.2 million (previous year: EUR 109.0 million). It also has unused credit lines totaling EUR 34.0 million (previous year: EUR 28.7 million).
Pursuant to loan agreements, INDUS entered into obligations to maintain a minimum equity ratio for the holding company. The required ratio was considerably exceeded again in the last fiscal year. The lenders have extraordinary termination rights in the event of a change of control. Certain key figures have been defined for two promissory note loans.
CONSOLIDATED STATEMENT OF CASH FLOWS, CONDENSED (in EUR million) 2017 2016 2015 Operating cash flow 145.0 137.9 157.3 Interest -21.0 -23.4 -26.4 Cash flow from operating activities 124.0 114.5 130.9 Cash outflow from investments and acquisitions -113.9 -108.1 -118.4 Cash inflow from the disposal of assets 3.9 3.7 5.6 Cash flow from investing activities -110.0 -104.4 -112.8 Dividends paid to shareholders -33.0 -29.3 -29.3 Dividends paid to non-controlling shareholders -0.7 -0.4 0.0 Cash outflow from the repayment of contingent purchase price commitments -0.8 0.0 0.0 Cash inflow from raising of loans 151.0 132.3 126.9 Cash outflow from the repayment of loans -120.4 -117.5 -100.7 Cash flow from financing activities -3.9 -14.9 -3.1 Net changes in financial facilities 10.1 -4.8 15.0 Changes in cash and cash equivalents caused by currency exchange rates -1.4 0.2 0.7 Cash and cash equivalents at the beginning of the period 127.2 132.2 116.5 Cash and cash equivalents at the end of the period 135.9 127.2 132.2
Earnings after tax rose by EUR 2.7 million to EUR 83.1 million in 2017 (previous year: EUR 80.4 million). The increase in inventory assets and increase in receivables had the effect of reducing liquidity. Despite this, at EUR 145.0 million, operating cash flow improved by EUR 7.1 million against the previous year ( EUR 137.9 million).
The interest that was paid (including variable interest on the purchase price commitment to minority shareholders) was, at EUR -21.2 million, just less than the EUR -23.9 million that was paid in the previous year. This reflects, more than anything, the continuing drop in interest expense resulting from the rolling repayment of non-current financial liabilities that have higher interest rates and new borrowing on better terms.
Cash flow from operating activities came to EUR 124.0 million. It improved by EUR 9.5 million, particularly due to the improvement in earnings after taxes (+EUR 2.7 million) and higher depreciation/amortization (+EUR 6.4 million).
Cash flow from investing activities amounted to EUR -110.0 million at the end of the year (previous year: EUR -104.4 million); this item includes the acquisition of M+P INTER-NATIONAL and PEISELER.
Cash flow from financing activity decreased from EUR -14.9 million to EUR -3.9 million. The main reason for this was higher net borrowing as compared to the previous year. Amidst all of its financing activity, as of the end of 2017 INDUS continued to possess a high degree of liquidity. As of the reporting date, cash and cash equivalents amounted to EUR 135.9 million (previous year: EUR 127.2 million). A detailed statement of cash flows is part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION, CONDENSED (in EUR million)
| DIFFERENCE BET WEEN 2017 AND 2016 | ||||
|---|---|---|---|---|
| DEC. 31, 2017 | DEC. 31, 2016 | ABSOLUTE | IN % | |
| ASSETS | ||||
| Non-current assets | 953.6 | 885.8 | 67.8 | 7.7 |
| Fixed assets | 942.2 | 880.5 | 61.7 | 7.0 |
| Receivables and other assets | 11.4 | 5.3 | 6.1 | 115.1 |
| Current assets | 699.6 | 635.8 | 63.8 | 10.0 |
| Inventories | 339.2 | 308.7 | 30.5 | 9.9 |
| Receivables and other assets | 224.5 | 199.9 | 24.6 | 12.3 |
| Cash and cash equivalents | 135.9 | 127.2 | 8.7 | 6.8 |
| Total assets | 1,653.2 | 1,521.6 | 131.6 | 8.6 |
| LIABILITIES | ||||
| Non-current liabilities | 1,234.8 | 1,150.9 | 83.9 | 7.3 |
| Equity | 673.8 | 644.6 | 29.2 | 4.5 |
| Borrowings | 561.0 | 506.3 | 54.7 | 10.8 |
| of which provisions | 46.3 | 31.2 | 15.1 | 48.4 |
| of which current liabilities and deferred taxes | 514.7 | 475.1 | 39.6 | 8.3 |
| Current liabilities | 418.4 | 370.7 | 47.7 | 12.9 |
| of which provisions | 72.4 | 65.6 | 6.8 | 10.4 |
| of which liabilities | 346.0 | 305.1 | 40.9 | 13.4 |
| Total assets | 1,653.2 | 1,521.6 | 131.6 | 8.6 |
As of the reporting date, total assets of the INDUS Group amounted to EUR 1,653.2 million, an 8.6% increase from the previous year's reporting date. The increase was attributable mainly to the acquisitions, but the increase in business operations also contributed significantly to the increase in total assets.
Non-current assets increased by EUR 67.8 million, or 7.7%, to EUR 953.6 million as compared to the previous reporting date. The increase was primarily in fixed assets. Goodwill increased by EUR 19.9 million (+4.9%), intangible assets by EUR 12.1 million (+16.3%). The acquisition of M+P INTER-NATIONAL and the PEISELER Group were a major factor in the increase in both items.
Tangible fixed assets increased by EUR 27.7 million as compared to the previous year. The precipitating factor was, aside from the addition of new companies, the further increase in investments in property, plant and equipment. The value of the portfolio companies measured at equity was as of December 31, at EUR 10.9 million, EUR 0.4 million higher than it was a year before.
Current assets increased by EUR 63.8 million, or 10.0%, to EUR 699.6 million as compared to the previous reporting date, while inventories increased by 9.9%. The increase in inventories by EUR 30.5 million is largely attributable to new acquisitions to build up the inventories of particular portfolio companies. The increase in receivables amounts to EUR 19.9 million (+11.2%) and is due to increased sales, the new companies, and one-off effects relating to the reporting date. Cash and cash equivalents increased by EUR 8.7 million and remain at a very high level.
Equity increased by 4.5%, to EUR 673.8 million, owing to, among other factors, the high annual result. The outflow of dividends was therefore overcompensated by current earnings. The equity ratio fell year on year from 42.4% to 40.8% as of the reporting date. The equity ratio thus remains above the lower limit of 40%, which was defined as the target.
Non-current liabilities were, at EUR 561.0 million, 10.8% higher than the previous year's figure. Non-current financial liabilities increased by EUR 49.8 million. This increase is linked to a reduction in current financial liabilities and expansion of business activities. Non-current other liabilities changed in the opposite direction, decreasing by EUR 18.6 million. The addition of contingent purchase price commitment from company acquisitions was overcompensated for by maturity-contingent reclassifications in the current category. Deferred taxes increased by EUR 8.3 million, primarily due to the initial consolidation of M+P INTERNATIONAL and PEISELER.
A 12.9% increase was registered in current liabilities. This equates to EUR 47.7 million. Current financial liabilities were brought down EUR 18.7 million to EUR 95.3 million. There was an increase, on the other hand, in trade payables (+ EUR 10.8 million) and other current liabilities (+ EUR 46.6 million) as a result of the growth in sales. The increase in other current liabilities is primarily the result of maturity-contingent reclassifications of contingent purchase price commitment to current items, new purchase price commitment and an increase in production orders with a net debit balance
| WORKING CAPITAL | (in EUR million) | |||
|---|---|---|---|---|
| DIFFERENCE BETWEEN 2017 AND 2016 |
||||
| DEC. 31, 2017 | DEC. 31, 2016 | ABSOLUTE | IN % | |
| Inventories | 339.2 | 308.7 | 30.5 | 9.9 |
| Trade receivables | 197.5 | 177.6 | 19.9 | 11.2 |
| Trade payables | -66.2 | -55.4 | -10.8 | 19.5 |
| Advance payments received | -18.6 | -20.5 | 1.9 | -9.3 |
| Construction contracts with a negative balance | -49.0 | -37.9 | -11.1 | 29.3 |
| Working capital | 402.9 | 372.5 | 30.4 | 8.2 |
INDUS calculates working capital by adding trade receivables to inventories and deducting trade payables along with received prepayments and production orders with a net debit balance. As of December 31, 2017, working capital stood at EUR 402.9 million. This represents an increase against the previous year's reporting date of 8.2%. Relative to overall performance, it decreased from 25.1% last year to 24.2% in the year under review.
| NET FINANCIAL LIABILITIES | (in EUR million) | |||
|---|---|---|---|---|
| DIFFERENCE BETWEEN 2017 AND 2016 |
||||
| DEC. 31, 2017 | DEC. 31, 2016 | ABSOLUTE | IN % | |
| Non-current financial liabilities | 439.5 | 389.8 | 49.7 | 12.8 |
| Current financial liabilities | 95.3 | 114.0 | -18.7 | -16.4 |
| Cash and cash equivalents | -135.9 | -127.2 | -8.7 | 6.8 |
| Net financial liabilities | 398.9 | 376.6 | 22.3 | 5.9 |
INDUS calculates financial liabilities as the difference between cash and cash equivalents and current and non-current financial liabilities. As of December 31, 2017, it amounted to EUR 398.9 million, which equates to an increase of 5.9% as compared to the previous year's reporting date. The ratio of net debt to equity (gearing) is 59% (previous year: 58%). The net debt/EBITDA ratio is 1.9 (previous year: 1.9). The repayment term therefore remains below the target corridor of 2 to 2.5 years.
INVESTMENTS AND DEPRECIATION/AMORTIZATION (in EUR million)
| DIFFERENCE BETWEEN 2017 AND 2016 |
|||||
|---|---|---|---|---|---|
| IN % | ABSOLUTE | 2015 | 2016 | 2017 | |
| 7.2 | 7.5 | 107.3 | 103.9 | 111.4 | Investments |
| of which in: | |||||
| 8.4 | 2.5 | 34.3 | 29.9 | 32.4 | Company acquisitions |
| – | -4.0 | 0.0 | 4.0 | 0.0 | Investments according to the equity method |
| -25.2 | -2.6 | 8.7 | 10.3 | 7.7 | Intangible assets |
| 19.4 | 11.6 | 64.3 | 59.7 | 71.3 | Property, plant and equipment |
| of which in: | |||||
| >100 | 3.9 | 15.2 | 3.3 | 7.2 | Land and buildings |
| -16.3 | -4.0 | 19.0 | 24.5 | 20.5 | Technical equipment and machinery |
| 8.1 | 1.4 | 16.0 | 17.3 | 18.7 | Other equipment, factory and office equipment |
| 70.5 | 10.3 | 14.1 | 14.6 | 24.9 | Prepayments and facilities under construction |
| 11.4 | -6.4 | -50.1 | -56.0 | -62.4 | Depreciation/amortization |
Investments in the year under review was 7.2% higher than in the previous year and reached EUR 111.4 million. Of this amount, EUR 32.4 million was attributable to company acquisitions (+8.4%), EUR 71.3 million to investments in property, plant, and equipment (+19.4%), and EUR 7.7 million to investment in intangible assets (-25.2%). Investments in company acquisitions remained at the high level seen in the past years. Two growth companies were acquired for the portfolio in the current year.
The primary focus of the investments remained investments in property, plant and equipment. The funds used by the portfolio companies are intended to improve the portfolio companies' value-added processes and strengthen the companies' competitive position. The investment projects include a diverse range of individual measures.
Investments in land and buildings include in particular a new production location for MIKROP in Serbia (EUR 1.1 million) and a building extension at RÜBSAMEN (EUR 1.2 million).
Larger individual investments made in 2017 in technical equipment included the acquisition of a powder-coating machine for OBUK (EUR 2.1 million), a soldering line with tempering function for BETEK (EUR 1.6 million), series production machinery for SELZER (EUR 2.2 million) and an automatic parts storage facility for OFA (EUR 1.3 million).
Advance payments significantly increased by EUR 10.3 million, to EUR 24.9 million. They primarily relate to the construction of a heating hose production facility and a new administration building for ELTHERM (EUR 3.3 million). Investments in intangible assets registered a decrease of EUR 2.6 million to EUR 7.7 million.
Depreciation/amortization increased by 11.4% to EUR -62.4 million, owing to the high volume of investment activity
INDUS Holding AG's annual financial statements are prepared in accordance with the German Commercial Code (HGB) and summarized in the following tables. The complete annual financial statements are available separately.
| 2017 | 2016 | 2015 | ABSOLUTE | IN % | ||
|---|---|---|---|---|---|---|
| Sales | 5.6 | 5.3 | 6.3 | 0.3 | 5.7 | |
| Other operating income | 2.2 | 4.5 | 5.3 | -2.3 | -51.1 | |
| Personnel expenses | -6.0 | -5.7 | -6.0 | -0.3 | 5.3 | |
| Other operating expenses | -12.7 | -7.3 | -6.1 | -5.4 | 74.0 | |
| Income from investments | 74.5 | 67.7 | 55.4 | 6.8 | 10.0 | |
| Income from long-term loans classified as financial assets | 49.8 | 46.5 | 43.7 | 3.3 | 7.1 | |
| Other interest and similar income | 6.6 | 7.4 | 10.4 | -0.8 | -10.8 | |
| Impairment of on intangible assets and property, plant and equipment | -0.5 | -0.5 | -0.6 | 0.0 | 0.0 | |
| Impairment of financial assets | -12.7 | -12.5 | -5.0 | -0.2 | 1.6 | |
| Expenses from loss absorption | -5.8 | -9.5 | -12.6 | 3.7 | -38.9 | |
| Interest and similar expenses | -11.9 | -12.5 | -14.3 | 0.6 | -4.8 | |
| Earnings from ordinary business activities | 89.1 | 83.4 | 76.5 | 5.7 | 6.8 | |
| Taxes | -7.3 | -8.4 | -8.1 | 1.1 | -13.1 | |
| Net income | 81.8 | 75.0 | 68.4 | 6.8 | 9.1 | |
| Profit carried forward | 1.7 | 2.2 | 1.7 | -0.5 | -22.7 | |
| Retained earnings | 83.5 | 77.2 | 70.1 | 6.3 | 8.2 |
The earnings of INDUS Holding AG derive primarily from income from portfolio companies and loans of financial assets.
Sales comprise services performed for the portfolio companies by the company in its capacity as an asset-managing holding company. At EUR 5.6 million, they were EUR 0.3 million higher than the previous year's figure.
Other operating income declined from EUR 4.5 million to EUR 2.2 million owing to less income from appreciation of financial assets (- EUR 2.0 million). Personnel expenses rose slightly from EUR 5.7 million in 2016 to EUR 6.0 million. Other operating expenses increased by EUR 5.4 million, to EUR 12.7 million. Higher exchange rate losses and higher legal and consulting expenses were incurred in the year under review.
STATEMENT OF INCOME FOR INDUS HOLDING AG (in EUR million)
Income from the portfolio companies increased once again, due to the good results achieved by the subsidiaries. Last year this income amounted to EUR 67.7 million. In the year under review, we were able to appropriate income from the portfolio companies in the amount of EUR 74.5 million. Income from long-term loans classified as financial assets rose, by EUR 3.3 million, and reached EUR 49.8 million. At EUR 6.6 million, interest income was below the level recorded in the previous year (EUR 7.4 million).
Depreciation and amortization on property, plant and equipment, and intangible assets remains unchanged against the previous year at EUR 0.5 million. The impairments of long-term financial assets relate to impairments recorded pursuant to impairment testing of investment carrying amounts. In the year under review, carrying amounts of investments in subsidiaries in the Metals Technology segment were impaired in the amount of EUR 12.7 million. Expenses from loss absorption, on the other hand, were reduced from EUR 9.5 million to EUR 5.8 million and relate to, among other things, losses from repositioning measures in the Automotive Technology segment. Interest expense in the amount of EUR 11.9 million was EUR 0.6 million less than the previous year's figure.
Thus on the whole, earnings from ordinary business activities improved to EUR 89.1 million. Taxes for the financial year amounted to EUR 7.3 million, EUR 1.1 million less than in the previous year. Net income for the year therefore improved by EUR 6.8 million to EUR 81.8 million.
| STATEMENT OF FINANCIAL POSITION OF INDUS HOLDING AG | (in EUR million) | |
|---|---|---|
| DEC. 31, 2017 | DEC. 31, 2016 | |
| ASSETS | ||
| Intangible assets | 0.1 | 0.2 |
| Property, plant and equipment | 6.0 | 4.0 |
| Financial assets | 1,125.4 | 1,046.7 |
| Fixed assets | 1,131.5 | 1,050.9 |
| Receivables and other assets | 313.0 | 287.4 |
| Cash on hand and bank balances | 6.0 | 21.6 |
| Current assets | 319.0 | 309.0 |
| Prepaid expenses | 0.3 | 0.3 |
| Total assets | 1,450.8 | 1,360.2 |
| LIABILITIES | ||
| Equity | 855.6 | 806.9 |
| Provisions | 5.3 | 5.5 |
| Liabilities | 546.3 | 503.7 |
| Deferred tax liabilities | 43.6 | 44.1 |
| Total assets | 1,450.8 | 1,360.2 |
The holding company's statement of financial position reflects the carrying amounts of the portfolio companies along with long- and short-term loans to the portfolio companies. The total assets of INDUS Holding AG increased by 6.7%, this is particularly due to the acquisition of M+P INTERNATIONAL and PEISELER, but also the additional financing provided for higher business volumes at the subsidiaries. As of December 31, 2017, total assets amounted to EUR 1,450.8 million. As a result, financial assets increased by EUR 78.7 million.
Current assets increased by EUR 10.0 million, to EUR 319.0 million. This is due to higher receivables and other assets (+ EUR 25.6 million). Cash and cash equivalents decreased by EUR 15.6 million, to EUR 6.0 million.
The equity of INDUS Holding AG was increased in the period under review by EUR 48.7 million, to EUR 855.6 million. The equity ratio as of December 31, 2017, amounted to 59.0% and is only slightly below the equity ratio as of December 31, 2016 (59.3%). Liabilities are, at EUR 546.3 million as of December 31, 2017, higher by EUR 42.6 million than as of December 31, 2016. This relates to liabilities to banks and liabilities to affiliated companies.
INDUS employed a total of 30 employees, not including the Board of Management, as of December 31, 2017 (previous year: 26 employees.
The Compensation Report describes the principles underlying the system by which the members of the Board of Management of INDUS Holding AG are compensated, and it explains the structure and amount of the individual members' income. The report also contains the particulars of the principles and the amount of compensation paid to members of the Supervisory Board.
The Compensation Report covers the applicable provisions of the German Commercial Code (HGB), the German Accounting Standards (DRS 17), the laws governing disclosure and appropriateness of the compensation paid to Board of Management members (VorstAG, VorstOG) and the principles of the German Corporate Governance Code (DCGK).
The Board of Management compensation system was reviewed in 2009 and presented at the 2010 Annual Shareholders' Meeting. In accordance with legal requirements, the compensation system consists of three elements: Fixed salary, short-term incentives and long-term incentives. Variable components account for more than 40% of compensation; components with a multi-year measurement base and shortterm variable components are weighted accordingly. A sustainability component was introduced for the first time in the 2016 fiscal year.
The short-term incentive is calculated on the basis of earnings before taxes and interest (consolidated EBIT before impairment for goodwill). The target is set annually as part of the corporate planning process with the Supervisory Board. If the target is attained in full (100%), the bonus factor is like-
| BOARD OF MANAGEMENT REMUNERATION – GRANTED BENEFITS | (in EUR '000) | |||||||
|---|---|---|---|---|---|---|---|---|
| CHAIRMAN OF THE BOARD OF MANAGEMENT (SINCE 2012; BOARD MEMBER SINCE 2008) |
JÜRGEN ABROMEIT | AXEL MEYER BOARD MEMBER (SINCE 2017) |
||||||
| 2016 | 2017 | 2017 (MIN.) | 2017 (MAX.) | 2016 | 2017 | 2017 (MIN.) | 2017 (MAX.) | |
| Basic salary | 550 | 625 | 625 | 625 | 0 | 85 | 85 | 85 |
| Ancillary benefits | 20 | 17 | 17 | 17 | 0 | 7 | 7 | 7 |
| Total | 570 | 642 | 642 | 642 | 0 | 92 | 92 | 92 |
| One-year variable remuneration Multi-year variable remuneration |
270 | 270 | 0 | 405 | 0 | 43 | 0 | 64 |
| Tranche 2016* | 140 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Tranche 2017** | 0 | 140 | 0 | 280 | 0 | 18 | 0 | 35 |
| Total | 410 | 410 | 0 | 685 | 0 | 61 | 0 | 99 |
| Benefit expenses | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Totel compensation | 980 | 1.052 | 642 | 1.327 | 0 | 153 | 92 | 191 |
* Tranche 2016: Virtual stock options (Jan. 1, 2016 - Dec. 31, 2021)
** Tranche 2017: Virtual stock options (Jan. 1, 2017 – Dec. 31, 2022)
wise 100%. If the target attainment is less than 50%, the resulting value for the bonus factor is 0. If it is between 50% and 125%, the bonus factor is twice the degree in excess of 50% to which the target is attained. If the target attainment is greater than 125%, a cap (maximum upper limit) applies.
The long-term incentive consists of "virtual" stock options (SAR, stock appreciation rights). These involve the setting of an exercise price for stock appreciation rights as of the issue date. The contractually agreed target amount determines the number of virtual stock options. A payout can be made only if the share price is higher than this exercise price in the exercise period, and defined success hurdles are cleared (minimum price increase of 12%). The earliest possible payout date is subject to a four-year blocking period, and an upper limit (cap) applies when 200% of the target bonus is achieved. The number of SARs granted to Board of Management members in annual tranches is determined based on the option price at the grant date and the contractually specified target price. The options are non-forfeitable from the date they are granted.
In fiscal 2017, 42,887 SARs were granted (previous year: 40,241). On the date on which they were granted, the total fair value of the SARs was EUR 298,000 (previous year: EUR 280,000). The fair value of previously granted SARs was calculated at a total of EUR 1,978,000 on the reporting date (previous year: EUR 1,974,000). A provision in this amount was formed in the annual financial statements. Personnel expenses include the EUR 564,000 change in fair value before discounting (previous year: EUR 567,000). The time value calculation is based on an option-price model of Black/Scholes and reasonable volatility on the part of INDUS, along with a risk-free interest rate that takes the capping of payment claims into account. For the 2016 and 2017 fiscal years, Board of Management compensation was
| RUDOLF WEICHERT BOARD MEMBER (SINCE 2012) |
DR. JOHANNES SCHMIDT BOARD MEMBER (SINCE 2006) |
||||||
|---|---|---|---|---|---|---|---|
| 2017 (MAX.) | 2017 (MIN.) | 2017 | 2016 | 2017 (MAX.) | 2017 (MIN.) | 2017 | 2016 |
| 340 | 340 | 340 | 340 | 387 | 387 | 387 | 370 |
| 31 | 31 | 31 | 32 | 17 | 17 | 17 | 18 |
| 371 | 371 | 371 | 372 | 404 | 404 | 404 | 388 |
| 255 | 0 | 170 | 170 | 255 | 0 | 170 | 170 |
| 0 | 0 | 0 | 70 | 0 | 0 | 0 | 70 |
| 140 | 0 | 70 | 0 | 140 | 0 | 70 | 0 |
| 395 | 0 | 240 | 240 | 395 | 0 | 240 | 240 |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 766 | 371 | 611 | 612 | 799 | 404 | 644 | 628 |
reported in individualized form on the basis of the standard tables recommended by the German Corporate Governance Code.
Ancillary benefits include taxable non-cash benefits, primarily company cars. Deferred salary plans resulted in the accumulation of pension rights by a former Board of Management member. These were covered by reinsurance policies of corresponding value.
In accordance with the recommendation in item 4.2.3(2) of the German Corporate Governance Code, the Board of Management's compensation is to include upper limits overall and in regard to variable remuneration. The maximum remuneration for the Board of Management can be found in the table "Granted Benefits".
| BOARD OF MANAGEMENT REMUNERATION – AMOUNTS RECEIVED IN YEAR UNDER REVIEW (in EUR '000) |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| JÜRGEN ABROMEIT CHAIRMAN OF THE BOARD OF MANAGEMENT (SINCE 2012; BOARD MEMBER SINCE 2008) |
AXEL MEYER BOARD MEMBER (SINCE 2017) |
DR. JOHANNES SCHMIDT BOARD MEMBER (SINCE 2006) |
RUDOLF WEICHERT BOARD MEMBER (SINCE 2012) |
|||||||
| 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | |||
| Basic salary | 550 | 625 | 0 | 85 | 370 | 387 | 340 | 340 | ||
| Ancillary benefits | 20 | 17 | 0 | 7 | 18 | 14 | 32 | 31 | ||
| Total | 570 | 642 | 0 | 92 | 388 | 401 | 372 | 371 | ||
| One-year variable remuneration | 377 | 398 | 0 | 38 | 240 | 251 | 240 | 251 | ||
| Multi-year variable remuneration | ||||||||||
| Tranche 2012* | 210 | 0 | 0 | 0 | 140 | 0 | 93 | 0 | ||
| Tranche 2013** | 0 | 280 | 0 | 0 | 0 | 140 | 0 | 140 | ||
| Total | 587 | 678 | 0 | 38 | 380 | 391 | 333 | 391 | ||
| Benefit expenses | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||
| Total compensation | 1,157 | 1,320 | 0 | 130 | 768 | 792 | 705 | 762 |
* Tranche 2012: Virtual stock options (Jan. 1, 2012 - Dec. 31, 2017)
** Tranche 2013: Virtual stock options (Jan. 1, 2013 – Dec. 31, 2018)
Supervisory Board compensation is governed by Item 6.16 of the articles of association. In addition to reimbursement of out-of-pocket expenses incurred in performing their duties in the fiscal year ended, all Supervisory Board members receive basic compensation of EUR 30,000 along with an attendance fee of EUR 3,000 per meeting. The Chairman receives double the two aforementioned sums, and his deputy receives one-and-a-half times these amounts. No additional fee is paid to committee members for committee meetings held on the same day as Supervisory Board meetings. Nor are attendance fees paid for resolutions taken by circulating written ballots. The chairman and deputy chairman of the Nomination Committee and Audit Committee do not receive additional fees. Supervisory Board members who do not serve for the entire fiscal year receive pro rata compensation. Compensation is reduced pro rata accordingly for failure to attend Supervisory Board meetings and/or committee meetings.
As in previous years, no loans or advances were granted to Supervisory Board members, nor any liabilities assumed on their behalf.
There are no stock option plans or similar securities-based incentive systems in place for Supervisory Board members. Total compensation paid to Supervisory Board members in the 2017 fiscal year was EUR 338,000 (previous year: EUR 338,000). No Supervisory Board member received fees for personally performed advisory services to Group companies (previous year: EUR 0). See 'Further Information' in the chapter of the same name for additional offices held by Board of Management or Supervisory Board members on legally mandatory Supervisory Boards or comparable domestic or foreign oversight bodies. See the Notes for related party disclosures.
Supervisory Board members received compensation as follows in the year under review:
| BASIC COMPENSATION | AT TENDANCE FEE |
TOTAL | |||||
|---|---|---|---|---|---|---|---|
| 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | ||
| Helmut Späth | 60 | 60 | 30 | 30 | 90 | 90 | |
| Dr. Jürgen Allerkamp | 45 | 45 | 23 | 23 | 68 | 68 | |
| Dr. Ralf Bartsch | 30 | 30 | 15 | 15 | 45 | 45 | |
| Dr. Dorothee Becker | 30 | 30 | 15 | 15 | 45 | 45 | |
| Prof. Dr. Kammerlander | 0 | 15 | 0 | 9 | 0 | 24 | |
| Hans Joachim Selzer | 30 | 15 | 15 | 6 | 45 | 21 | |
| Carl Martin Welcker | 30 | 30 | 15 | 15 | 45 | 45 | |
| Total | 225 | 225 | 113 | 113 | 338 | 338 |
As of December 31, 2017, the share capital of INDUS Holding AG amounted in total to EUR 63,571,323.62. This is divided into 24,450,509 no-par-value bearer shares. Each individual share entitles its holder to one vote. There are no different share classes. All shares carry the same rights and obligations. The rights and obligations are derived from provisions of law.
According to the information INDUS currently has, the insurer Versicherungskammer Bayern, Versicherungskammer des öffentlichen Rechts, Munich, held 19.4% of INDUS shares as of the reporting date.
There exist no shares with privileges conferring control rights. The Board of Management is not aware of any voting rights control in cases when employees hold shares of INDUS Holding AG without exercising their own control rights directly.
Members of the Board of Management are appointed and dismissed in accordance with the provisions of Sections 84 and 85 of the German Stock Corporation Act (AktG). The Articles of Incorporation do not contain any special rules in this regard. The Supervisory Board appoints members of the Board of Management for a maximum term of five years; repeat appointments by the Supervisory Board are permitted. In accordance with item 5.1 of the Articles of Incorporation, the Board of Management consists of one or more individuals. Pursuant to item 5.2 of the Articles of Incorporation, the Supervisory Board may appoint one Board of Management member as chairman or spokesman, and another member as deputy chairman.
In the event of a material change in the composition of the Supervisory Board and the company's business approach (change of control), the members of the Board of Management of INDUS Holding AG have a special right to terminate their employment contracts within one year. In the event of a dismissal for cause, or if the Board of Management is dismissed within one year after a change of control without good cause within the meaning of § 626 BGB, the company will pay out severance to the members of the Board of Management. The severance payment will be based on the full remuneration, including all fixed and variable components and non-cash benefits. The severance payment will be paid until the end of the contract or in the case of termination, for a maximum of two years, and in case of dismissal, at least two years.
Amendments to the articles of association are made in accordance with Section 179 of the German Stock Corporation Act (AktG) by resolution at the Annual Shareholders' Meeting. Amendments to the Articles of Incorporation are subject to approval by at least three-quarters of the share capital represented in the voting. Pursuant to item 7.12 of the articles of association, the Supervisory Board is authorized to adopt purely editorial amendments to the articles of association and, pursuant to item 4.5, to change wording to reflect the use of authorized capital.
The company's share capital was conditionally increased by up to EUR 11,700,000.04, divided into up to 4,500,000 no-par-value bearer or – insofar as the company's articles of association allow for the issue of registered shares at the time of issuance – registered shares (Contingent Capital 2013). The conditional capital increase is carried out only if the holders or creditors of convertible bonds or warrants from option bonds (or of a combination of these instruments) by the company or its Group companies pursuant to the authorization granted to the Board of Management by the Annual Shareholders' Meeting of June 24, 2013 exercise their conversion or option rights, or those obligated under the convertible bonds or option bonds (or a combination of these instruments) issued or guaranteed on or before June 23, 2018 by the company or its Group companies pursuant to the authorization granted to the Board of Management by the Annual Shareholders' Meeting of June 24, 2013 fulfill their conversion or option duty and the contingent capital is needed in accordance with the terms of the convertible bonds or option bonds.
The new shares participate in profits from the beginning of the fiscal year in which option or conversion rights are exercised or option or conversion obligations are fulfilled. The Supervisory Board is authorized to amend the wording of the Articles of Incorporation in accordance with such use of the contingent capital and to change all option or conversion deadlines after they expire.
In accordance with item 4.3 of the Articles of Incorporation, the Board of Management is authorized to increase the company's share capital one or more times (Authorized Capital 2014), up to a total of EUR 31,785,660.51 in exchange for cash and/or non-cash contributions (including mixed noncash contributions) until June 10, 2019, with the approval of the Supervisory Board, and to set a date other than as provided by law on which profit sharing is to begin, including retroactively for an already ended fiscal year, provided that no resolution has yet been taken regarding the profit. The shareholders are to be given subscription rights. The new shares may be assumed also by one or more financial institutions chosen by the Board of Management with the obligation to offer them to the shareholders (indirect subscription rights). The Board of Management is authorized, however, to exclude the shareholders' subscription rights in the following cases with the Supervisory Board's approval: to avoid fractional amounts; in a capital increase through cash contributions if the issue amount of the new shares issued with exclusion of subscriptions rights pursuant to Section 186(3) sentence 4 AktG is not significantly less than the exchange price and the new shares issued with exclusion of subscription rights pursuant to Section 186(3) sentence 4 AktG do not exceed in total 10% of the share capital, and do so neither at the time at which this authorization takes effect nor at the time at which this authorization is exercised. This limitation applies to shares that have been, or are to be, disposed of or issued, subject to exclusion of subscription rights, during the term of this authorization pursuant to other authorizations in direct application, or in application mutatis mutandis, of Section 186(3) sentence 4 AktG; in the case of a capital increase through non-cash contributions for the purpose in particular of acquiring a company, business divisions, an interest in a company, or other operating materials; or to grant to the holders of conversion or option rights to shares in the company, or of corresponding conversion or option duties to offset dilutions, a subscription right to the extent that they would be entitled to it after they have exercised these rights or fulfilled these duties as a shareholder.
The total number of shares issued or to be issued with exclusion of subscription rights owing to one of these authorizations may not exceed 10% of the share capital at the time at which the authorization is exercised; this includes shares issued or to be issued with exclusion of subscription rights owing to a different authorization during the term of this authorization. The Board of Management is authorized to establish, with the Supervisory Board's approval, the further particulars of the capital increase and its implementation, particularly the content of the share rights and the terms of the share issue, including the issue amount. The Supervisory Board is authorized to revise the Articles of Incorporation in accordance with the amount of the capital increase from authorized capital.
The Annual Shareholders' Meeting on June 3, 2015, also authorized the Board of Management, with the approval of the Supervisory Board, to buy back shares up to 10% of the company's share capital existing when the resolution is taken. The authorization took effect at the end of the Annual Shareholders' Meeting on June 3, 2015, and applies until June 2, 2020. The authorization may be exercised in full or in part and one or more times.
No more than 10% of the company's share capital may be bought back under this authorization, including shares already owned by the company and shares attributable to the company according to Sections 71a et seq. of the German Stock Corporation Act (AktG). The company may not exploit this authorization for the purpose of trading in its own shares.
The acquisition may take place in accordance with the following provisions over the stock exchange or by means of a public offer addressed to all shareholders:
shares offered for sale per shareholder as well as rounding according to commercial principles is acceptable to avoid remainder amounts. Any further right of the shareholders to tender is excluded.
The Board of Management is authorized to use the shares in the company acquired on the basis of the present authorization or of an authorization granted earlier, with the Supervisory Board's approval, in whole or in fractional amounts, one or several times, on the basis of one or several authorizations, with exclusion of the shareholders' subscription rights, as follows:
This authorization is limited in total to no more than 10% of the company's share capital at the time of the resolution of the Annual Shareholders' Meeting concerning this authorization or, if less, to 10% of the share capital at the time at which the shares are disposed of. The authorized volume decreases by the proportionate share of the company's share capital that is attributable to shares, or to which conversion and/or option rights or obligations from bonds relate, that have been distributed or disposed of with exclusion of subscription rights, in direct application, application mutatis mutandis, or analogous application of Section 186 (3) Sentence 4 of the AktG, since that authorization was granted.
The price at which shares are issued to third parties under this authorization may not be more than 5% less than the average share prices (closing auction prices in Deutsche Börse AG's "Xetra" trading in Frankfurt am Main or in a comparable successor system) on the last three days before the disposal obligation was created or the day of the stock market flotation;
The Board of Management also has the authority to redeem all or a part of the company's shares, with the approval of the Supervisory Board, without requiring a resolution from the Annual Shareholders' Meeting for the redemption or the performance of such. The redemption authorization can be used several times. Own shares can be recalled also in a simplified process without a capital reduction by adjusting the proportionate share of share capital attributable to each share in accordance with Section 237(3) No. 3 of the AktG. In this case, the Board of Management is authorized to adjust the number of registered shares in the Articles of Incorporation.
INDUS employs a professional opportunity and risk management system. It helps the management of INDUS achieve its corporate goals. The core task of this system is to discover opportunities early on and to enable their use following an appropriate opportunity/risk assessment. At the same time, it is intended to ensure that the company is able to respond appropriately and confidently when unplanned events occur.
INDUS promotes and supports the entrepreneurial potential inherent in the Group. To that end the Board of Management uses, among other things, the instrument of "strategic dialog" with the various managements. It assists the portfolio companies in part by discussing market and technological trends with the various managements at least once a year. These meetings allow the participants to discuss in particular, on an equal footing, the opportunities these trends present.
The Board of Management also regularly explores, independently of the portfolio companies, the possibilities for the Group's further strategic development, studying in particular such global growth drivers as digitalization, mobility, infrastructure, health, and security. The Board of Management expects that these areas will be sources of exceptional development opportunities for the Group companies and attractive acquisition opportunities for the holding company.
Apart from the strategic discussions between the Board of Management and the various managements, all of the companies track opportunities and risks in their operational planning and monthly information exchanges to better assess and evaluate the current earnings and liquidity situation of the individual businesses. This gives rise also to shortterm measures that the companies can take in the case at hand to exploit the opportunities that arise.
The holding company helps the portfolio companies exploit their opportunities by providing both advice and financial resources, for example for strategic additions at the company level. The opportunities the potential acquisitions present are evaluated by the responsible managing directors together with the Board of Management.
The opportunities are analyzed and developed locally, at an operational level, by the managing directors. These activities are based on analyses of the relevant markets and competitors and on various scenarios involving crucial cost drivers and success factors.
Opportunities emerge for the Group companies especially from the steady development of new products. Innovations help the companies maintain and enhance their positions in their niche markets. In dialog with their customers and suppliers, the portfolio companies analyze the possibilities for new applications for their technologies in the short, medium, and long terms. An important starting point for developing their businesses further is the product innovations of their customers themselves. New products often require innovative production processes, to which the portfolio companies can contribute their expertise.
INDUS provides support and advice for the portfolio companies' opportunity management efforts and offers potential solutions that the portfolio companies may individually access. A detailed description of these support measures may be found in the "Development and Innovation" section.
INDUS' business policy revolves around increasing the value of the portfolio. The most significant strategic opportunities therefore derive from acquiring, holding, and financing the portfolio companies' development possibilities. INDUS's M&A activities are therefore of central importance. To systematically take advantage of its acquisition opportunities, INDUS has identified in its strategic COMPASS 2020 program target markets in which potential new portfolio companies are expected to be found through active searching. The investment team at INDUS Holding AG is continually identifying potential target companies and analyzing them carefully. To find further interesting acquisition possibilities, INDUS is studying more closely, in addition to its five segment markets, those for infrastructure, transport and logistics, energy and environmental technology, measurement technology and control systems along with the field of safety technology.
To realize these opportunities, INDUS is continually expanding its network and increasingly enlisting the assistance of outside industry experts in recognition of the fact that the market for SMEs with less than EUR 100 million in annual sales is highly diversified. These consultants work exclusively for INDUS and identify suitable portfolio additions based on a clear set of requirements.
INDUS understands that, as a long-time buyer of the "hidden champions" among the SMEs, it occupies a special position in the marketplace. INDUS has an excellent reputation in the SME sector because it acquires companies to hold them for the long term and to assist them in their business development, not to sell them. Potential sellers often approach INDUS exclusively to make solid succession plans for their company.
Thanks to its long history of success, consistent business performance, and sound financing policies, INDUS has the necessary resources needed to purchase new companies at any time without depending on banks. This and a proven and expeditious acquisition process puts the Group in a position to make effective use of the opportunities the acquisition market offers and to complete sales negotiations in just a few weeks without the involvement of third parties.
INDUS portfolio companies are benefiting primarily from positive macroeconomic developments in the manufacturing sector. Vital stimuli for growth are likely to come in future mainly from China, the United States, and the emerging nations despite political uncertainties and current weaknesses in parts of Asia and some emerging countries. The global presence and strengthening of INDUS's portfolio companies make a contribution towards exploiting these opportunities in the relevant markets. The companies sometimes act in coordination when entering new regional markets.
INDUS's "hidden champions" have considerable development expertise. Environmental protection and energy efficiency are relevant in all manufacturing industries, and will remain important issues in the future. Energy prices and environmental standards will continue to rise over the long term. For this reason, INDUS expects investment in sustainable and energy-efficient production processes to increase. INDUS believes this will result in promising opportunities, particularly for companies in the Automotive Technology, Engineering, and Metals Technology segments.
The Construction/Infrastructure segment will benefit in both the short and medium terms from strong domestic demand for construction stimulated by inflation worries, a growing trend towards investment in real estate, and an increase in public investment in infrastructure.
Over the medium to long term, INDUS believes there will be consistently good growth opportunities for the Medical Engineering/Life Science segment, due to demographic changes and consistent demand for medical technologies and their ensuing life science applications.
Owing to geopolitical developments along with the consequences of increasing mobility and the global exchange of goods and information, there is a growing need for solutions in the field of safety technology.
INDUS Holding AG and its portfolio companies are exposed to a multiplicity of risks as a result of their international activities. Risk incidents can have adverse effects on the company's business activities and on its net assets, financial, and earnings position. Thus in compliance with industry standards and regulations INDUS Holding AG has established a risk management system to identify potential risks and observe and assess these across all functional areas. This risk management system rests upon the individual and independent risk management systems of the portfolio companies in close coordination with shareholder INDUS.
This risk management system is embedded in the information and communication system of INDUS Holding AG as an integral part of its business, planning, accounting, and management control processes. The structuring of the risk management system is the responsibility of the Board of Management, which ensures that risks are managed actively. The INDUS Holding AG risk management system is documented in the company's risk management manual.
The objective of the risk management system is to identify, take stock of, analyze, assess, manage, and monitor risks systematically. The Board of Management regularly, and as required by events, examines and revises the company's risk register. On this basis, the necessary risk control measures are defined and documented and their effectiveness is also monitored using the risk register. The Supervisory Board is regularly informed of the company's risk situation.
The Board of Management subjects the risk management system's structure and functional method to internal audits on a scheduled basis and as required. The results of these audits, together with the remarks made by the external auditor within the scope of the audit of the annual financial statements, then flow into the systematic optimization of the risk management system. The monitoring of the risk position over the course of the year, the assessment of the effectiveness of the risk management system, and measures implemented to improve it are all documented once a year in the company's annual risk management report.
The scope and form of INDUS Holding AG's accounting-related internal control system (ICS) are at the discretion of and the responsibility of the Board of Management. The Supervisory Board monitors the accounting process and the effectiveness of the ICS. The viability and effectiveness of the ICS at the portfolio companies is also assessed by the auditors of Group companies' financial statements. The viability and effectiveness of the ICS for INDUS Holding AG itself are assessed by the Board of Management.
The ICS is a set of principles, procedures, and measures aimed at ensuring proper accounting, which undergoes continuous optimization. The ICS is structured in such a way that the consolidated financial statements of INDUS Holding AG are prepared in accordance with International Financial Reporting Standards (IFRS) as applicable in the European Union (EU), and with the commercial code provisions as per Section 315e (1) of the German Commercial Code (HGB), which must additionally be observed. The separate financial statements are prepared in accordance with German Commercial Code (HGB). The ICS is structured for maximum effectiveness with regard to the objectives. Regardless of its structuring however, the ICS cannot provide absolute assurance of the avoidance or identification of accounting errors.
The consolidated accounting (hereinafter abbreviated as "accounting") and management report drafting processes are managed by the responsible employees in the management control department of INDUS Holding AG. Changes in the law, accounting standards, and other official acts are assessed for their relevance to and impact on the accounting process. Any resultant changes in the accounting processes are incorporated into centrally available procedural instructions and systems used for accounting purposes. The Group's current accounting policy is communicated to all employees of INDUS Holding AG and the portfolio companies who are involved in the accounting process. These elements, together with the financial statements calendar that is applicable Group-wide, constitute the basis of the financial statement preparation process.
The portfolio companies prepare their financial statements for consolidation purposes ("reporting packages") in accordance with the provisions of the Group's consolidated accounting guidelines. Reporting and consolidation processes are carried out at all portfolio companies by means of a standardized EDP system which is made available by INDUS Holding AG via a centralized procedure. This process for uniform, proper Group accounting is supported by procedural instructions and standardized reporting formats. In some cases, external service providers are engaged as well, for example to assess pension obligations.
To avoid risks in the accounting process, the ICS involves preventative and probing internal control procedures. These include in particular automated and manual reconciliation, separation of responsibilities, and dual review. These controls and instruments are continually optimized whenever weaknesses are identified, to eliminate potential risks.
The management control department of INDUS Holding AG ensures, through the appropriate processes, that the provisions of the consolidated accounting guidelines are complied with. Employees involved in the accounting process receive regular training. The portfolio companies are supported by central contact individuals throughout the entire accounting process.
The Board of Management of INDUS Holding AG and the managing directors of the portfolio companies are responsible for compliance with the guidelines in effect and the accounting procedures. They also ensure that their accounting processes and systems run properly and on time.
The portfolio companies and INDUS Holding AG identify and assess risks locally and initially by means of a bottom-up approach. The risk manager of INDUS Holding AG assists in this process. The risks are assessed on the basis of their potential effects and the probability of their occurrence. The probability of their occurrence relates to the forecast horizon. The overall assessment of the Group's risk exposure is based on an aggregation of the individual risks in each risk category. To illustrate the potential effects from the Group's perspective, the assessment focused on the sum of the gross risks' expected values, i. e., initially leaving out of consideration measures that had been implemented to minimize risk.
| BUSINESS RISKS (AS ASSESSED BY THE BOARD OF MANAGEMENT) | POSSIBLE FINANCIAL IMPACT (ESTIMATION OF GROSS RISKS) |
RISK SITUATION IN 2018 COMPARED WITH PREVIOUS YEAR |
|---|---|---|
| Business environment and sector risks | significant | unchanged |
| Corporate strategy risks | significant | unchanged |
| Performance risks | significant | unchanged |
| Personnel risks | low | increased |
| EDP risks | significant | unchanged |
| Financial risks | low | unchanged |
| Legal risks | significant | unchanged |
| Other risks | low | unchanged |
Extent of possible financial impact on consolidated result or consolidated EBIT: low (
The portfolio companies' business activities are subject to the close correlation between business results and developments in the overall economic environment. Along with the risks inherent in the business cycle, increases in energy and raw material prices pose risks to the performance of the individual companies and of the Group as a whole. INDUS avoids disproportional dependency on individual sectors through a well-balanced investment portfolio diversified into five segments. The portfolio companies' high degree of specialization and strong positions within their respective niche markets reduce their industry risk and the general economic risk. Fundamental risks arising from economic and sector-specific factors cannot be avoided. INDUS concentrates on the acquisition of medium-sized production companies in Germany and other German-speaking countries.
INDUS concentrates on the acquisition of medium-sized production companies in Germany and other German-speaking countries. Currently 50% of total sales are generated domestically (previous year: 51%). The Group's business is thus still strongly affected by the state of the German economy. In recent years, this dependency on the German market has decreased significantly thanks to strategic international business expansion. This regional diversification of operational activities reduces business risk for INDUS. Further internationalization will gradually de-prioritize the domestic market.
Risks associated with corporate strategy arise mainly from incorrect assessment of acquired portfolio companies' respective future business results and market growth. The company's long-term success depends principally on careful analysis of acquisition targets, and on the holding company's development of its investment portfolio. To minimize corporate strategy risks, the holding company employs an extensive analysis of the market in every industry, as well as proprietary analysis. These in-house analyses are subject to additional independent external opinions. The Board of Management decides on all new acquisitions following extensive review; an unanimous vote is required.
INDUS counters potential risks associated with inaccurate assessment of the portfolio companies' strategic positioning through its own close monitoring of markets and competitors, and by holding regular informative reviews with the portfolio companies' managing directors. All portfolio companies submit monthly data reports on their current business results and individual risk situation. The short- and medium-term projections for each of the portfolio companies are aggregated at the holding company level. This ensures that INDUS, as a shareholder, has a comprehensive overview at all times of the risk situation of both individual companies and of the Group.
In addition to the risks associated with corporate strategy, there are performance risks to which INDUS and its portfolio companies are exposed. These consist primarily of procurement risks, production risks, and sales risks.
The portfolio companies need raw materials and supplies sourced from various suppliers to manufacture products. Given the wide diversification of the INDUS Group's overall portfolio, procurement risks are of subordinate importance regarding their potential impact on the Group. A key strategy employed by all companies is securing the supply of important raw materials through long-term contracts. Purchase prices of raw materials and energy sources can vary considerably. Depending on the prevailing market situation, it may not always be possible for portfolio companies to pass the resulting costs on to customers quickly and in full. Operations managers stay in constant contact with suppliers and customers. This enables them to react promptly to any price or volume risks which may arise. Where necessary, the portfolio companies also employ raw material hedges to limit risks. Given the wide diversification of the INDUS Group's overall portfolio, production and sales risks are of subordinate importance considering their potential impact on the Group. INDUS regularly analyzes the customer structure in the Group; there are no individual product or service groups and no individual customers that account for more than 10% of sales.
Business performance risks also exist in connection with wage settlements with unions, as these costs generally cannot be passed on in full to customers, and can only be offset by productivity increases.
The long-term success of INDUS depends largely on its employees' expertise and commitment. Potential risks arise primarily in connection with recruitment and development of staff and employee turnover in key positions. INDUS contains these risks via targeted basic and advanced training measures and appropriate remuneration. Employees appreciate this caring corporate culture. This is reflected in low fluctuation. All these measures make the company an attractive employer, providing proactive mitigation of risks associated with employee turnover, demographic trends, and skill drain.
The companies of the INDUS Group conduct their personnel work independently. They are located in many different industries and regions, so that the risks of personnel recruitment and personnel development are highly diverse. In their reports to INDUS, they record on a monthly basis their personnel capacity and plan reserves so that they may take advantage of flexibility in production and personnel costs. Qualified personnel are a vital factor in the success of every portfolio company. In light of demographic developments and the currently very beneficial employment situation, the risk presented by a shortage of skilled personnel has increased. The portfolio companies are attempting to mitigate this risk by focusing their efforts on personnel training and development, and employer branding.
The basis of a modern work environment is formed by a secure and effective EDP infrastructure. Increased networking between different EDP systems and the need for these to be constantly available places high demands on the information technologies used. The company mitigates risks associated with computer crashes, network failure, unauthorized access to data, and data abuse by regularly investing in hardware and software, deploying virus scanners and firewall systems, and by using effective access controls. These measures are continuously monitored by internal and external experts.
The companies in the Group are increasingly dependent on the functionality and stability of the various individual EDP systems. Malfunctions or failures would have an immediate adverse financial impact. The loss of data or know-how and data manipulation pose further risks. The companies in the Group employ, depending on their individual risk exposure, various instruments to control risk. They range from emergency and data back-up processes to the use of modern anti-virus programs and firewall soft- and hardware, access control measures, and other preventative protection measures such as raising employee awareness and training. Measures to prevent, discover and handle cyber attacks remain absolutely relevant.
Financial risks consist primarily of liquidity risk, interest rate risk, foreign currency risk, and default risk. Individual portfolio companies finance themselves via their own operating income, as a policy. Depending on the liquidity situation, INDUS supports the portfolio companies with financing and makes funds available where necessary. The holding company keeps a suitable level of liquidity reserves allowing it to take action at any time, ensuring adequate financing for the portfolio companies.
A widely diversified financing structure, which is spread over nine core banks, keeps the company from being dependent on individual lenders, so that at this time the bank-related default risk the company is exposed to is limited. The largest single liability represents roughly 10%. The portfolio of companies, which is intended to be long term in nature, is financed by the holding company via a revolving long-term loan. Credit collateral is not held. The agreed covenants do not appear to pose a business risk at this time. For financing INDUS employs a mix of fixed-rate and variable financing, the latter being partially hedged via interest rate swaps. A change in interest rates during loan term would thus hardly affect income at all, as the aforementioned instruments nearly fully hedge interest rate risks, interest rate changes on variable debt being offset by the corresponding derivative financial instruments. The nominal volume of interest rate hedges totaled EUR 290.5 million as of December 31, 2017 (previous year: EUR 99.7 million).
Customer default risk is substantially limited by the widely diversified portfolio and the autonomy of the portfolio companies, which focus their activities on selling a variety of products in diverse markets. The portfolio companies also maintain their own effective systems for monitoring customer-related risks, take out trade credit insurance at their own discretion, and report any such risks to the holding company on a monthly basis.
There are foreign currency risks as a result of the individual portfolio companies' international activities. INDUS mitigates these risks by hedging transactions using forward exchange contracts and suitable option transactions. The nominal volume of exchange rate hedges totaled EUR 13.4 million as of December 31, 2017 (previous year: EUR 27.0 million); this was mainly attributable to the portfolio companies. Further explanation of financing matters may be found in the Notes under "Information on the significance of financial instruments".
INDUS Holding AG and its portfolio companies are exposed to numerous legal risks. These lie primarily in the areas of competition, antitrust, foreign trade, customs, and tax law. Risks also arise from the individual portfolio companies' operations, through warranty and product liability claims triggered by customer complaints. Effective contract and quality management minimizes this risk, but it cannot be eliminated completely. The holding company provides the companies in the Automotive Technology segment with consulting services to support their contract management. To ensure adequate risk provisioning, provisions in the amount of EUR 74.8 million were carried on the balance sheet in 2017 (previous year: EUR 67.8 million). The provisions included warranties due to obligations from selling or procurement, obligations for customer bonuses and rebates, estimated values for anticipated invoices, provisions for personnel costs, and other provisions.
Legal risks may arise from claims and actions against portfolio companies or administrative proceedings. Claims asserted by third parties are carefully and independently examined on their merits by INDUS or the portfolio company. Where necessary, external lawyers are commissioned for judicial and extra-judicial proceedings. The individual risks in this area are classed as low to medium. INDUS forms provisions if payment obligations seem likely and the corresponding amount can be reliably estimated.
In the non-financial explanation, INDUS reports risks linked to the Group's business activities, business relationships, products, and services, and which would likely have serious negative consequences on reportable aspects (environmental, employee, and social concerns, respect for human rights, and combating corruption and bribery). In the year under review, no reportable individual risks were identified in connection with sustainability aspects.
Based on its corporate strategy of pressing ahead with diversification by continuously enlarging its investment portfolio, the Group recognized EUR 428.6 million in goodwill (previous year: EUR 408.7 million). According to IAS 36, this must be subjected to an impairment test at least once a year. If an impairment is found to be evident, goodwill must be written down accordingly. There were no impairments in the year under review (previous year: EUR 0 million).
NO GOING CONCERN RISKS DISCERNIBLE, OPPORTUNITY FOR ORGANIC GROWTH AND GROWTH THROUGH ACQUISITIONS IN 2018
In fiscal 2017, INDUS continued pursuing its long-term corporate strategy. The ongoing positive liquidity situation was used to acquire two new direct companies. For 2018, INDUS aims to further strengthen its position through acquisitions; emphasis will be given to measurement technology and control systems and to the fields of automation, energy and the environment, and health and safety. The Board of Management sees great growth opportunities for 2018 in possible acquisitions at both the portfolio level and the level of the portfolio companies.
Approximately EUR 140 million are earmarked for planned investments (in fixed assets and company acquisitions) to exploit the opportunities in the portfolio. With greater promotion of innovation management in the portfolio companies, opportunities will be considerably greater as the result of product innovations.
Risks to performance in 2018 are posed in particular by economic trends under the impact of major geopolitical conflicts and situations of instability in many countries. Development in Europe is also characterized by numerous uncertainties. It is the opinion of the Board of Management that the risks in 2017 for INDUS have not changed substantially as compared to the previous year.
The Group's overall risk exposure is the aggregate total of individual risks across all risk categories. To some extent the diversified and broadly-based portfolio balances out risks within the Group.
The Board of Management has evaluated the company's overall risk exposure and explained it in the comments on the individual risks. In the fiscal year ended, the Board of Management identified no risks that could materially affect the Group as a going concern, either individually or in combination with other risks. At this time, these appear unlikely in the foreseeable future.
The economic outlook is positive. The markets in which the INDUS portfolio companies are active offer opportunities to expand market share through more innovation and technological strength. However, the macro and geopolitical situations continue to harbor risks. The following expectations regarding the Group's performance are therefore subject to the assumption that the underlying general political conditions and the underlying economic conditions will not materially change. But generally speaking, the INDUS Group will continue to grow successfully, as it has over the last five years.
Virtually all large national economies are in upswing, and this trend is expected to gain slightly more pace again in the current year. According to its forecast published at the end of 2017, the Kiel Institute for the World Economy (IfW) expects growth of 0.1% in global production to 3.9% in 2018. Growth is not expected to be higher due to the high level of utilization of capacities.
The upswing in the advanced economies will lose virtually no momentum: Following 2.4% past year, growth of 2.3% is forecast for this year. Economic experts expect expansionary monetary policies will continue, albeit in lesser manner, an increase in measures to stimulate the economy, and a return to stronger increases in demand in developing and emerging markets.
While the growth rate has dropped once more in China, it is expected to continue in the remaining emerging markets. This growth will be buoyed by higher raw material prices and robust overseas economies. In numerous countries, for example Latin American countries, less restrictive monetary policy will also provide impetus for growth.
The global economy still faces numerous political risks this year. The long-standing fear that the US government could significantly impact the global economy if it took a more protectionist course has not yet materialized. But the onslaught of initiatives from the US government aimed at benefiting the trade interests of the United States increase the likelihood that sooner or later one of them will actually be implemented. China and the western industrialized nations are currently carefully monitoring announcements from the President of the United States regarding the introduction of penalties on foreign products, and explicitly warning the United States against inciting a global trade war. In Europe, Catalonia's current attempts to gain independence clearly show that there is still a great lack of unity in the EU. And monetary policy risks are once again coming to the fore. It is therefore possible that the upcoming normalization of monetary policy may cause sudden uncertainty on the capital market, resulting in drastic corrections.
| CHANGE IN GROSS DOMESTIC PRODUCT (GPD) (in %) |
||||||
|---|---|---|---|---|---|---|
| 2017 (PRELIMINARY) |
2018 (FORECAST) |
2019 (FORECAST) |
||||
| Economic regions | ||||||
| Global economy | 3.8 | 3.9 | 3.6 | |||
| Euro area | 2.4 | 2.3 | 2.0 | |||
| Selected countries | ||||||
| USA | 2.3 | 2.5 | 1.9 | |||
| China | 6.8 | 6.4 | 6.1 | |||
| India | 6.4 | 7.3 | 7.0 | |||
| Japan | 1.8 | 1.5 | 1.3 | |||
| Germany | 2.3 | 2.5 | 2.2 |
Source: Kiel Institute for the World Economy (IfW), values for Germany adjusted for calendar and seasonal effects
Economic experts predict a modest continuation of positive development in Germany in 2018, with the gross domestic product growing 0.2 percentage points to 2.5%. This will push capacities, which are already close to full utilization, closer to the limit. Buoyed by income growth, private consumer spending will continue to climb and the construction boom will be carried by the ongoing favorable financing conditions. Bottlenecks in capacity utilization will lead to an increase in construction prices. Company investments will also drive growth, as the companies overcome their reluctance to invest in the face of the high capacity utilization and excellent business prospects.
The solid global economy will boost exports, which could rise by 5.0% (2017: 4.3%). Goods flows will be continue to be expanded in the euro area and to Asia. The lively domestic economy will continue to boost imports, with imports expected to climb by 5.7% (2017: 4.8%). This will again slightly worsen the terms of trade, that is the international import exchange ratio.
On the labor market, employment will carry on rising. The Institute for the World Economy forecasts that the annual unemployment average will fall from 5.7% last year to 5.4% this year. The supply of labor is showing increasing scarcity, and the results of the wage agreements will be noticeable. Overall, wages will continue to rise.
The rising inflation in prices seen in the previous year is expected to maintain its level in 2018 and come in again at 1.7%. The inflation rate will thus tend once again towards the European Central Bank's target rate of 2.0%.
While the American Federal Reserve Bank appears inclined to raise interest rates, the ECB is expected to keep base rates low in the euro area until further notice. However during a meeting in October, the ECB council sent out the first signal that it may be considering a change of course: It decided to continue purchases at the monthly volume of EUR 60 billion in the expanded asset purchase programme (APP) until the end of 2017, and then to reduce the net purchases from January 2018 to a monthly volume of EUR 30 billion.
Overall, German industrial production will remain on a solid growth trajectory in 2018. The companies' order books are well filled and, following a short pause in November, production has picked up pace again. According to the Deutsche Bundesbank, the economy is operating at a capacity similar to that at the peak of the boom before the 2007 global financial crisis. Capacity expansion is growing increasingly important in light of the high utilization of capacities. Four out of ten industrial companies are increasing their budgets for new facilities and machinery according to an economic study carried out by the German Association of Chambers of Commerce and Industry (DIHK).
Companies in the German construction sector have high hopes for the current year. Based on preliminary indicators and the positive overall economic conditions, the two leading trade associations HDB and ZDB anticipate around 4% growth in 2018, which equates to an increase in sales of EUR 117 billion. Residential construction will continue to be one of the most important growth drivers (+3.5%). With an anticipated 320,000 new apartments, the completion rate in 2018 will be double that of 2010. Commercial construction will also continue to rise, due to companies' willingness to invest (+4%). Public construction will continue to benefit from the government's high level of investment activity in traffic routes and will also grow significantly (+4%). The extension of the municipal investment promotion fund in 2017, through which the investment volume was doubled to EUR 7 billion, will also have a positive effect on sales. International car manufacturers anticipate slight growth in 2018. According to estimates by the trade association VDA, the global market for cars will expand by 1% in the current year to 85.7 million new cars sold. One of the factors supporting growth will be further sales increases in China, Russia, and Brazil. In contrast, the US market will contract again. Sales levels will remain stable in the European countries. Germany will not be able to sustain the high level of sales recorded in 2017 and will contract by 2% (to 3.4 million units). The global volume of vehicles produced by German manufacturers is expected increase by 2% to 16.7 million. German domestic production will remain stable at 5.6 million cars, and Germany's exports will be on a par with the previous year at 4.3 million vehicles. The focus on alternative drives/e-mobility is becoming ever stronger. German car manufacturers are tackling this head on and have declared they will invest EUR 40 billion in alternative drives alone by 2020. The VDA expects that 15 to 25% of newly registered cars will be electric in 2025.
All signs point to the German engineering sector performing well again in 2018. The trade association Verband Deutscher Maschinen- und Anlagenbau e.V. (VDMA) anticipates that German engineering companies will maintain their dynamism and achieve growth of 3%. Sales in the sector will therefore climb to EUR 230 billion. Despite this positive outlook, the sector faces a number of uncertainties both at home and abroad: The VDMA justifiably hopes that the investment jam that has been building for a while will gradually dissipate in Germany. Simultaneously, the association is demanding urgent decisions and measures from the political powers to strengthen the sector's competitive position. The issues include a full-coverage construction of a gigabit network, the introduction of tax benefits for research, and labor policies and laws that are in line with the practical realities that companies face. External issues include monitoring developments in the two largest importing countries, the United States and China.
The outlook for companies in the medical engineering sector remains positive, despite the fact that regulatory requirements (EU data protection regulation, EU medical device regulation (MDR)) continue to push up costs. The trade association Spectaris forecasts sales growth of almost 5% in 2018. That means roughly 1,260 companies with more than 20 employees will generate sales of around EUR 32 billion. At the moment around two thirds of sales are exports. Demographic changes, the increasing importance of "good health," and an increase in demand particularly from the emerging markets continue to have a positive effect on sentiment in the sector. Individual medical care, digitalization in the healthcare sector, and new approaches in invitro diagnostics are also important growth drivers. Spectaris also anticipates continual growth on the global market in the coming years of 5%, pushing the market volume to USD 530 billion by 2022. We can assume that German medical engineering can, at least proportionately, benefit from these developments.
The outlook for the metals and electronics industry remains positive. There was another uptick in incoming orders at the end of the year, which point to the continuation of growth. Capacity utilization also continued to climb, coming in wellabove the multi-year average in January 2018. The industry expects somewhat slower growth of 2.5 to 3.0% over the year as a whole.
Despite the optimistic expectations, some risks and uncertainties remain for the industry: The domestic economy continues to rely too heavily on consumers and not enough on investors. The automotive market is also currently plagued by uncertainty. In addition to Brexit and the possibility of more restrictive trade policies of the United States, new uncertainties are rearing their head in the form of a strong euro and a downturn in trade with Turkey.
In 2018, INDUS will continue to follow the strategy laid out in 2012 with COMPASS 2020. In doing so, the holding company continues to orient itself to three fundamental objectives: growth, value enhancement, and securing a portfolio structure that is balanced in terms of industry, market cycle, and market opportunities.
To achieve these objectives, INDUS is continuing the (support) measures that have stood the test of time: It provides capital for portfolio companies to implement their plans, networks and knowledge, and keeps an eye out for suitable acquisitions at the holding level. The holding company has been successfully following the COMPASS 2020 strategy programme for five years now, all the while refining the strategic focus. Two of the main focal points here are innovation management and digitalization.
When it comes to growth acquisitions to complement the holding company's portfolio, the Board of Management particularly looks to companies in the five technology-heavy growth sectors: Infrastructure and logistics technology, automation, measuring technology and control engineering, energy and environmental technology, medical engineering and life science technology, and construction and safety technology. The company is also interested in acquiring larger businesses with an annual turnover of more than EUR 50 million. The company will continue to follow the tried-andtested strategy of acquiring companies in earlier stages of development, particularly as complementary additions to existing portfolio companies. All potential new portfolio companies must fit the Group's core criteria, and this general prerequisite for all acquisitions will continue to apply. At the first level, INDUS is still looking at companies in the German-speaking region; at the second level, the holding company dedicatedly supports international acquisitions, particularly in Europe, Asia, and North America. In addition to acquisitions, it may also be necessary to divest companies from the portfolio in individual cases, following in-depth continuation and portfolio analyses.
To tackle the challenges of digital transformation and to secure the long-term competitiveness of the portfolio companies, the holding company has set up and implemented an offer to support innovation in the portfolio companies. As part of its development bank model, the holding company currently supports twelve innovation projects within the companies aimed at tapping into new technologies and/or markets. The focus is on the growth areas of industry 4.0/ digitalization, medical engineering for an aging society, innovative construction techniques, green tech, public and private security, and intelligent logistics infrastructures. Another 14 subsidiaries have taken up the tool box offer for methodological knowledge in the area of innovation management. It is the holding company's aim to continue following this strategy of supporting innovation through funds and the imparting of knowledge and networks.
With these overall positive general conditions, the Board of Management expects that INDUS will be able to expand its market position further in 2018: sales should come in between EUR 1.65 and 1.70 billion and earnings between EUR 154 to 160 million. These target figures do not take into account the new acquisitions that are sought at the first and second levels. In light of the proactive growth strategy of acquiring companies, the EBIT margin, adjusted for accounting effects from initial consolidations, is vital for evaluating the operative earning power. The target remains an EBIT margin of 10%. The Board of Management assumes that the two repositioning projects that negatively impacted the earnings margin in 2017, and will likely continue to impact the margin, at least partially, in 2018, will be completed by the middle of the year.
Rising raw material and energy prices along with higher wages will inhibit the continuation of the growth path. While INDUS portfolio companies manage to pass on the rise in material costs to some extent, wage increases from union wage agreements will have a more direct impact. This is particularly true in light of the increasing shortage of skilled workers. The search for qualified personnel will become a considerable risk factor in the future. For the other items on the consolidated statement of income, the Board of Management expects only changes on the usual scale.
The operating cash flow is expected to maintain its high level in 2018 as well and, together with the high level of liquidity, provide a sound basis for further implementation of the company's growth strategy. The investment budget for the coming year is EUR 88 million (excluding acquisitions). In addition to (international) expansion measures, the focus will be on projects within the portfolio companies to increase efficiency. This is due to the fact that some portfolio companies have reached full capacity. The investment budget for acquisitions is EUR 50 million. As in previous years, the Board of Management aims for two growth acquisitions per year. In the face of an overheating market, however, the guiding principle remains to make only acquisitions that comply with INDUS's investment criteria. At the same time, the option to increase the budget for acquisitions under certain circumstances remains open, in order to implement larger acquisition projects in the future. INDUS still strives to carry out its financing activities as independently of banks as possible.
Despite its growth targets, INDUS always takes care to maintain its economic stability and the security of its liquidity in the long term. Investments in fixed assets and dividend payments will continue to be financed from the current cash flow or available liquidity. The INDUS Holding AG result, which is relevant for the payment of dividends, is primarily generated through income from the portfolio companies, which is largely dependent on the forecast economic development of the Group companies. As in years past, the INDUS Group's equity ratio is not to fall below 40%. In order to carry out planned necessary measures, INDUS will take up debt in 2018. Our banking partners are on stand-by for this. The debt repayment term based on EBITDA is expected to remain in the 2.0 to 2.5 year corridor.
| ACTUAL 2017 | PLAN 2018 | |
|---|---|---|
| GROUP | ||
| Acquisitions | 2 growth acquisitions | 2 growth acquisitions |
| Sales | EUR 1,640.6 billion | EUR 1.65-1.70 million |
| EBIT | EUR 152.9 million | EUR 154-160 million |
| Investments in property, plant and equipment | EUR 79.0 million | EUR 88 million |
| Equity ratio (in %) | 40.8% | >40% |
| Net debt/EBITDA | 1.9 years | between 2.0 and 2.5 |
| SEGMENTS | ||
| Construction/Infrastructure | ||
| Sales | EUR 330.4 million | slight rise in sales |
| EBIT | EUR 49.4 million | proportional increase in earnings |
| EBIT margin (in %) | 15.0% | 13-15% |
| Automotive Technology | ||
| Sales | EUR 394.1 million | no change |
| EBIT | EUR 14.7 million | perceptible increase in earnings |
| EBIT margin (in %) | 3.7% | 5-7% |
| Engineering | ||
| Sales | EUR 375.1 million | slight rise in sales |
| EBIT | EUR 53.5 million | proportional increase in earnings |
| EBIT margin (in %) | 14.3% | 12-14% |
| Medical engineering/ Life science | ||
| Sales | EUR 155.2 million | slight rise in sales |
| EBIT | EUR 20.8 million | no change |
| EBIT margin (in %) | 13.4% | 13-15% |
| Metals Technology | ||
| Sales | EUR 385.6 million | slight rise in sales |
| EBIT | EUR 24.2 million | perceptible increase in earnings |
| EBIT margin (in %) | 6.3% | 8-10% |
Economic conditions remain very positive for the Construction/Infrastructure segment. The large order placed in the digital infrastructure area of the segment in 2016 will continue to run through 2018, contributing to the high sales and earnings level. In light of virtually full capacity utilization, the shortage of skilled workers is started to restrict the companies. The Board of Management is still actively looking for complementary acquisitions in the growing construction and safety technology sector. The slight increase expected in sales and a proportional increase in earnings should make it possible to achieve an EBIT margin in the slightly higher range of between 13% and 15%.
The Board of Management is cautiously optimistic about the future performance of portfolio companies in the Automotive Technology segment. It believes that the high-margin companies pre- and post-series will benefit if the investment budget of the OEMs starts increasing again. The position of the series suppliers is less promising: On the one hand, the high call figures in 2017 will probably not be matched again, on the other, the pressure on margins continues to impact the supply side. The ongoing repositioning measures in the segment are due to be completed by the middle of the year. Overall, with sales forecast to remain the same, the EBIT margin is set at between 5% and 7%.
The sector outlook for the Engineering segment promises positive conditions. There is great development potential in the area of logistics in particular. In line with the strategy followed over the last years, the company strives for further growth through acquisitions. The prospect of a hard Brexit, with the negative impact it will likely have on the export-heavy engineering sector, remains a risk. Slight growth is expected in sales, with a proportional increase in earnings. The target remains an EBIT margin between 12% and 14%.
For the Medical Engineering/Life Science segment the industry environment remains positive in 2018, despite the increasing regulatory requirements. The Board of Management believes the growing sector medical engineering for an aging society holds great promise – with room for complementary acquisitions in the growth industry medical engineering/ life science. INDUS has set consistent earnings as a target with a slight increase in sales in this segment. INDUS continues to aim for an EBIT margin between 13% and 15%.
The outlook for the companies in the Metals Technology segment is cautious based on a positive underlying trend. Rising material and in particular wage costs will put dampeners on growth. The ongoing repositioning activities in this segment – due to be completed by the middle of the year – are running on schedule, which means there should be a noticeable increase in earning power over the course of the year. Overall, based on a slight increase in growth, an EBIT margin of between 8% and 10% is forecast for this segment.
| in EUR '000 | NOTES | 2017 | 2016 |
|---|---|---|---|
| SALES | [6] | 1,640,640 | 1,444,270 |
| Other operating income | [7] | 16,536 | 20,246 |
| Own work capitalized | [8] | 5,131 | 6,218 |
| Changes in inventories | [9] | 5,204 | 11,113 |
| Cost of materials | [10] | -745,894 | -648,685 |
| Personnel expenses | [11] | -479,679 | -430,230 |
| Depreciation/amortization | [12] | -62,438 | -55,976 |
| Other operating expenses | [13] | -228,019 | -203,507 |
| Income from shares accounted for using the equity method | 1,081 | 965 | |
| Financial income | [14] | 303 | 520 |
| OPERATING INCOME (EBIT) | 152,865 | 144,934 | |
| Interest income | 231 | 516 | |
| Interest expense | -23,905 | -22,072 | |
| INTEREST INCOME | [15] | -23,674 | -21,556 |
| EARNINGS BEFORE TAXES | 129,191 | 123,378 | |
| Taxes | [16] | -46,117 | -42,960 |
| EARNINGS AFTER TAXES | 83,074 | 80,418 | |
| of which allocable to non-controlling shareholders | 737 | 377 | |
| of which allocable to INDUS shareholders | 82,337 | 80,041 | |
| Earnings per share, basic, in EUR | [17] | 3.37 | 3.27 |
| Earnings per share, diluted, in EUR | 3.37 | 3.27 |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| EARNINGS AFTER TAXES | 83,074 | 80,418 |
| Actuarial gains/losses | -13,258 | -960 |
| Deferred taxes | 2,839 | 284 |
| Items not reclassified to profit or loss | -10,419 | -676 |
| Currency translation adjustment | -9,233 | -2,191 |
| Change in the market values of derivative financial instruments (cash flow hedge) | -943 | 1,575 |
| Deferred taxes | 241 | -249 |
| Items to be reclassified to profit or loss | -9,935 | -865 |
| OTHER COMPREHENSIVE INCOME | -20,354 | -1,541 |
| TOTAL COMPREHENSIVE INCOME | 62,720 | 78,877 |
| of which allocable to non-controlling shareholders | 737 | 377 |
| of which allocable to INDUS shareholders | 61,983 | 78,500 |
| in EUR '000 | NOTES | DEC. 31, 2017 | DEC. 31, 2016 |
|---|---|---|---|
| ASSETS | |||
| Goodwill | [18] | 428,590 | 408,702 |
| Other intangible assets | [19] | 86,454 | 74,306 |
| Property, plant and equipment | [19] | 397,008 | 369,331 |
| Investment property | [19] | 5,220 | 5,412 |
| Financial assets | [20] | 13,995 | 12,214 |
| Shares accounted for using the equity method | [21] | 10,903 | 10,497 |
| Other non-current assets | [22] | 2,594 | 3,029 |
| Deferred taxes | [23] | 8,862 | 2,258 |
| Non-current assets | 953,626 | 885,749 | |
| Inventories | [24] | 339,154 | 308,697 |
| Receivables | [25] | 197,528 | 177,626 |
| Other current assets | [22] | 18,247 | 16,424 |
| Current income taxes | [23] | 8,750 | 5,928 |
| Cash and cash equivalents | 135,881 | 127,180 | |
| Current assets | 699,560 | 635,855 | |
| TOTAL ASSETS | 1,653,186 | 1,521,604 | |
| EQUITY AND LIABILITIES | |||
| Subscribed capital | 63,571 | 63,571 | |
| Capital reserves | 239,833 | 239,833 | |
| Other reserves | 367,509 | 338,534 | |
| Equity held by INDUS shareholders | 670,913 | 641,938 | |
| Non-controlling interests in the equity | 2,900 | 2,630 | |
| Equity | [26] | 673,813 | 644,568 |
| Pension provisions | [27] | 43,969 | 29,020 |
| Other non-current provisions | [28] | 2,377 | 2,217 |
| Non-current financial liabilities | [29] | 439,545 | 389,757 |
| Other non-current liabilities | [30] | 29,174 | 47,729 |
| Deferred taxes | [23] | 45,956 | 37,595 |
| Non-current liabilities | 561,021 | 506,318 | |
| Other current provisions | [28] | 72,384 | 65,578 |
| Current financial liabilities | [29] | 95,301 | 113,974 |
| Trade payables | 66,162 | 55,409 | |
| Other current liabilities | [30] | 174,081 | 127,505 |
| Current income taxes | [23] | 10,424 | 8,252 |
| Current liabilities | 418,352 | 370,718 | |
| TOTAL ASSETS | 1,653,186 | 1,521,604 | |
| BALANCE DEC. 31, 2017 | 63,571 | 239,833 | 390,890 | -23,381 | 670,913 | 2,900 | 673,813 |
|---|---|---|---|---|---|---|---|
| Change in scope of consolidation | 197 | 197 | |||||
| Dividend payment | -33,008 | -33,008 | -664 | -33,672 | |||
| Total comprehensive income | 82,337 | -20,354 | 61,983 | 737 | 62,720 | ||
| Other comprehensive income | -20,354 | -20,354 | -20,354 | ||||
| Earnings after taxes | 82,337 | 82,337 | 737 | 83,074 | |||
| BALANCE DEC. 31, 2016 | 63,571 | 239,833 | 341,561 | -3,027 | 641,938 | 2,630 | 644,568 |
| BALANCE DEC. 31, 2016 | 63,571 | 239,833 | 341,561 | -3,027 | 641,938 | 2,630 | 644,568 |
| Dividend payment | -29,341 | -29,341 | -398 | -29,739 | |||
| Total comprehensive income | 80,041 | -1,541 | 78,500 | 377 | 78,877 | ||
| Other comprehensive income | -1,541 | -1,541 | -1,541 | ||||
| Earnings after taxes | 80,041 | 80,041 | 377 | 80,418 | |||
| BALANCE DEC. 31, 2015 | 63,571 | 239,833 | 290,861 | -1,486 | 592,779 | 2,651 | 595,430 |
| in EUR '000 | SUBSCRIBED CAPITAL |
CAPITAL RESERVE |
RETAINED EARNINGS |
OTHER RESERVES |
EQUIT Y HELD BY INDUS SHAREHOLDERS |
SHARES HELD BY NON CONTROLLING SHAREHOLDERS |
GROUP EQUITY |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Income after taxes | 83,074 | 80,418 |
| Depreciation/appreciation of non-current assets (excluding deferred taxes) | 62,438 | 55,976 |
| Gains (-)/losses (+) from the disposal of assets | -762 | -657 |
| Taxes | 46,117 | 42,960 |
| Net interest | 23,674 | 21,556 |
| Income from companies accounted for using the equity method | -1,081 | -965 |
| Other non-cash transactions | 197 | -2,043 |
| Changes in provisions | 3,566 | 2,540 |
| Increase (-)/decrease (+) in inventories, trade accounts and other assets | -41,185 | -28,783 |
| Increase (+)/decrease (-) in trade accounts and other liabilities | 18,081 | 15,309 |
| Income taxes received/paid | -49,907 | -48,433 |
| Dividends received | 730 | 67 |
| Operating cash flow | 144,942 | 137,945 |
| Interest paid | -21,211 | -23,897 |
| Interest received | 231 | 516 |
| Cash flow from operating activities | 123,962 | 114,564 |
| Cash outflow from investments in | ||
| intangible assets | -7,721 | -10,240 |
| property, plant and equipment | -71,290 | -59,724 |
| financial assets and shares measured according to using the equity method | -2,451 | -8,272 |
| shares in fully consolidated companies | -32,414 | -29,889 |
| Cash inflow from the disposal of other assets | 3,920 | 3,671 |
| Cash flow from investing activities | -109,956 | -104,454 |
| Dividends paid to shareholders | -33,008 | -29,341 |
| Cash outflows from non-controlling shareholders | -664 | -397 |
| Cash outflow from the repayment of contingent purchase price commitments | -820 | 0 |
| Cash inflow from raising of loans | 151,006 | 132,270 |
| Cash outflow from the repayment of loans | -120,412 | -117,470 |
| Cash flow from financing activities | -3,898 | -14,938 |
| Net changes in cash and cash equivalents | 10,108 | -4,828 |
| Changes in cash and cash equivalents caused by currency exchange rates | -1,407 | -187 |
| Cash and cash equivalents at the beginning of the period | 127,180 | 132,195 |
| Cash and cash equivalents at the end of the period | 135,881 | 127,180 |
INDUS Holding Aktiengesellschaft with registered office in Kölner Strasse 32, 51429 Bergisch Gladbach, Germany, is listed in the Cologne Commercial Register under record no. HRB 46360. INDUS is an established long-term oriented financial investor specializing in the acquisition of SMEs in the manufacturing sector in German-speaking Europe. The operating companies are organized into five company areas (segments): Construction/Infrastructure, Automotive Technology, Engineering, Medical Engineering/Life Science and Metals Technology.
INDUS HoldingAG prepared its consolidated financial statements for the fiscal year from January 1, 2017 to December 31, 2017 in accordance with the International Financial Reporting Standards (IFRS) and their interpretation by the International Financial Reporting Interpretations Committee (IFRIC) as applicable in the European Union (EU).
The statement of income was prepared using the total cost method. The statement of financial position is structured according to current/non-current status of assets and liabilities.
The consolidated financial statements are prepared in euros (EUR). Unless otherwise indicated, all amounts are stated in thousands of euros (EUR '000). Each figure has been rounded according to normal commercial practice; this may lead to slight discrepancies when figures are added together.
The consolidated financial statements are prepared using historical cost accounting, with the exception of balance sheet items which must be carried at fair value. The financial statements of the companies included in the scope of consolidation were prepared as of the reporting date of INDUS Holding AG and are based on uniform accounting and valuation methods. Pursuant to Section 315e of German Commercial Code (HGB), INDUS Holding AG is obligated to prepare its consolidated financial statements in compliance with the IFRS. The basis for this is Directive No. 1606/2002 of the European Parliament and Council on the application of international accounting standards in the European Union. Information that must be included in the Notes in accordance with the German Commercial Code (HGB) and goes beyond what is mandatory under IFRS is presented in the Notes as well. The financial statements were drawn up by the Board of Management on March 15, 2018. The Supervisory Board approved the consolidated financial statements at its meeting on March 22, 2018.
All standards whose application was mandatory as of December 31, 2017, were observed. No use was made of the discretionary right to apply standards before they become mandatory.
The following standards have necessitated changes for the present financial statements:
Changes with respect to IAS 7 "Statement of Cash Flows" were applied from January 1, 2017. Changes to this standard affect the disclosure of information regarding debts arising from financing transactions. This results in reconciliation of financial liabilities from the balance sheet to the statement of cash flows.
Revenue recognition based on time frame will have a particular impact for INDUS. The scope of time-frame revenue recognition corresponds to PoC accounting as of December 31, 2017. As of December 31, 2017, INDUS had an order backlog amounting to EUR 336,147,000, consisting of customer-specific construction contracts as defined in IAS 11. The other IFRS topics did not lead to any changes at INDUS as of Dec. 31, 2017.
The approach to classification and measurement adjustments will entail changes to the balance sheet structure and the information contained in the Notes. Applying the simplified hedge accounting rules have not resulted in any changes at INDUS.
— IFRS 16 "Leases" will be applied for the first time from January 1, 2019. The new standard for lease transaction accounting will supersede IAS 17. In accordance with IFRS 16, all lease arrangements are included in the statement of financial position. The classification of leases as finance leases or operating leases will no longer apply to lessees. A right to the use of an asset is recorded on the asset side, a financial liability on the liability side.
The new standard will have a material effect on the financial position of INDUS. Total assets will increase in the same way as intangible assets and financial liabilities. The leasing expenses formerly reported in other operating expense will be reported in the future under depreciation or interest expense. As of December 31, 2017, operating lease obligations amounting to EUR 71,979,000 are reported in the Notes.
The other new standards will not have any material effect on the financial position and financial performance of INDUS.
Capital consolidation is carried out in accordance with the purchase method. Assets, liabilities, and contingent liabilities are measured at their fair value as of the time of purchase for business combinations. Goodwill is determined as the difference between the acquisition costs of the business combination and the purchaser's share of the fair values of the acquired assets, liabilities, and contingent liabilities. Positive goodwill is not amortized but rather tested at least once annually for impairment. Negative differences are immediately charged against income. Positive goodwill is carried in the functional currency of the acquired subsidiary/Group.
When acquired companies are included in the scope of consolidation for the first time, the carrying amount of the investments in the holding company's accounts is offset against assets and liabilities. In the subsequent periods, the carrying amount of the holding company's investment is offset against the carrying amount of the subsidiaries' net equity. Contingent purchase price components are measured at fair value on the acquisition date if they are likely to be realized and the amounts can be reliably estimated. Changes in their amounts are recorded through profit and loss in the subsequent periods. Incidental acquisition costs incurred in acquiring the investment are not included in the purchase price allocation. Instead, they are recognized as expenses in the period of acquisition.
If minority shareholders have a right to tender as of the time of the initial consolidation and INDUS is unable to revoke this right, the purchase price commitment for interests held by non-controlling shareholders that are eligible are calculated at fair value.
Receivables and liabilities as well as expenses and income between consolidated companies are offset against each other. Intercompany results are eliminated from inventories and non-current assets. Deferred taxes are recognized for consolidation adjustments affecting net income.
Foreign currency transactions in the individual financial statements are translated into the functional currency of the individual company at the exchange rates prevailing at the time of the transaction. Monetary items are measured through profit and loss at their fair values as of the reporting date using the average spot exchange rate.
In accordance with the concept of functional currency, companies located outside of the euro area prepare their financial statements in the currency of the country in which they are domiciled. For assets and liabilities, these financial statements are translated into euros using the exchange rate prevailing on the reporting date. Except for items recognized directly in equity, equity is carried at historical rates. Items in the statement of income are translated at average exchange rates and any resultant currency adjustments up until disposal of the subsidiary are recognized with no effect on the statement of income. The exchange rates used are shown in the following table:
| EXCHANGE RATE AS OF REPORTING DATE | AVERAGE EXCHANGE RATE | ||||
|---|---|---|---|---|---|
| 1 EUR = | DEC. 31, 2017 | DEC. 31, 2016 | 2017 | 2016 | |
| United Arab Emirates | AED | 4.408 | 3.863 | 4.137 | 4.050 |
| Brazil | BRL | 3.976 | 3.431 | 3.605 | 3.837 |
| Canada | CAD | 1.511 | 1.419 | 1.464 | 1.465 |
| Switzerland | CHF | 1.169 | 1.074 | 1.111 | 1.090 |
| China | CNY | 7.805 | 7.320 | 7.626 | 7.348 |
| Czech Republic | CZK | 25.540 | 27.021 | 26.327 | 27.034 |
| Denmark | DKK | 7.447 | 7.343 | 7.439 | 7.445 |
| Great Britain | GBP | 0.886 | 0.856 | 0.876 | 0.816 |
| Hungary | HUF | 310.760 | 309.830 | 309.268 | 311.432 |
| South Korea | KRW | 1,280.860 | 1,269.360 | 1,273.211 | 1,283.433 |
| Morocco | MAD | 11.224 | 10.650 | 10.921 | 10.806 |
| Mexico | MXN | 23.604 | 21.772 | 21.335 | 20.627 |
| Poland | PLN | 4.176 | 4.410 | 4.256 | 4.363 |
| Romania | RON | 4.666 | 4.539 | 4.569 | 4.491 |
| Serbia | RSD | 118.300 | 123.260 | 120.965 | 122.695 |
| Singapore | SGD | 1.606 | 1.523 | 1.558 | 1.527 |
| Turkey | TRY | 4.555 | 3.707 | 4.121 | 3.337 |
| Taiwan | TWD | 35.608 | – | 34.359 | – |
| USA | USD | 1.200 | 1.054 | 1.130 | 1.106 |
| South Africa | ZAR | 14.848 | 14.457 | 15.035 | 16.208 |
In the presentation of the development of non-current assets, provisions, and equity, the opening and closing balances are translated using the exchange rates prevailing on the reporting date, while changes during the year are translated using the average exchange rate. Any resultant exchange rate differences are reported separately with no effect on the statement of income.
Goodwill is not subject to amortization owing to its indefinite useful life. It is tested for impairment at least once a year. This testing involves comparing the recoverable value, which is the higher of value in use or fair value less costs to sell, with the carrying amount of the cash generating unit.
Goodwill is tested for impairment at the level at which this is reasonable from an economic point of view, and possible. In most cases, goodwill is attributed to the portfolio companies and their subsidiaries (cash generating units). These are the operating units listed in the Notes. In the few cases in which there is a close trading relationship between these companies, they are combined to form operating units and goodwill is tested for impairment on this basis.
The goodwill recognized in the purchase price allocation is distributed across 42 (previous year: 41) cash generating units. No individual goodwill amount is significant within the meaning of IAS 36.134.
Purchased intangible assets are measured at cost and amortized using the straight-line method over their useful lives of two to ten years, insofar as these can be determined. Internally generated intangible assets which fulfill the criteria of IAS 38 are capitalized at cost. Otherwise the expenses are recognized through profit and loss in the year in which they come into being. The assets are amortized upon commencement of their use, and this is done using the straight-line method over five to fifteen years.
Property, plant, and equipment are measured at cost less depreciation and amortization and, if applicable, impairments. In accordance with the actual structure of their useful lives, the straight line depreciation method is applied. Depreciation periods are based primarily on the following useful lives.
| YEARS | |
|---|---|
| Buildings | 20 to 50 |
| Improvements | 8 to 20 |
| Technical equipment, plant, and machinery | 5 to 15 |
| Factory and office equipment | 3 to 15 |
Property, plant, and equipment are written down as impaired in accordance with IAS 36 if the recoverable amount of the asset concerned has fallen below carrying amount. If the reason for an impairment recorded in previous years no longer applies, a reversal of impairment is performed, up to the maximum of the carrying amount after amortization.
Depending on the distribution of the major risks and opportunities, lease agreements are classified as operating leases or finance leases, with the consequence that finance leases are recognized as assets. Fixed assets leased within the framework of finance leases are capitalized at the fair value or the lower net present value of the minimum lease payments and subjected to amortization over the useful life or the shorter contractual term. The payment obligations resulting from the future leasing rates are shown discounted under financial liabilities.
Inventories are measured at cost or at the lower net realizable value. Cost encompasses direct costs and proportional overheads. Overheads are generally allocated on the basis of actual capacity, if this basically corresponds to normal capacity. Raw materials and goods for resale are measured using the average cost method.
Production orders are recognized using the "percentage of completion" (PoC) method. Contract revenue and profit are not recognized upon transfer of risk, but rather by degree of completion. Revenue from the contract agreed with the customer and the anticipated costs of the contract are taken as the basis. The percentage of completion is calculated on the basis of the ratio of costs incurred to the total costs of the contract.
Anticipated losses from production orders are immediately recognized as expenses as they are identified, beginning with the recording of impairments on assets, in addition to which provisions are formed as needed. If the result of a production order is not yet sufficiently certain, revenue is recognized only in the amount of the contractual costs that have been incurred.
Financial instruments are contracts which simultaneously result in a financial asset at one company and a financial liability or equity instrument at another company. Subsequent asset valuations are carried out applying one of the following four categories: "measured at fair value through profit or loss", "held to maturity", "loans and receivables" and "available for sale." Financial liabilities are recognized in the two categories "measured at fair value through profit or loss" and "measured at amortized cost." The fair value option is not used.
The market values of financial liabilities are determined on the basis of market information available on the reporting date or by using accepted valuation methods, such as the discounted cash flow method, and through confirmations from the banks carrying out the transactions. The interest rates employed are adjusted to the term and risk of the underlying financial instrument.
Investments stated under financial assets are normally carried at cost, as no quoted market price exists for such investments and a fair value cannot be reliably determined at a reasonable cost. Associated companies on which the INDUS Group exercises significant influence (usually by holding between 20% and 50% of the voting rights) are accounted for using the equity method. When measured for the first time, they are stated at cost. In the subsequent measurement, the carrying amount is adjusted by the proportional changes in the associated company's equity.
Receivables and other assets are stated at amortized cost; for current receivables the carrying amount is the nominal amount. Individual risks are taken into account with appropriate valuation allowances. General credit risks are recognized by means of portfolio-based valuation allowances for receivables which are based on past experience or more up-to-date knowledge. Generally, valuation allowances for receivables are recognized in separate accounts.
In the case of short-term receivables and liabilities, amortized costs generally correspond to par or settlement value.
Derivative financial instruments are used at INDUS to hedge underlying transactions based on future cash flows. At the time the hedging transaction is concluded, the corresponding underlying transactions may or may not be completed.
Derivatives employed as hedging instruments are primarily interest-rate swaps or currency forward contracts. The prerequisite for hedge accounting is that the hedge between the underlying transaction and the hedge instrument is effective and that this is documented and continuously monitored.
The statement of documented hedges depends on the type of relationship in question. In the case of cash flow hedges, the change in the fair value is recorded in equity with no effect on income, taking all deferred taxes into account. For the measurement of the hedging instruments described above, only market-related valuation techniques were used in the last two fiscal years. These correspond to the level 2 techniques. The market interest rate on the reporting date is used as the input factor for measuring interest-rate swaps.
Call/put options from the acquisition of companies as a contingent purchase price component are recognized at fair value.
For the evaluation of call/put options recognized at fair value market-related observable input forces (level 2) and internal data (level 3) were used. The market interest rate as of the reporting date, contractually agreed EBIT multiples, and individual plans of the acquired companies are used as the input factors for measuring the fair value of contingent purchase price commitment. Generally, call/put options measurements are allocated to level 3.
Pension obligations are based on defined contribution and defined benefit plans of varying design.
The expenses from defined contribution plans relate to payments by INDUS to external institutions, without any additional obligations for the beneficiary being entered into.
With defined benefit obligations, pensions and other post-employment benefits are calculated using the projected unit credit method. The interest rate used for discounting future claims is the market rate for risk-adjusted long-term investments with similar maturities. For every pension plan, the projected benefit obligation is reduced by the fair value of the qualified plan assets. Differences between actuarial assumptions and actual change in the underlying parameters used to calculate projected unit credits and the fair value of plan assets give rise to actuarial gains and losses. These actuarial gains or losses are recognized directly in equity through the change in consolidated equity and recorded on the statement of income and in pension provisions.
Other provisions are calculated for existing legal or constructive obligations to third parties relating to past events, in respect of which it is probable that an outflow of resources will be required and for which it is possible to make a reliable estimate of the amount of the obligation. The settlement amount is calculated on the basis of the best possible estimation. Provisions are discounted when the outflow of resources is classified as long-term and the effect of this is significant. Provisions for product warranties are calculated for the sales bearing a warranty and the relevant warranty period, based on past experience. Individual provisions are formed for known loss and/or damage. Provisions for outstanding invoices, pending losses on contracts and other obligations from sales activities are calculated on the basis of the services to be rendered. Tax provisions are accrued on the basis of reasonable estimates for uncertain obligations to national tax authorities.
Contingent liabilities are potential obligations which are unlikely to result in an outflow of resources or the amount of which cannot be reliably determined. Disclosures must be made in the Notes regarding existing contingent liabilities.
Deferred taxes are identified for all temporary differences between the value recognized in the IFRS statement of financial position and the corresponding tax bases of assets and liabilities in accordance with the balance sheet approach. Temporary differences arise when the realization of the asset or settlement of the liability leads to income or expenses that diverge from a fiscal point of view. Deferred taxes on goodwill are formed only to the extent that they are tax-deductible. This is generally the case for German limited partnerships.
Deferred taxes must be calculated even if the realization of this goodwill, e.g., via the disposal of the respective limited partnership, is not planned. This leads to a permanent accrual of deferred tax liabilities at INDUS.
Deferred tax assets are recognized as soon as it is probable that sufficient taxable income against which the deductible temporary difference can be offset will be available. With tax loss carryforwards, this is the case either when it is possible that sufficient taxable income will be available over a planning horizon of five years or when nettable deferred tax liabilities of a corresponding amount can be offset against a sufficiently taxable income in future.
Deferred taxes are measured using the tax rate valid for the periods in which the differences are expected to be reversed. Regardless of maturities, deferred taxes are not to be discounted. Deferred taxes are recognized on the basis of the tax rates prevailing or approved in the various countries in accordance with the current legal position. In Germany, a corporate income tax rate of 15% applies. Based on a trade tax assessment multiplier of 395% and solidarity surcharge of 5.5%, the income tax rate for companies based in Germany amounts to 29.6% (previous year: 29.6%). Foreign tax rates remain between 16% and 39%.
For purposes of income realization, revenues are recorded when services have been performed or goods or products have been delivered, the risk having thereby passed to the customer. Rebates are deducted from revenues. The general prerequisite of this is that the amount of income can be reliably determined and that there is sufficient certainty that INDUS will derive economic benefits from this. Sales from services are recorded based on progress if the corresponding conditions are met. Earnings from construction contracts are recognized in accordance with stage of completion. Dividend income on equity shares is recognized when a legal claim to payment arises.
Virtual stock options (stock appreciation rights) granted as part of the long-term incentive program are classified as "share-based remuneration with cash settlement". Provisions are formed for these and measured at the fair value of the commitments.
The statement of cash flows is divided into the sections "Cash flow from operating activities", "Cash flows from investing activities" and "Cash flows from financing activities" in accordance with the provisions of IAS 7. Interest and dividends received are assigned to cash flows from operating activities. Financial facilities on hand are equivalent to the statement of financial position item "Cash and cash equivalents" and include demand deposits and cash on hand. Cash flows from operating activities are determined using the indirect method. Operating expenses and income with no effect on net cash are eliminated from cash flows from operating activities.
The preparation of consolidated financial statements is influenced by assumptions and estimates made which have an impact on the recognized value of the assets, liabilities, and contingent liabilities as well as on income and expenses. When estimates are made regarding the future, actual values may deviate from the estimates. If the original basis for the estimates changes, the statement of the relevant items is adjusted through profit and loss.
Items on the statement of financial position are influenced by uncontrollable future events. This can result in bad debt losses, affect the useful lives of intangible assets or property, plant, and equipment, or similar; these are all risks inherent with commercial activity. The recognition of such items in the accounts is based on many years' experience and the assessment of current conditions.
Systemic uncertainties derive from statement of financial position items in respect of which anticipated future cash flow series are discounted. The course of such cash flow series depends on future events about whose trends assumptions must be made. Future interest rate levels can also affect the calculation of cash flow considerably. This is particularly the case in testing assets and cash generating units for impairment, and calculating pension provisions using the projected unit credit method. Future cash flow projections are also applied to determine at what amount to value deferred tax assets.
Relevant uncertainties result from items that must be measured on the basis of a range of possible future circumstances. This applies in particular to other provisions and comparable obligations. Extensive accounting experience is very important in this regard, but it still regularly occurs that provision amounts in the financial statements have to be adjusted upward or downward.
In many cases there are no active markets with observable pricing to use in determining fair value. For financial statement accounting of business combinations the fair value of balance sheet items acquired must be determined using standard valuation models which require assumptions regarding directly observable as well as potentially nonobservable valuation mechanisms.
These financial statements are based on estimates and assumptions which reflect the latest information available to management. The necessity of having to make substantial valuation adjustments in future cannot be ruled out, as many relevant valuation parameters are beyond management's control.
For fiscal 2018 we do not on the whole anticipate events requiring material adjustment to balance sheet items in these financial statements. The assumptions made regarding conditions in the general economy and relevant markets in particular have been discussed in detail in the forecast report in the combined management report.
In the consolidated financial statements, all subsidiary companies are fully consolidated if INDUS Holding AG has the direct or indirect possibility of controlling the companies' financial and business policy for the benefit of the INDUS Group. Control is in evidence if a company can exercise power of disposition on its subsidiaries and is subject to variable return flows and has the possibility of using its power of disposition to influence the amount of return flows. Associated companies whose financial and business policies can be significantly influenced are consolidated using the equity method. Companies purchased during the course of the fiscal year are consolidated as of the date on which control over their finance and business policy is transferred. Companies which are sold are no longer included in the scope of consolidation as of the date on which the business is transferred.
| GERMANY | ABROAD | TOTAL | OF WHICH SHAREHOLDINGS LESS THAN 100% |
|
|---|---|---|---|---|
| DEC. 31, 2017 | ||||
| Construction/ Infrastructure |
25 | 9 | 34 | 2 |
| Automotive Technology |
34 | 17 | 51 | 10 |
| Engineering | 28 | 23 | 51 | 24 |
| Medical Engineering/ Life Science |
7 | 10 | 17 | 10 |
| Metals Technology | 16 | 9 | 25 | 3 |
| Other | 9 | 0 | 9 | 1 |
| Total | 119 | 68 | 187 | 50 |
| DEC. 31, 2016 Construction/ Infrastructure |
26 | 10 | 36 | 2 |
| Automotive Technology |
33 | 14 | 47 | 10 |
| Engineering | 22 | 17 | 39 | 15 |
| Medical Engineering/ Life Science |
7 | 9 | 16 | 9 |
| Metals Technology | 16 | 9 | 25 | 3 |
| Other | 10 | 0 | 10 | 1 |
The main operating subsidiaries are listed in the Notes under item [43]. The complete list of shareholdings pursuant to Section 313 of the German Commercial Code, which is part of the Notes, is published electronically together with the consolidated financial statements in the German Federal Gazette.
The carrying amount of non-controlling interests amounts to EUR 2,900,000 (previous year: EUR 2,630,000). None of the non-controlling interests are in themselves material.
If minority shareholders have, as of the date of the initial consolidation, a right to tender from which INDUS is unable to withdraw and a combination with a call option for INDUS exists, economic ownership will remain with INDUS and the shares in question will be fully consolidated and recognized at fair value as a contingent purchase price liability. As of the reporting date, purchase price commitments from minority interests with a right to tender were recognized in the amount of EUR 64,275,000 (previous year: EUR 54,899,000). In all material instances, purchase price models ensure that the shares can be valued objectively taking company-specific risk structures into account, thereby facilitating the exchange of non-controlling interests at fair value. As a rule, both of the contractual parties can exercise the options at contractually determined times.
As of December 31, 2017, the scope of consolidation encompassed 37 limited liability companies (GmbH) which, as general partners, constitute a unit company with the associated limited partnership (December 31, 2016: 34 limited liability companies as general partners).
Additions to the scope of consolidation result from acquisitions or the foundation of new companies, or from the assumption of the operating activities of portfolio companies that had not previously been consolidated.
Removals from the scope of consolidation result from the merger of portfolio companies.
Three (previous year: three) subsidiaries which were of subordinate significance for the consolidated financial statements owing to their small size or minimal business activity are recognized at amortized cost according to IAS 39 (Financial Instruments: Recognition and Measurement) since there is no active market for them and their fair values cannot be ascertained with reasonable effort.
INDUS Holding AG acquired 76.56% of shares in M+P International Mess- und Rechnertechnik GmbH, Hanover, under a contract dated January 30, 2017. The M+P Group is a provider of measurement and test systems for vibration testing and analysis. M+P is classified as part of the Engineering segment.
The fair value of the total consideration given amounted to EUR 19.834 million at the time of acquisition. This figure comprises a cash component and a contingent purchase price payment in the amount of EUR 5,137,000, which was measured at fair value and which is the result of call/put options for the minority shares. The amount of the contingent purchase price commitment was calculated on the basis of EBIT multiples and a forecast of future EBIT.
The goodwill in the amount of EUR 9,310,000 calculated for purchase price allocation purposes is not tax-deductible. The goodwill represents inseparable values such as the know-how of the workforce, positive earnings expectations for the future, and synergies resulting from development, production, sales and marketing.
In the purchase price allocation, the acquired assets and liabilities have been calculated as follows:
| NEW ACQUISITION: M+P INTERNATIONAL | (in EUR '000) | ||
|---|---|---|---|
| CARRYING AMOUNTS AT TIME OF ACQUISITION |
ASSETS ADDED DUE TO INITIAL CONSOLIDATION |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
|
| Goodwill | 0 | 9,310 | 9,310 |
| Other intangible assets | 317 | 8,546 | 8,863 |
| Property, plant and equipment | 330 | 0 | 330 |
| Inventories | 1,119 | 1,144 | 2,263 |
| Receivables | 2,054 | 0 | 2,054 |
| Other assets* | 139 | 0 | 139 |
| Cash and cash equivalents | 2,985 | 0 | 2,985 |
| Total assets | 6,944 | 19,000 | 25,944 |
| Other provisions | 947 | 0 | 947 |
| Trade payables | 267 | 0 | 267 |
| Other liabilities** | 2,028 | 2,868 | 4,896 |
| Total liabilities | 3,242 | 2,868 | 6,110 |
* Other assets: Other non-current assets, Other current assets, Deferred taxes, Current income taxes
** Other liabilities: Other non-current liabilities, Other current liabilities, Deferred taxes, Current income taxes
The initial consolidation of M+P INTERNATIONAL took place in February 2017. The M+P Group contributed sales amounting to EUR 10,048,000 to the INDUS result for the period from January 1 to December 31, 2017, and an operating result (EBIT) of EUR -310,000. Had the M+P Group already been integrated on January 1, 2017, revenue would have amounted to EUR 10,456,000 and EBIT to EUR -548,000.
Expenses affecting net income arising from the initial consolidation of M+P INTERNATIONAL reduced the operating result by EUR 2,038,000. The incidental acquisition costs were recorded in the statement of income.
On April 18, 2017 INDUS Holding AG acquired 80% of shares in PEISELER Holding GmbH, Remscheid. PEISELER is a provider of high-precision indexing devices and rotary tilt tables for machine tools. In addition to its main operating company in Remscheid, the PEISELER Group comprises a permanent establishment in Morbach and an American distribution subsidiary in Grand Rapids, Michigan. PEISELER is classified as part of the Engineering segment.
The fair value of the total consideration given amounted to EUR 31,218,000 at the time of acquisition. This figure comprises a cash component and a contingent purchase price commitment in the amount of EUR 7,218,000, which was measured at fair value and which is the result of symmetrical call/put options for the minority shares. The amount of the contingent purchase price commitment was calculated on the basis of EBIT multiples and a forecast of future EBIT.
The goodwill in the amount of EUR 11,526,000 calculated for purchase price allocation purposes is not tax-deductible. The goodwill represents inseparable values such as the know-how of the workforce, positive earnings expectations
for the future, and synergies resulting from development, production, sales and marketing.
In the purchase price allocation, the acquired assets and liabilities have been calculated as follows:
| NEW ACQUISITION: PEISELER | (in EUR '000) | ||
|---|---|---|---|
| CARRYING AMOUNTS AT TIME OF ACQUISITION |
ASSETS ADDED DUE TO INITIAL CONSOLIDATION |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
|
| Goodwill | 0 | 11,526 | 11,526 |
| Other intangible assets | 34 | 9,548 | 9,582 |
| Property, plant and equipment | 3,150 | 6,081 | 9,231 |
| Inventories | 5,912 | 985 | 6,897 |
| Receivables | 2,730 | 0 | 2,730 |
| Other assets* | 1,275 | 0 | 1,275 |
| Cash and cash equivalents | 3,298 | 0 | 3,298 |
| Total assets | 16,399 | 28,140 | 44,539 |
| Pension provisions | 1,875 | 0 | 1,875 |
| Other provisions | 1,055 | 0 | 1,055 |
| Financial liablities | 1,077 | 0 | 1,077 |
| Trade payables | 400 | 0 | 400 |
| Other liabilities** | 3,996 | 4,918 | 8,914 |
| Total liabilities | 8,403 | 4,918 | 13,321 |
* Other assets: Other non-current assets, Other current assets, Deferred taxes, Current income taxes
** Other liabilities: Other non-current liabilities, Other current liabilities, Deferred taxes, Current income taxes
The gross value of receivables taken over amounts to EUR 2,836,000.
The initial consolidation of PEISELER took place in May 2017. The PEISELER Group contributed sales amounting to EUR 20,504,000 to the INDUS result for the period from January 1 to December 31, 2017, and an operating result (EBIT) of EUR 1,697,000. Had PEISELER been consolidated by January 1, 2017, revenue in 2017 would have amounted to EUR 27,442,000 and the operating result (EBIT) to EUR 1,661,000.
Expenditures affecting net income and arising from the initial consolidation of PEISELER reduced the operating result by EUR 2,102,000. The incidental acquisition costs were recorded in the statement of income
Revenue includes EUR 227,660,000 in revenue from production orders (previous year: EUR 177,320). Also included is EUR 14,407,000 in revenue from services (previous year: EUR 15,180,000).
A more detailed presentation of sales can be found in the section entitled "Segment Reporting."
| 2017 | 2016 |
|---|---|
| 4,170 | 4,133 |
| 2,662 | 2,522 |
| 875 | 584 |
| 1,627 | 2,800 |
| 632 | 783 |
| 259 | 3,737 |
| 1,630 | 1,360 |
| 4,681 | 4,327 |
| 16,536 | 20,246 |
Income from currency translation of EUR 259,000 (previous year: EUR 3,737,000) was offset by expenses amounting to EUR -5,486,000 (previous year: EUR -1,127,000). Exchange differences on translation recognized in income thus amounted to EUR -5,227,000 (previous year: EUR 2,610,000).
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Other own work capitalized | 1,920 | 3,295 |
| Own work capitalized in accordance with IAS 38 |
3,211 | 2,923 |
| Total | 5,131 | 6,218 |
Research and development expenses amounting to EUR 16,397,000 (previous year: EUR 14,614,000) continued to be recognized in expenses for the period.
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Work in process | -3,256 | -8,866 |
| Finished goods | 8,460 | 19,979 |
| Total | 5,204 | 11,113 |
| in EUR '000 | 2017 | 2016 | in EUR '000 | 2017 | 2016 |
|---|---|---|---|---|---|
| Raw materials and goods for resale | -606,215 | -532,795 | Amortization | -62,438 | -55,976 |
| Purchased services | -139,679 | -115,890 | Impairment | 0 | 0 |
| Total | -745,894 | -648,685 | Total | -62,438 | -55,976 |
| Total | -479,679 | -430,230 |
|---|---|---|
| Pensions | -4,535 | -4,183 |
| Social security | -70,643 | -62,918 |
| Wages and salaries | -404,501 | -363,129 |
| in EUR '000 | 2017 | 2016 |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Selling expenses | -90,454 | -84,131 |
| Operating expenses | -76,109 | -70,560 |
| Administrative expenses | -50,970 | -42,528 |
| Other expenses | -10,486 | -6,288 |
| Total | -228,019 | -203,507 |
Personnel expenses do not include the interest portion of transfers to pension provisions. This is recognized in interest income at EUR -643,000 (previous year: EUR -680,000).
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Shipping, packaging, and provisions |
-45,255 | -38,940 |
| Vehicle, travel, and entertainment expenses |
-21,933 | -19,185 |
| Marketing and trade fairs | -12,747 | -12,846 |
| Receivable and guarantees | -8,000 | -10,823 |
| Other selling expenses | -2,519 | -2,337 |
| Total | -90,454 | -84,131 |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Cost of currency translation | -5,486 | -1,127 |
| Disposal of fixed assets | -868 | -702 |
| Transfer to provisions | -503 | -226 |
| Miscellaneous | -3,629 | -4,233 |
| Total | -10,486 | -6,288 |
| Total | -76,109 | -70,560 |
|---|---|---|
| Other operating expenses | -9,577 | -8,803 |
| Energy, supplies, tools | -15,796 | -15,177 |
| Land and buildings: Leases and occupancy costs |
-23,336 | -21,271 |
| Machinery and plant: Rent and maintenance |
-27,400 | -25,309 |
| in EUR '000 | 2017 | 2016 |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Income from financial assets | 317 | 539 |
| Impairment of financial assets | -14 | -19 |
| Total | 303 | 520 |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| IT, office, and communication | ||
| services | -15,789 | -13,415 |
| Consulting and fees | -18,935 | -14,940 |
| Insurance | -4,662 | -4,439 |
| Human Resources administration | ||
| and continuing education | -6,888 | -5,610 |
| Other administrative costs | -4,696 | -4,124 |
| Total | -50,970 | -42,528 |
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Interest and similar income | 231 | 516 |
| Interest and similar expenses | -15,902 | -15,536 |
| Interest from operations | -15,671 | -15,020 |
| Other: Market value of interest rate swaps |
9 | 91 |
| Other: Non-controlling interests | -8,012 | -6,627 |
| Other interest | -8,003 | -6,536 |
| Total | -23,674 | -21,556 |
The item "Other: Non-controlling interests" contains the effect on results of the subsequent valuation of the contingent purchase price commitments (call/put options) in the amount of EUR -151,000 (previous year: EUR -419,000) along with earnings after taxes owed to external entities from shares in partnerships and corporations with call/put options. For consistency reasons, this is shown in the net interest item
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Non-recurring taxes | 194 | -355 |
| Current taxes | -48,985 | -43,872 |
| Deferred taxes | 2,674 | 1,267 |
| Total | -46,117 | -42,960 |
INDUS Holding AG's business model is based on the idea of building up a portfolio of small and medium-sized niche enterprises, which hold leading positions on their respective markets. Synergies play a subordinate role when INDUS Holding AG acquires subsidiaries. Each company is responsible for its own results, supported if necessary by the holding company's resources.
In the past, INDUS focused its acquisitions above all on German limited partnerships. The acquisition of a limited partnership has tax consequences as follows:
The value added from the purchase price allocation for tax purposes is deductible as depreciation/amortization from supplementary tax statements, distributed over the respective useful life. This means that the tax assessment base is reduced by the depreciations. Even for companies with buoyant earnings, this can result in a tax loss with corresponding tax savings, in trade tax at limited partnerships and in corporate income tax at INDUS Holding AG. There are no longer any positive effects on earnings resulting from the recognition of deferred taxes in accordance with the temporary concept as per IFRS.
Deferred tax assets on tax loss carryforwards are only capitalized by the Group if sufficient taxable income can be generated in the five-year planning period.
Trade tax is due at the level of the limited partnerships. Offsetting tax gains and losses between limited partnerships is not permitted for trade tax. The taxable earnings after trade tax are ascribed to INDUS Holding AG and then subjected to corporate income tax. No tax group contracts have been concluded with limited liability companies. This situation is reflected in the item "No offsetting of income for autonomous subsidiaries."
The non-recurring taxes result predominantly from changes due to external tax audits.
| RECONCILIATION FROM EXPECTED TO ACTUAL TAX EXPENSES | (in EUR '000) | |
|---|---|---|
| 2017 | 2016 | |
| Earnings before income taxes | 129,191 | 123,378 |
| Expected tax expenses 29.6% (previous year: 29.6%) |
38,241 | 36,520 |
| Reconciliation | ||
| Non-recurring taxes | -194 | 355 |
| Measurement of associated companies according to the equity-method Structural effects of |
-320 | -286 |
| divergent local tax rates | 180 | 33 |
| divergent national tax rates | -1,073 | -263 |
| Corporate acquisition transaction costs |
155 | 187 |
| Capitalization or valuation allowance of deferred tax loss carryforwards |
1,395 | 1,267 |
| Actual use of tax loss carryforward | -743 | -1,370 |
| No offsetting of income for autonomous subsidiaries |
3,454 | 2,730 |
| Earnings attributable to other shareholders |
2,372 | 1,962 |
| Effects of the interest barrier on INDUS Holding AG |
542 | 420 |
| Other non-deductible expenses or tax-free income |
2,108 | 1,405 |
| Actual tax expenses | 46,117 | 42,960 |
Earnings came to EUR 3.37 per share (previous year: EUR 3.27 per share). The weighted average number of shares in circulation remained unchanged in the current year at 24,450,509. See item [26] for further details.
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Earnings attributable to INDUS shareholders |
82,337 | 80,041 |
| Weighted average of shares outstanding (in thous. shares) |
24,451 | 24,451 |
| Earnings per share (in EUR) | 3.37 | 3.27 |
The earnings taken as the basis are derived from the earnings of the INDUS shareholders, adjusted to exclude income from discontinued operations. In the event of the contingent/authorized capital being utilized, dilutions can arise in the future.
With a corporate income tax rate of 15% (previous year: 15%), the calculation for domestic companies is subject to an average trade tax rate of 395% (previous year: 395%) and an unchanged solidarity surcharge of 5.5%, with income tax at 29.6% (previous year: 29.6%).
as a percentage of earnings 35.7 34.8
Individual goodwill, summarized at segment level, is as follows:
FIXED ASSET SCHEDULE – GOODWILL
| CARRYING AMOUNT JAN. 1, 2017 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | IMPAIRMENT | CURRENCY DIFFERENCE |
CARRYING AMOUNT DEC. 31, 2017 |
|
|---|---|---|---|---|---|---|---|
| Construction/Infrastructure | 112,295 | 0 | 0 | 0 | 0 | -635 | 111,660 |
| Automotive Technology | 75,420 | 0 | 0 | 0 | 0 | -98 | 75,322 |
| Engineering | 121,902 | 20,836 | 0 | 0 | 0 | -215 | 142,523 |
| Medical Engineering/Life Science | 69,639 | 0 | 0 | 0 | 0 | 0 | 69,639 |
| Metals Technology | 29,446 | 0 | 0 | 0 | 0 | 0 | 29,446 |
| Total goodwill | 408,702 | 20,836 | 0 | 0 | 0 | -948 | 428,590 |
| CARRYING AMOUNT JAN. 1, 2016 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | IMPAIRMENT | CURRENCY DIFFERENCE |
CARRYING AMOUNT DEC. 31, 2016 |
|
| Construction/Infrastructure | 103,074 | 9,145 | 0 | 0 | 0 | 76 | 112,295 |
| Automotive Technology | 71,499 | 3,833 | 0 | 0 | 0 | 88 | 75,420 |
| Engineering | 121,305 | 1,574 | 0 | 0 | 0 | -977 | 121,902 |
| Medical Engineering/Life Science | 69,477 | 162 | 0 | 0 | 0 | 0 | 69,639 |
| Metals Technology | 29,447 | 0 | 0 | 0 | 0 | -1 | 29,446 |
| Total goodwill | 394,802 | 14,714 | 0 | 0 | 0 | -814 | 408,702 |
Impairment testing on goodwill is performed for cash generating units (usually the portfolio companies including their subsidiaries).
The impairment tests compares the CGU's recoverable value against the carrying amount including goodwill. INDUS typically uses the value in use to determine the recoverable value.
Value in use is calculated applying the latest estimates prepared by management. The planning premises take into account both current knowledge and historical developments. After the three-year detailed planning period, future cash flows are projected using a global growth rate of 1.0% (previous year: 1.0%). The projection figures are discounted applying a capital cost rate. These are based on a risk-free interest rate of 1.25% (previous year: 0.5%), a market risk premium of 6.75% (previous year: 7.00%), segment-specific beta coefficient derived from a peer group, and borrowing rates. The following segment-specific pre-tax cost of capital rates were applied: Construction/Infrastructure 5.8% (previous year: 6.4%), Automotive Technology 9.3% (previous year: 8.6%), Mechanical Engineering 7.3% (previous year: 6.6%), Medical Engineering/Life Science 6.8% (previous year: 4.8%), and Metals Technology 7.8% (previous year: 6.9%).
As in the previous year, no impairments were recognized on goodwill in fiscal year 2017.
If the pre-tax cost-of-capital rate were to increase by 0.5%, the impairment on goodwill would amount to EUR 2,360,000 (previous year: EUR 0).
| COSTS IN 2017 | (in EUR '000) | ||||||
|---|---|---|---|---|---|---|---|
| OPENING BALANCE JAN. 1, 2017 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | TRANSFERS | CURRENCY TRANSLATION |
CLOSING BALANCE DEC. 31, 2017 |
|
| Goodwill | 448,747 | 20,836 | 0 | 0 | 0 | -961 | 468,622 |
| Capitalized development costs | 31,274 | 0 | 3,786 | -20 | 0 | -192 | 34,848 |
| Property rights, concessions and other intangible assets |
169,642 | 18,445 | 3,920 | -1,133 | 46 | -371 | 190,549 |
| Total other intangible assets | 200,916 | 18,445 | 7,706 | -1,153 | 46 | -563 | 225,397 |
| Land and buildings | 280,981 | 7,033 | 7,212 | -1,064 | 10,157 | -4,190 | 300,129 |
| Plant and machinery | 412,036 | 675 | 23,064 | -11,873 | 7,525 | -4,080 | 427,347 |
| Other equipment, factory and office equipment | 160,670 | 1,853 | 18,758 | -9,598 | 1,577 | -1,481 | 171,779 |
| Advance payments and work in process | 13,596 | 0 | 24,898 | -510 | -19,305 | 20 | 18,699 |
| Total property, plant and equipment | 867,283 | 9,561 | 73,932 | -23,045 | -46 | -9,731 | 917,954 |
| Investment property | 6,973 | 0 | 0 | 0 | 0 | 0 | 6,973 |
| DEPRECIATION/AMORTIZATON IN 2017 | (in EUR '000) | ||||||
|---|---|---|---|---|---|---|---|
| OPENING BALANCE JAN. 1, 2017 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS AND TRANSFERS |
APPRECIATION IN VALUE |
CURRENCY TRANSLATION |
CLOSING BALANCE DEC. 31, 2017 |
|
| Goodwill | 40,045 | 0 | 0 | 0 | 0 | -13 | 40,032 |
| Capitalized development costs | 18,668 | 0 | 3,632 | -6 | 0 | -70 | 22,224 |
| Property rights, concessions and other intangible assets |
107,942 | 0 | 10,118 | -1,112 | 0 | -229 | 116,719 |
| Total other intangible assets | 126,610 | 0 | 13,750 | -1,118 | 0 | -299 | 138,943 |
| Land and buildings | 85,688 | 0 | 8,493 | -359 | 0 | -1,011 | 92,811 |
| Plant and machinery | 304,673 | 0 | 25,047 | -10,232 | 0 | -2,824 | 316,664 |
| Other equipment, factory and office equipment | 107,591 | 0 | 14,949 | -9,493 | 0 | -1,583 | 111,464 |
| Advance payments and work in process | 0 | 0 | 7 | 0 | 0 | 0 | 7 |
| Total property, plant and equipment | 497,952 | 0 | 48,496 | -20,084 | 0 | -5,418 | 520,946 |
| Investment property | 1,561 | 0 | 192 | 0 | 0 | 0 | 1,753 |
| COSTS IN 2016 | (in EUR '000) | ||||||
|---|---|---|---|---|---|---|---|
| OPENING BALANCE JAN. 1, 2016 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | TRANSFERS | CURRENCY TRANSLATION |
CLOSING BALANCE DEC. 31, 2016 |
|
| Goodwill | 434,871 | 14,714 | 0 | 0 | 0 | -838 | 448,747 |
| Capitalized development costs | 26,863 | 156 | 4,161 | 0 | 79 | 15 | 31,274 |
| Property rights, concessions and other intangible assets |
148,847 | 16,214 | 6,140 | -1,348 | 71 | -282 | 169,642 |
| Total other intangible assets | 175,710 | 16,370 | 10,301 | -1,348 | 150 | -267 | 200,916 |
| Land and buildings | 259,519 | 6,100 | 16,847 | -2,592 | 1,176 | -69 | 280,981 |
| Plant and machinery | 386,271 | 1,253 | 24,532 | -8,222 | 7,993 | 209 | 412,036 |
| Other equipment, factory and office equipment | 147,708 | 1,096 | 17,481 | -6,136 | 504 | 17 | 160,670 |
| Advance payments and work in process | 10,212 | 39 | 14,574 | -1,351 | -9,823 | -55 | 13,596 |
| Total property, plant and equipment | 803,710 | 8,488 | 73,434 | -18,301 | -150 | 102 | 867,283 |
| Investment property | 7,891 | 0 | 0 | -918 | 0 | 0 | 6,973 |
| DEPRECIATION/AMORTIZATON IN 2016 | (in EUR '000) | ||||||
| OPENING BALANCE JAN. 1, 2016 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS AND TRANSFERS |
APPRECIATION IN VALUE |
CURRENCY TRANSLATION |
CLOSING BALANCE DEC. 31, 2016 |
|
| Goodwill | 40,069 | 0 | 0 | 0 | 0 | -24 | 40,045 |
| Capitalized development costs | 15,673 | 0 | 2,987 | 0 | 0 | 8 | 18,668 |
| Property rights, concessions and other intangible assets |
101,209 | 0 | 8,226 | -1,318 | 0 | -175 | 107,942 |
| Total other intangible assets | 116,882 | 0 | 11,213 | -1,318 | 0 | -167 | 126,610 |
| Land and buildings | 79,535 | 0 | 7,979 | -1,863 | 0 | 37 | 85,688 |
| Plant and machinery | 289,353 | 0 | 22,492 | -7,756 | 0 | 584 | |
| 304,673 | |||||||
| Other equipment, factory and office equipment | 99,976 | 0 | 13,459 | -5,929 | 0 | 85 | 107,591 |
| Advance payments and work in process | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total property, plant and equipment | 468,864 | 0 | 43,930 | -15,548 | 0 | 706 | 497,952 |
Intangible assets have determinable useful lives. The change in scope of consolidation concerns additions according to IFRS 3. The residual carrying amount of capitalized finance leases came to EUR 11,508,000 for property and building leases (previous year: EUR 14,408,000) and EUR 2,100 for plant and machinery leases (previous year: EUR 1,044,000).
As of the reporting date, the residual carrying amounts of fixed assets, property, plant, and equipment, and property held as a financial investment came to:
| RESIDUAL CARRYING AMOUNTS OF FIXED ASSETS | (in EUR '000) | |
|---|---|---|
| DEC. 31, 2017 | DEC. 31, 2016 | |
| Goodwill | 428,590 | 408,702 |
| Capitalized development costs | 12,624 | 12,606 |
| Property rights, concessions and other intangible assets |
73,830 | 61,700 |
| Total other intangible assets | 86,454 | 74,306 |
| Land and buildings | 207,318 | 195,293 |
| Plant and machinery | 110,683 | 107,363 |
| Other equipment, factory and office equipment |
60,315 | 53,079 |
| Advance payments and work in process |
18,692 | 13,596 |
| Property, plant and equipment | 397,008 | 369,331 |
| Investment property | 5,220 | 5,412 |
| in EUR '000 | DEC. 31, 2017 | DEC. 31, 2016 |
|---|---|---|
| Other investments | 2,592 | 2,518 |
| Other loans | 11,403 | 9,696 |
| Total | 13,995 | 12,214 |
The loans relate to loans originated by the company which are carried at amortized cost. Some of the loans are extended interest-free, but the majority of them have interest rates suitable for their durations and long-term fixed rates. There were no defaults in either of the two fiscal years.
As of December 31, 2017, the carrying amounts of shares accounted for using the equity method totaled EUR 10,903,000 (previous year: EUR 10,497,000).
The table below presents additional data on investments measured using the equity method
| 2017 | 2016 |
|---|---|
| 8,408 | |
| 1,038 | 849 |
| 45,091 | 38,284 |
| 27,734 | 22,602 |
| 17,357 | 15,682 |
| 30,498 | 26,599 |
| 2,141 | 1,715 |
| 8,408 |
| in EUR '000 | DEC. 31, 2017 | DEC. 31, 2016 |
|---|---|---|
| Accrual of payments not relating to | ||
| the period under review | 6,048 | 5,526 |
| Other tax refund claims | 4,199 | 4,272 |
| Long-term receivables | 107 | 9 |
| Reinsurance premiums | 1,233 | 1,184 |
| Loans and other receivables | 596 | 490 |
| Positive swap market value | 99 | 860 |
| Other assets | 8,559 | 7,112 |
| Total | 20,841 | 19,453 |
| of which current | 18,247 | 16,424 |
| of which non-current | 2,594 | 3,029 |
The origin of the deferred tax assets and liabilities is broken down by statement of financial position item as follows:
| 2017 (in EUR '000) | ASSETS | LIABILITIES | BALANCE |
|---|---|---|---|
| Goodwill of limited partnerships | 3,166 | -28,041 | -24,875 |
| Intangible assets | 0 | -21,463 | -21,463 |
| Property, plant and equipment | 2,277 | -6,631 | -4,354 |
| Receivables and inventories | 536 | -4,014 | -3,478 |
| Other current assets | 369 | -29 | 340 |
| Long-term provisions | 8,778 | -23 | 8,755 |
| Current liabilities | 2,286 | -42 | 2,244 |
| Capitalization of loss carryforwards | 5,737 | 0 | 5,737 |
| Netting-out of accounts | -14,287 | 14,287 | 0 |
| Deferred taxes | 8,862 | -45,956 | -37,094 |
| 2016 (in EUR '000) | ASSETS | LIABILITIES | BALANCE |
| Goodwill of limited partnerships | 2,696 | -27,119 | -24,423 |
| Intangible assets | 0 | -17,907 | -17,907 |
| Property, plant and equipment | 2,433 | -5,155 | -2,722 |
| Receivables and inventories | 577 | -3,535 | -2,958 |
| Other current assets | 12 | -146 | -134 |
| Long-term provisions | 5,553 | -26 | 5,527 |
| Current liabilities | 3,575 | 0 | 3,575 |
| Capitalization of loss carryforwards | 3,705 | 0 | 3,705 |
| Netting-out of accounts | -16,293 | 16,293 | 0 |
| Deferred taxes | 2,258 | -37,595 | -35,337 |
Netting-out is undertaken for income tax which is due to the same tax authority. This relates mainly to the corporate income tax of INDUS Holding AG and those of its German subsidiaries, which are incorporated companies by law.
Deferred tax liabilities result mainly from the calculation of deferred taxes on the tax-deductible goodwill of limited partnerships. For tax purposes, rules governing the purchase price allocation are similar to those under IFRS for limited partnerships, and the resulting assets – and goodwill of a fiscal nature – are tax-deductible. As goodwill is no longer amortized in accordance with IFRS, deferred taxes will henceforth be accrued in line with the amortization of fiscal goodwill as per the conditions set forth in IAS 12.21B. Deferred taxes must be recognized until the company is sold.
| The change in the balance of deferred taxes is explained in | |||
|---|---|---|---|
| the following tables: |
| JAN. 1, 2017 | STATEMENT OF INCOME |
OTHER | DEC. 31, 2017 | |
|---|---|---|---|---|
| Trade tax | 3,141 | 714 | 0 | 3,855 |
| Corporate tax | 564 | 89 | 0 | 653 |
| Foreign tax | 0 | 1,229 | 0 | 1,229 |
| Capitalization of loss carryforwards | 3,705 | 2,032 | 0 | 5,737 |
| Other deferred taxes | -39,042 | 642 | -4,431 | -42,831 |
| Deferred taxes | -35,337 | 2,674 | -4,431 | -37,094 |
| JAN. 1, 2016 | STATEMENT OF INCOME |
OTHER | DEC. 31, 2016 | |
| Trade tax | 2,617 | 524 | 0 | 3,141 |
| Corporate tax | 546 | 18 | 0 | 564 |
| Capitalization of loss carryforwards | 3,163 | 542 | 0 | 3,705 |
| Other deferred taxes | -37,941 | 725 | -1,826 | -39,042 |
| Deferred taxes | -34,778 | 1,267 | -1,826 | -35,337 |
DEVELOPMENT OF DEFERRED TAXES (in EUR '000)
The other changes in deferred taxes are composed as follows:
| Total | -4,431 | -1,826 |
|---|---|---|
| Change in scope of consolidation | -7,786 | -1,718 |
| Pension provisions (actuarial gains/losses) |
2,839 | 284 |
| Currency translation reserve | 275 | -143 |
| Provisions for mark-to-market evaluation of cash flow hedges |
241 | -249 |
| in EUR '000 | 2017 | 2016 |
Deferred tax assets were recognized for tax loss carryforwards in the amount of EUR 35,417,000 (previous year: EUR 25,453,000).
Other tax loss carryforwards totaling EUR 179,192,000 (previous year: EUR 165,241,000), which are unlikely to be realized in the next five years, were not capitalized. The majority of these were trade tax loss carryforwards resulting from the fiscal particularities prevailing at INDUS Group, as explained in item [16]. Potential opportunities to realize such carryforwards in the future will accordingly be determined by the prevailing trade tax rate. The largest single item is the holding company's trade tax loss carryforward. The utilization of these loss carryforwards is not subject to any time limits.
Owing to a lack of realization opportunities, deferred tax assets of EUR 24,000 (previous year: EUR 139,000) were not recognized. Deferred tax assets amounting to EUR 840,000 (previous year: EUR 945,000) were recognized in addition to the relevant deferred tax liabilities for companies which have recently suffered tax losses.
| DEC. 31, 2017 125,146 |
DEC. 31, 2016 98,941 |
|---|---|
| 88,205 | 85,419 |
| 109,340 | 102,772 |
| 16,463 | 21,565 |
| 339,154 | 308,697 |
The value of the inventories' carrying amounts was adjusted downward by EUR 17,606,000 (previous year: EUR 15,982,000).
| Total | 197,528 | 177,626 |
|---|---|---|
| Receivables from associated companies |
1,697 | 1,680 |
| Receivables from construction contracts |
15,693 | 12,689 |
| Receivables from customers | 180,138 | 163,257 |
| in EUR '000 | DEC. 31, 2017 | DEC. 31, 2016 |
In the year under review, EUR 108,000 in receivables from customers with a payment term of more than one year were recognized (previous year: EUR 75,000).
Further information on construction contracts is contained in the following table:
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Costs incurred including prorated income | 107,971 | 71,782 |
| Advance payments received | 141,279 | 96,986 |
| Construction contracts with a positive balance | 15,693 | 12,689 |
| Construction contracts with a negative balance |
49,001 | 37,893 |
Construction contracts with a balance on the liabilities side consist of construction contracts with a settled surplus from payments received. These are listed under other liabilities in the statement of financial position.
The receivables include valuation allowances amounting to EUR 5,999,000 (previous year: EUR 7,011,000). They developed as follows:
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Valuation allowances as of January 1 | 7,011 | 6,278 |
| Currency translation | -52 | -12 |
| Change in scope of consolidation | 53 | 137 |
| Additions | 2,431 | 2,922 |
| Utilization | -597 | -368 |
| Reversals | -2,847 | -1,946 |
| Valuation allowances as of December 31 | 5,999 | 7,011 |
The capital stock came to EUR 63,571,323.62 on the reporting date. Capital stock consists of 24,450,509 no-par-value shares. The shares are bearer shares, each conferring one vote at the Annual Shareholders' Meeting. The shares are registered for regulated trading on the Düsseldorf and Frankfurt Stock Exchanges and for over-the-counter trading in Berlin, Hamburg, and Stuttgart.
The Board of Management is authorized, subject to Supervisory Board approval, to increase the Company's capital stock until June 10, 2019 through the issuance of up to 12,225,254 new no-par-value bearer shares in exchange for contributions in cash and/or contributions in kind on one or more occasions up to a total of EUR 31,785,660.51 (Authorized Capital 2014). The shareholders are to be given subscription rights during the capital increase. However, the Board of Management is authorized, subject to Supervisory Board approval, to exclude shareholders' subscription rights in certain cases.
The total number of shares issued or to be issued with exclusion of subscription rights owing to one of these authorizations may not exceed 10% of the share capital at the time at which the authorization is exercised; this includes shares issued or to be issued with exclusion of subscription rights owing to a different authorization during the term of this authorization.
Per resolution adopted at the Annual Shareholders' Meeting on June 24, 2013, the company's capital stock was conditionally increased by up to EUR 11,700,000.04, divided into 4,500,000 no-par-value bearer or – insofar as the company's articles of association allow for the issue of registered shares at the time of issuance – registered shares (Contingent Capital 2013).
The implementation of the capital increase is conditional upon
— exercise by the holders or creditors of convertible bonds or warrants of optional bonds (or a combination thereof ) issued or guaranteed by INDUS Holding AG or its Group companies by June 23, 2018 pursuant to the authorization granted to the Board of Management by the Annual Shareholders' Meeting on June 24, 2013, of such convertible bonds or warrants;
The development of reserves is presented in the statement of changes in equity and includes INDUS Holding AG's capital reserves. As of the reporting date, the equity ratio was 40.8% (previous year: 42.4%).
Interests held by non-controlling shareholders essentially consist of the non-controlling interests in the limited liability companies WEIGAND Bau GmbH and subsidiaries of ROLKO-Kohlgrüber GmbH. Non-controlling interests in limited partnerships and limited liability companies, for which the economic ownership of the corresponding non-controlling interests had already been passed on under reciprocal option agreements, are shown under other liabilities [30].
The Board of Management will propose to the Annual Shareholders' Meeting that the following dividend payments be made from INDUS Holding AG's retained earnings:
Payment of a dividend of EUR 1.50 per no-par-value share (previous year: EUR 1.35 per no-par-value share). With 24,450,509 shares (previous year: 24,450,509 shares), this equates to a payment of EUR 36,675,763.50 (previous year: EUR 33,008,187.15). The full text of the dividend proposal is published separately. The proposed dividend was not recognized in the balance sheets and there are no tax consequences.
| CHANGE IN OTHER RESERVES | (in EUR '000) | ||||
|---|---|---|---|---|---|
| JAN. 1, 2016 | OTHER RESULT 2016 |
DEC. 31, 2016 | OTHER RESULT 2017 |
DEC. 31, 2017 | |
| Reserve for currency translation | 10,108 | -2,191 | 7,917 | -9,233 | -1,316 |
| Pension provisions (actuarial gains/losses) | -10,534 | -960 | -11,494 | -13,258 | -24,752 |
| Deferred taxes for pensions | 3,119 | 284 | 3,403 | 2,839 | 6,242 |
| Reserve for cash flow hedges | -4,960 | 1,575 | -3,385 | -943 | -4,328 |
| Deferred taxes for cash flow hedges | 781 | -249 | 532 | 241 | 773 |
| Total other reserves | -1,486 | -1,541 | -3,027 | -20,354 | -23,381 |
Reserves for currency translation and for cash flow hedges include unrealized gains and losses. The change in reserves for cash flow hedges instruments is based exclusively on ongoing changes in mark-to-market valuation. There were no effects resulting from reclassification.
INDUS Holding AG manages capital so as to increase return on equity and ensure the INDUS Group has adequate liquidity and good credit standing. The ratio of equity to interestbearing total capital, consisting of interest-bearing debt and equity, is constantly optimized to the same end. Interestbearing debt capital comprises pension provisions and financial liabilities, less cash and cash equivalents, and amounts to EUR 442,934,000 (previous year: EUR 405,571,000). Taking equity in the statement of financial position into account, total capital comes to EUR 1,116,747,000 (previous year: EUR 1,050,139,000). Relative to total interest-bearing capital employed, the equity ratio is 60.3% (previous year: 61.4%).
The increase in total capital by EUR 66,608,000 (previous year: EUR 70,298,000) resulted from an increase in equity by EUR 29,245,000 (previous year: EUR 49,138,000) and a EUR 37,363,000 increase in the interest-bearing debt (previous year: EUR 21,160,000 increase). The reinvested capital enhances INDUS' solid capital base.
INDUS Holding AG is not subject to any other legally mandatory capital requirements, with the exception of the minimum capital rules stipulated in stock corporation law. Furthermore, INDUS Holding AG has entered into obligations to maintain a minimum equity ratio at the stock corporation in connection with loan agreements. This enables it to keep receiving funds on reasonable terms. The required minimum equity ratio was exceeded in the past fiscal year. The creditors have exceptional termination rights in case of a change of control. Certain key figures have been defined for promissory note loans.
| STATEMENT OF INCOME | (in EUR '000) | ||
|---|---|---|---|
| 2017 | 2016 | CHANGE | |
| Current service cost | 418 | 401 | 17 |
| Interest cost | 643 | 680 | -37 |
| Income from plan assets | -56 | -62 | 6 |
| Cost of defined benefit obligation | 1,005 | 1,019 | -14 |
| + Defined contribution plan cost | 3,771 | 3,564 | 207 |
| = Cost of pension commitments for the period | 4,776 | 4,583 | 193 |
| 2017 | 2016 | CHANGE | |
|---|---|---|---|
| Present value of benefit obligations financed by provisions | 43,969 | 29,020 | 14,949 |
| Present value of funded benefit obligations | 38,221 | 2,864 | 35,357 |
| DBO: accumulated benefit obligations | 82,190 | 31,884 | 50,306 |
| Market value of plan assets | -38,221 | -2,864 | -35,357 |
| Net obligation = provisions | 43,969 | 29,020 | 14,949 |
| Actuarial gains/losses | -24,752 | -11,494 | -13,258 |
| Opening balance: amount carried on the statement of financial position as of January 1 | 29,020 | 28,055 | 965 |
| Pension obligation expenses | 1,005 | 1,019 | -14 |
| Pension payments | -1,189 | -1,014 | -175 |
| Actuarial gains/losses realized in equity | 13,258 | 960 | 12,298 |
| Change of scope in consolidation/netting-out | 1,875 | 0 | 1,875 |
| Closing balance: amount carried on the statement of financial position as of December 31 | 43,969 | 29,020 | 14,949 |
| Underlying assumptions in percent: | |||
| Discount rate | |||
| Germany | 1.80 | 2.00 | |
| Switzerland | 0.75 | 0.75 | |
| Salary trend | |||
| Germany | 2.50 | 2.50 | |
| Switzerland | 0.75 | 0.75 | |
| Pension trend | |||
| Germany | 1.75 | 1.75 | |
| Switzerland | 0.00 | 0.00 | |
| Expected income from plan assets | |||
| Germany | 1.80 | 2.00 | |
| Switzerland | 0.75 | 0.75 |
Interest expenses are stated in the item "Net interest." The anticipated income from plan assets essentially corresponds to actual income.
The defined benefit plans are associated with actuarial risks, such as the longevity risk and interest rate risk. An increase or reduction in the discounting factor by 0.5 percentage points would reduce net obligations by EUR 4,703,000 (previous year: EUR 2,150,000) or increase them by EUR 5,325,000 (previous year: EUR 2,418,000).
Actuarial assumptions regarding the likelihood of Swiss benefit obligations being utilized by INDUS were changed in the 2017 fiscal year. Due to fact that we believe the likelihood of utilization has increased, defined benefit plans, which were previously recognized as defined contributions plans, are now recognized as defined benefit plans. Actuarial losses resulting from the reassessment amount to EUR 12,649,000 and are recognized under other income.
Payments amounting to EUR 3,078,000 are anticipated in 2018 in connection with retirement benefits (in 2016 for 2017: EUR 1,254,000).
Plan assets primarily consist of reinsurance policies. Plan assets developed as follows:
| in EUR '000 | 2017 | 2016 |
|---|---|---|
| Assets as of January 1 | 2,864 | 2,799 |
| Expected return on plan assets | 56 | 62 |
| Ongoing provider contributions | 101 | 52 |
| Pensions paid | -148 | -148 |
| Change of scope in consolidation | 0 | 0 |
| Netting-out/Other | 35,348 | 99 |
| Assets as of December 31 | 38,221 | 2,864 |
The statement of financial position also includes reimbursement claims totaling EUR 1,233,000 (previous year: EUR 1,184,000).
Other provisions include interest in the amount of EUR 84,000 (previous year: EUR 83,000).
| PROVISIONS 2017 | (in EUR '000) | ||||||
|---|---|---|---|---|---|---|---|
| OPENING BALANCE JAN. 1, 2017 |
CHANGE IN SCOPE OF CONSOLIDATION |
USED | LIQUIDATION | ADDITIONS/ NEWLY CREATED |
CURRENCY DIFFERENCE |
CLOSING BALANCE DEC. 31, 2017 |
|
| Sales and purchasing obligations | 30,465 | 603 | 22,450 | 2,449 | 27,614 | -161 | 33,622 |
| Personnel expenses | 22,777 | 896 | 20,262 | 710 | 24,040 | -198 | 26,543 |
| Other provisions | 14,553 | 388 | 8,613 | 1,132 | 9,506 | -106 | 14,596 |
| Total | 67,795 | 1,887 | 51,325 | 4,291 | 61,160 | -465 | 74,761 |
Liabilities from sales activities include provisions for warranties based on legal or de facto obligations, obligations for customer bonuses and rebates as well as estimated values for anticipated invoices. Provisions for personnel expenses are formed for personnel credit hours, service anniversaries, partial retirement, severance commitments, and similar obligations. Other provisions relate to a range of possible individual risks, which are measured in terms of their probability of occurrence. There were no significant expected reimbursements in relation to obligations recognized as per IAS 37.
| FINANCIAL LIABILITIES/DEVELOPMENT | (in EUR '000) | |||||
|---|---|---|---|---|---|---|
| JAN. 1, 2017 CARRYING AMOUNT FOR REPORTING PERIOD |
CASH EFFECTIVE |
CASH-EFFECTIVE | DEC. 31, 2017 CARRYING AMOUNT FOR REPORTING PERIOD |
|||
| CHANGE IN SCOPE OF CONSOLIDATION |
EXCHANGE RATE CHANGE |
CHANGE IN FAIR VALUE |
||||
| Liabilities to banks | 386,602 | -40,737 | 1,077 | 47 | 0 | 346,989 |
| Finance leases | 8,140 | -873 | 0 | -603 | 0 | 6,664 |
| Promissory note loans | 108,989 | 72,204 | 0 | 0 | 0 | 181,193 |
| Total financial liabilities | 503,731 | 30,594 | 1,077 | -556 | 0 | 534,846 |
| FINANCIAL LIABILITIES/DERIVATIVES |
|---|
| FINANCIAL LIABILITIES/DERIVATIVES | (in EUR '000) | |||
|---|---|---|---|---|
| DEC. 31, 2017 CARRYING AMOUNT FOR REPORTING PERIOD |
REPAYMENT OBLIGATION | |||
| UP TO 1 YEAR |
1 TO 5 YEARS | MORE THAN 5 YEARS |
||
| Liabilities to banks | ||||
| in the Group's currency EUR | 345,221 | 85,205 | 233,159 | 26,857 |
| in Swiss francs | 748 | 319 | 429 | 0 |
| in other currencies | 1,020 | 0 | 1,020 | 0 |
| Finance leases | 6,664 | 1,981 | 4,683 | 0 |
| Promissory note loans | 181,193 | 7,796 | 106,186 | 67,211 |
| Total financial liabilities | 534,846 | 95,301 | 345,477 | 94,068 |
| Derivatives/interest-rate swaps – nominal values | 290,544 | 30,015 | 152,801 | 107,728 |
| DEC. 31, 2016 CARRYING AMOUNT FOR REPORTING PERIOD |
REPAYMENT OBLIGATION | |||
| UP TO 1 YEAR |
1 TO 5 YEARS | MORE THAN 5 YEARS |
||
| Liabilities to banks | ||||
| in the Group's currency EUR | 383,907 | 102,034 | 253,783 | 28,090 |
| in Swiss francs | 2,695 | 1,730 | 965 | 0 |
| in other currencies | 0 | 0 | 0 | 0 |
| Finance leases | 8,140 | 2,414 | 5,726 | 0 |
| Promissory note loans | 108,989 | 7,796 | 81,186 | 20,007 |
| Total financial liabilities | 503,731 | 113,974 | 341,660 | 48,097 |
| Derivatives/interest-rate swaps – nominal values | 99,652 | 34,570 | 64,827 | 255 |
| in EUR '000 | DEC. 31, 2017 | CURRENT | NON-CURRENT | DEC. 31, 2016 | CURRENT | NON-CURRENT |
|---|---|---|---|---|---|---|
| Accounts payable to outside shareholders | 85,843 | 60,746 | 25,097 | 72,758 | 32,543 | 40,215 |
| Accounts payable for personnel | 19,062 | 19,062 | 0 | 15,802 | 15,799 | 3 |
| Derivative financial instruments | 4,346 | 4,346 | 0 | 3,487 | 3,487 | 0 |
| Advance payments received | 18,568 | 17,658 | 910 | 20,517 | 17,008 | 3,509 |
| Construction contracts with a negative balance | 49,001 | 49,001 | 0 | 37,892 | 37,892 | 0 |
| Accrual of non-recurrent payments | 11,829 | 11,771 | 58 | 9,913 | 9,913 | 0 |
| Accrual of payments not relating to the period under review | 1,167 | 814 | 353 | 1,891 | 1,429 | 462 |
| Investment subsidies | 2,261 | 0 | 2,261 | 2,545 | 0 | 2,545 |
| Customer credit notes | 6,331 | 6,331 | 0 | 5,953 | 5,953 | 0 |
| Sundry other liabilities | 4,847 | 4,352 | 495 | 4,476 | 3,481 | 995 |
| Total | 203,255 | 174,081 | 29,174 | 175,234 | 127,505 | 47,729 |
Accounts payable to outside shareholders included EUR 64,275,000 (previous year: EUR 54,889,000) for contingent purchase price commitments measured at fair value insofar as minority shareholders are able to tender their shares to INDUS by terminating the articles of association or on the basis of option agreements. During the fiscal year, new purchase price commitment amounted to EUR 10,231,000, EUR 24,000 were recognized in expenses and EUR 821,000 was deducted mainly due to payouts to minority shareholders. Purchase price commitment fluctuated in line with the percentage change in the operating result (EBIT), partially kept in check by upper and lower limits.
The purchase prices paid for the new acquisition of investments were as follows:
| Net purchase price | -32,414 | -29,889 |
|---|---|---|
| Subject to assumed financial liabilities | 6,283 | 6,221 |
| Cash-effective attributable to the acquisition of portfolio companies: |
-38,697 | -36,110 |
| in EUR '000 | 2017 | 2016 |
Cash and cash equivalents include limited-authorization accounts with a balance of EUR 155,000 (previous year: EUR 55,000). Investing and financing transactions amounting to EUR 5,650,000 (previous year: EUR 3,004,000), which had no impact on cash and cash equivalents, are not part of the statement of cash flows.
| CONSTRUCTION/ MEDICAL INFRA AUTOMOTIVE ENGINEERING/ METALS TOTAL RECONCI STRUCTURE TECHNOLOGY ENGINEERING LIFE SCIENCE TECHNOLOGY SEGMENTS LIATION 2017 Sales with external third parties 330,368 394,106 375,117 155,179 385,617 1,640,387 253 |
CONSOLIDATED FINANCIAL STATEMENTS 1,640,640 0 |
|---|---|
| Sales with Group companies 33,238 75,669 62,117 16,693 53,055 240,772 -240,772 |
|
| Sales 363,606 469,775 437,234 171,872 438,672 1,881,159 -240,519 |
1,640,640 |
| Segment earnings (EBIT) 49,393 14,720 53,545 20,800 24,162 162,620 -9,755 |
152,865 |
| Earnings from equity valuation 556 305 220 0 0 1,081 0 |
1,081 |
| Depreciation/amortization -8,850 -21,782 -10,730 -6,775 -13,556 -61,693 -745 |
-62,438 |
| of which amortization -8,850 -21,782 -10,730 -6,775 -13,556 -61,693 -745 |
-62,438 |
| of which impairment 0 0 0 0 0 0 0 |
0 |
| Segment EBITDA 58,243 36,502 64,275 27,575 37,718 224,313 -9,010 |
215,303 |
| Investments 13,398 30,274 43,416 7,381 14,509 108,978 2,447 |
111,425 |
| of which company acquisition 0 0 32,414 0 0 32,414 0 |
32,414 |
| of which at equity 0 0 0 0 0 0 0 |
0 |
| Dec. 31, 2017 | |
| Shares measured according to the equity method 4,084 4,676 2,143 0 0 10,903 0 |
10,903 |
| Goodwill 111,660 75,322 142,523 69,639 29,446 428,590 0 |
428,590 |
| SEGMENT INFORMATION IN ACCORDANCE WITH IFRS 8 | (in EUR '000) |
|---|---|
| CONSTRUCTION/ INFRA STRUCTURE |
AUTOMOTIVE TECHNOLOGY |
ENGINEERING | MEDICAL ENGINEERING/ LIFE SCIENCE |
METALS TECHNOLOGY |
TOTAL SEGMENTS |
RECONCI LIATION |
CONSOLIDATED FINANCIAL STATEMENTS |
|
|---|---|---|---|---|---|---|---|---|
| 2016 | ||||||||
| Sales with external third parties | 274,542 | 372,164 | 305,878 | 147,026 | 344,363 | 1,443,973 | 297 | 1,444,270 |
| Sales with Group companies | 25,677 | 41,980 | 49,282 | 15,890 | 37,857 | 170,686 | -170,686 | 0 |
| Sales | 300,219 | 414,144 | 355,160 | 162,916 | 382,220 | 1,614,659 | -170,389 | 1,444,270 |
| Segment earnings (EBIT) | 39,235 | 20,271 | 41,387 | 20,153 | 29,917 | 150,963 | -6,029 | 144,934 |
| Earnings from equity valuation | 173 | 559 | 233 | 0 | 0 | 965 | 0 | 965 |
| Depreciation/amortization | -7,455 | -19,611 | -8,318 | -6,596 | -13,225 | -55,205 | -771 | -55,976 |
| of which amortization | -7,455 | -19,611 | -8,318 | -6,596 | -13,225 | -55,205 | -771 | -55,976 |
| of which impairment | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Segment EBITDA | 46,690 | 39,882 | 49,705 | 26,749 | 43,142 | 206,168 | -5,258 | 200,910 |
| Investments | 35,350 | 36,902 | 9,659 | 6,199 | 14,491 | 102,601 | 1,282 | 103,883 |
| of which company acquisition | 20,120 | 8,137 | 1,318 | 314 | 0 | 29,889 | 0 | 29,889 |
| of which at equity | 4,030 | 0 | 0 | 0 | 0 | 4,030 | 0 | 4,030 |
| Dec. 31, 2016 | ||||||||
| Shares accounted for using the equity method |
4,203 | 4,371 | 1,923 | 0 | 0 | 10,497 | 0 | 10,497 |
| Goodwill | 112,295 | 75,420 | 121,902 | 69,639 | 29,446 | 408,702 | 0 | 408,702 |
RECONCILIATION (in EUR '000) 2017 2016 Segment earnings (EBIT) 162,620 150,963 Areas not allocated, incl. holding company -9,913 -6,266 Consolidations 158 237 Net interest -23,674 -21,556 Earnings before taxes 129,191 123,378 The classification of segments corresponds unchanged to the current status of internal reporting. The information relates to continuing activities. The companies are allocated to the segments on the basis of their selling markets insofar as the bulk of their product range is sold in that market environment (Automotive Technology, Medical Engineering/Life Science). Otherwise, they are classified by common features in their production structure (Construction/Infrastructure, Engineering, Metals Technology). The reconciliations contain the figures of the holding company, non-operational units not allocated to any segment, and consolidations. See the discussion provided in the management report regarding the products and services that generate segment sales.
The key control variable for the segments is operating earnings (EBIT) as defined in the consolidated financial statements. The segment information has been ascertained in compliance with the reporting and valuation methods that were applied during the preparation of the consolidated financial statements. The transfer prices between the segments are based on market prices.
Sales are broken down by region in relation to our selling markets. Further classification of our diverse foreign activities by country is not expedient, as no country outside of Germany accounts for 10% of Group sales.
Non-current assets, less deferred taxes and financial instruments, are based on the domiciles of the respective companies. Further differentiation is not expedient, as the majority of companies are domiciled in Germany.
Due to INDUS's diversification policy there were no individual product or service groups and no individual customers that accounted for more than 10% of sales.
| IN EUR '000 | GROUP | GERMANY | EU | THIRD COUNTRIES |
|---|---|---|---|---|
| 2017 | ||||
| Sales with external third parties | 1,640,640 | 815,497 | 376,496 | 448,647 |
| Dec. 31, 2017 | ||||
| Non-current assets, less deferred taxes and financial instruments | 928,174 | 790,057 | 46,342 | 91,775 |
| 2016 | ||||
| Sales with external third parties | 1,444,270 | 735,486 | 332,049 | 376,735 |
| Dec. 31, 2016 | ||||
| Non-current assets, less deferred taxes and financial instruments | 868,248 | 732,990 | 41,190 | 94,068 |
| FINANCIAL INSTRUMENTS | (in EUR '000) | ||||
|---|---|---|---|---|---|
| BALANCE SHEET VALUE |
IFRS 7 NOT APPLICABLE |
FINANCIAL INSTRUMENTS IFRS 7 |
OF WHICH MEASURED AT FAIR VALUE |
OF WHICH MEASURED AT AMORTIZED COST |
|
| DEC. 31, 2017 | |||||
| Financial assets | 13,995 | 0 | 13,995 | 0 | 13,995 |
| Cash and cash equivalents | 135,881 | 0 | 135,881 | 0 | 135,881 |
| Receivables | 197,528 | 15,693 | 181,835 | 0 | 181,835 |
| Other assets | 20,841 | 10,246 | 10,595 | 99 | 10,496 |
| Financial instruments: Assets | 368,245 | 25,939 | 342,306 | 99 | 342,207 |
| Financial liabilities | 534,846 | 0 | 534,846 | 0 | 534,846 |
| Trade payables | 66,162 | 0 | 66,162 | 0 | 66,162 |
| Other liabilities | 203,255 | 85,623 | 117,632 | 68,622 | 49,010 |
| Financial instruments: Equity and liabilities | 804,263 | 85,623 | 718,640 | 68,622 | 650,018 |
| BALANCE SHEET VALUE |
IFRS 7 NOT APPLICABLE |
FINANCIAL INSTRUMENTS IFRS 7 |
OF WHICH MEASURED AT FAIR VALUE |
OF WHICH MEASURED AT AMORTIZED COST |
|
| DEC. 31, 2016 | |||||
| Financial assets | 12,214 | 0 | 12,214 | 0 | 12,214 |
| Cash and cash equivalents | 127,180 | 0 | 127,180 | 0 | 127,180 |
| Receivables | 177,626 | 12,689 | 164,937 | 0 | 164,937 |
| Other assets | 19,453 | 9,798 | 9,655 | 860 | 8,795 |
| Financial instruments: Assets | 336,473 | 22,487 | 313,986 | 860 | 313,126 |
| Financial liabilities | 503,731 | 0 | 503,731 | 0 | 503,731 |
| Trade payables | 55,409 | 0 | 55,409 | 0 | 55,409 |
| Other liabilities | 175,234 | 74,313 | 100,921 | 49,531 | 51,390 |
| Financial instruments: Equity and liabilities | 734,374 | 74,313 | 660,061 | 49,531 | 610,530 |
The fair value of the financial liabilities amounts to EUR 533,319,000 (previous year: EUR 511,100). The fair value of all other financial instruments that are carried at amortized costs is equivalent to the amortized costs or differs only negligibly from them.
| FINANCIAL INSTRUMENTS BY IAS 39 VALUATION CATEGORY | (in EUR '000) | ||||
|---|---|---|---|---|---|
| CARRYING AMOUNT | NET GAINS/LOSSES | ||||
| DEC. 31, 2017 | DEC. 31, 2016 | 2017 | 2016 | ||
| Measured at fair value through profit and loss | |||||
| for trading purposes | 99 | 860 | -761 | 399 | |
| designated instrument | 0 | 0 | 0 | 0 | |
| Financial investments held to maturity | 0 | 0 | 0 | 0 | |
| Loans and receivables | 339,616 | 310,608 | -3,930 | 786 | |
| Available-for-sale financial assets | 2,591 | 2,518 | 75 | 67 | |
| Financial instruments: Assets | 342,306 | 313,986 | -4,616 | 1,252 | |
| Measured at fair value through profit and loss | |||||
| for trading purposes | 68,622 | 49,531 | -13 | -22 | |
| designated instrument | 0 | 0 | 0 | 0 | |
| Financial liabilities measured at their residual carrying amounts | 650,018 | 610,530 | -1,394 | 692 | |
| Financial instruments: Equity and liabilities | 718,640 | 660,061 | -1,407 | 670 |
Available-for-sale financial assets are long-term financial investments for which no pricing on an active market is available and the fair value of which cannot be reliably determined. These are carried at cost.
Total interest income and expenses for financial instruments not measured at fair value through profit and loss amount to EUR 14,963,000 (previous year: EUR -14,466,000).
In keeping with the philosophy of INDUS Holding AG, the assessment and management of operating risks is the responsibility of the portfolio companies and their management. The holding company calculates and monitors the overall financing need on the basis of the local risk assessment and the investment and financing plans of the respective portfolio companies. In principle, those risks which have an impact on the Group's cash flow are hedged. Such risks are hedged using non-derivative and derivative financial instruments, with the latter being transacted solely for hedging purposes.
The INDUS Group operates an effective risk management system to detect business risks at an early stage, focusing on the key types of problems facing a diversified portfolio of investments. This system integrates the specific aspects of financial risk management in accordance with the definition in IFRS 7. The basic principles of the financial policies are established each year by the Board of Management and monitored by the Supervisory Board. For further details see the discussion provided in the management report.
Basically, the individual portfolio companies finance themselves from their operating results. Transfers are made between INDUS Holding AG and the portfolio companies depending on the liquidity situation. The INDUS Group holds sufficient cash to enable the firm to take action at any time (2017: EUR 135,881,000; previous year: EUR 127,180,000). It also has unused credit lines totaling EUR 34,028,000 (previous year: EUR 28,701,000).
Loans are widely diversified, thereby preventing the company from becoming dependent on individual lenders. The level of available liquidity and firm financing commitments enable the company to take advantage of acquisition opportunities at any time. Long-term financing is structured in tranches with revolving new lines of financing, limiting financing risk.
The following cash outflows, which are incorporated into the INDUS Group's long-term financial planning, were determined in consideration of the conditions for financial instruments determined as of the reporting date:
| CASH OUTFLOWS | (in EUR '000) | |||||
|---|---|---|---|---|---|---|
| DEC. 31, 2017 | DEC. 31, 2016 | |||||
| UP TO 1 YEAR |
1 TO 5 YEARS | MORE THAN 5 YEARS |
UP TO 1 YEAR |
1 TO 5 YEARS | MORE THAN 5 YEARS |
|
| Interest rate derivatives | 1,468 | 6,462 | 2,159 | 1,852 | 2,397 | 9 |
| Total derivative financial instruments | 1,468 | 6,462 | 2,159 | 1,852 | 2,397 | 9 |
| Financial liabilities | 104,424 | 368,484 | 98,252 | 124,944 | 360,664 | 49,316 |
| Trade payables | 66,162 | 0 | 0 | 55,409 | 0 | 0 |
| Other liabilities | 174,081 | 26,913 | 2,261 | 127,505 | 45,184 | 2,545 |
| Total financial instruments | 344,667 | 395,397 | 100,513 | 307,858 | 405,848 | 51,861 |
Cash flows consist of principal payments and their respective interest. In the previous year they also included interest payments on derivatives with a positive market value which act as commercial hedges for the financial liabilities. The accumulated payment flows from financial liabilities and interest rate derivatives result in the payment flow from corresponding fixed-term loans.
In the financing area, contracts are concluded only with counterparties of first-class credit standing. In the operational area, the portfolio companies are responsible for ongoing decentralized risk monitoring. Default risks are taken into account by means of adequate valuation allowances. The maximum default risk corresponds to the stated value of loans and receivables originated by the company, while for derivatives it is equal to the sum total of their positive market values.
Corporate risk is widely diversified as INDUS Group companies are autonomous and they all develop and offer a variety of products on different markets.
A concentration of default risks arising from business relationships exists in the Automotive Technology segment and results from the segment's oligopolistic customer structure. The overall portfolio of trade receivables shows that 8 customers (previous year: 11) each accounted for more than 1% of Group sales. This equates to a share of about 25% of open items as recognized in the consolidated financial statements (previous year: 32%). The ten largest customers accounted for approximately 28% of consolidated sales (previous year: approximately 29%).
Furthermore, there are receivables from customers and associated companies which are overdue but have had no valuation allowances carried out for them. There are generally no major payment defaults with due dates of up to three months, since overdue payments largely result from timing differences in their booking. Since trade receivables were not subjected to valuation allowances and were not overdue, there were no indications as of the reporting date that the debtors may not be able to meet their payment obligations.
| 2017 | 2016 | |
|---|---|---|
| Amount carried in the statement of financial position* |
181,834 | 164,937 |
| + valuation allowances contained therein | 5,999 | 7,011 |
| = gross value of receivables before valuation allowances |
187,833 | 171,948 |
| of which as per reporting date | ||
| neither impaired nor overdue | 141,154 | 132,060 |
| not impaired and overdue by the following periods: |
||
| less than 3 months | 36,221 | 30,607 |
| 3 to 6 months | 2,909 | 1,758 |
| 6 to 9 months | 843 | 1,047 |
| 9 to 12 months | 1,356 | 284 |
| over 12 months | 1,132 | 1,516 |
* excluding receivables from production orders per IAS 11
INDUS Holding AG ensures and coordinates the financing and liquidity of the Group. The main focus is on financing the long-term development of its investment portfolio. The means employed include fixed-rate and variable-rate financing instruments, which are converted to fixed rate instruments by way of interest-rate swaps.
Changes in interest rates might affect the market value of financial instruments and their cash flows. These effects are calculated by performing a sensitivity analysis, which involves shifting each of the relevant interest-rate structure curves by 100 basis points in parallel. The effects are calculated for the fixed conditions of the financial instruments in the portfolio as of the reporting date.
Changes in market values have an impact on the presentation of the net assets, financial position and financial performance, depending on the valuation categories of the underlying financial instruments. The following table shows interest rate sensitivity given a parallel shift in the rate curve by 100 basis points (BP):
| DEC. 31, 2017 | DEC. 31, 2016 | ||||
|---|---|---|---|---|---|
| + 100 BP | - 100 BP | + 100 BP | - 100 BP | ||
| Market value of derivatives | 850 | -883 | 1,593 | -1,662 | |
| of which equity/hedges | 847 | -880 | 1,586 | -1,655 | |
| of which interest expense per statement of income |
3 | -3 | 7 | -7 | |
| Market value of loans | 15,379 | -16,221 | 12,225 | -12,864 | |
| Total market value | 16,229 | -17,104 | 13,818 | -14,526 | |
Since, from a commercial point of view, interest rate risks are almost completely hedged, changes in the interest rates of variable-interest financial liabilities and derivative financial instruments would offset each other. This means that future cash flows will not be significantly affected.
Currency risks basically result from the operating activities of the Group companies and financing transactions between the foreign portfolio companies and the respective proprietary companies. Risk analyses are carried out on a net basis, while hedges are concluded by the portfolio companies on a case-by-case basis in accordance with the philosophy of commercial autonomy. The instruments employed are forward exchange transactions and suitable options.
Currency risks have an effect on the presentation of the net assets, financial position and financial performance when financial instruments are denominated in currencies other than the functional currency of the Group company in question. Risks arising from the currency translation of financial statements to the Group currency are not taken into consideration. Since currency hedges are not formally accounted for as hedges, this does not have an impact on provisions for the mark-to-market valuation of financial instruments.
Assuming that the exchange rates of all foreign currencies were to rise by 10% against the euro as of the reporting date, net income from currency translation would not materially change.
As of the reporting date, currency hedging accounted for a nominal volume of EUR 13,448,000 (previous year: EUR 27,027,000). Most of this currency hedging consisted of transactions in US dollars, Chinese renminbi, and British pounds (previous year: US dollars, Swiss francs, and Chinese renminbi). Hedging contracts have a market value of EUR -1,150,000 (previous year: EUR 795,000).
Interest rate hedging accounts for a nominal volume of EUR 290,544,000 (previous year: EUR 99,652,000). The market values amounted to EUR -3,682,000 (previous year: EUR -3,412,000). The interest-rate hedges consist of loan transactions that have already been recognized amounting to EUR 65,544,000 (previous year: 99,652,000) and future loan transactions at high risk of being subject to interest changes amounting to EUR 225,000,000 (previous year: EUR 0).
Further details on terms and maturities are included in the report on financial liabilities.
Collateral furnished for financial liabilities is presented in the following table:
| PLEDGED ASSETS | (in EUR '000) | |
|---|---|---|
| 2017 | 2016 | |
| Land charges | 18,965 | 22,255 |
| Securities collateral | 1,444 | 1,705 |
| Other collateral | 76 | 620 |
| Total collateral | 20,485 | 24,580 |
Obligations from guarantees exist in the amount of EUR 6,859,000 (previous year: EUR 14,806,000). These include external obligations which INDUS Holding AG assumed in connection with the business activities of the portfolio companies. Currently, it is extremely unlikely that the beneficiaries would utilize the guarantees.
Other financial obligations from rental, tenancy, and operating lease agreements are reported as the sum totals of the amounts which fall due by the earliest cancellation date:
| Total | 71,979 | 68,265 |
|---|---|---|
| Between 1 and 5 years More than 5 years |
35,191 21,256 |
31,784 21,418 |
| Up to 1 year | 15,532 | 15,063 |
| 2017 | 2016 |
Operating lease installments in the year under review amounted to EUR 16,113,000 (previous year: EUR 15,879,000).
Obligations arising from purchase commitments for non-current assets amount to EUR 12,714,000 (previous year: EUR 20,543,000), of which property, plant, and equipment account for EUR 12,700,000 (previous year: EUR 20,431,000), and intangible assets for EUR 14,000 (previous year: EUR 112,000).
Real estate leases are concluded with clauses allowing for the adjustment of the lease installments based on the development of price indices. The contracts regularly contain purchase options.
The following overview shows amounts from finance leases payable in the future:
| in EUR '000 | UP TO 1 YEAR |
BET WEEN 1 AND 5 YEARS |
MORE THAN 5 YEARS |
TOTAL |
|---|---|---|---|---|
| 2017 | ||||
| Lease installments | 2,192 | 4,948 | 0 | 7,140 |
| Interest component |
211 | 265 | 0 | 476 |
| Carrying amount/ present value |
1,981 | 4,683 | 0 | 6,664 |
| 2016 | ||||
| Lease installments | 2,622 | 5,996 | 0 | 8,618 |
| Interest component |
209 | 271 | 0 | 480 |
| Carrying amount/ present value |
2,413 | 5,725 | 0 | 8,138 |
Favorable purchase options generally exist for the corresponding assets, which, as far as we know, will also be exercised. The purchase prices are fixed and there are no price adjustment clauses. The applicable contract interest rates remained between 2.5% and 6.9% (previous year: 2.5%–7.5%). There were no rental payments, contingent or otherwise, from subleases
In line with the INDUS Group structure, members of management in key positions include the Supervisory Board (six members in 2017, six members in 2016) the Board of Management of INDUS Holding AG (2017: from October 1, 2017: four persons; from January 1, 2017–September 30, 2017: three persons; previous year: three persons) and the managing directors of the operating units (2017: 119 persons; previous year: 112 persons).
There are no pension commitments by INDUS Holding AG for members of the Board of Management, which must be disclosed in the financial statements
COMPENSATION OVERVIEW (in EUR '000)
| PERIOD EXPENSE |
OF WHICH WAGES AND SALARIES |
OF WHICH SAR* | OF WHICH SEVERANCE |
OF WHICH PENSIONS |
|
|---|---|---|---|---|---|
| 2017 | |||||
| INDUS Holding AG | |||||
| Supervisory Board | 338 | 338 | 0 | 0 | 0 |
| Board of Management** | 2,460 | 2,162 | 298 | 0 | 0 |
| Subsidiaries | |||||
| Managing directors | 20,293 | 19,347 | 0 | 622 | 324 |
| Family members | 103 | 103 | 0 | 0 | 0 |
| Total | 23,194 | 21,950 | 298 | 622 | 324 |
| 2016 | |||||
| INDUS Holding AG | |||||
| Supervisory Board | 338 | 338 | 0 | 0 | 0 |
| Board of Management** | 2,220 | 1,940 | 280 | 0 | 0 |
| Subsidiaries | |||||
| Managing directors | 20,295 | 19,589 | 0 | 364 | 342 |
| Family members | 304 | 304 | 0 | 0 | 0 |
| Total | 23,157 | 22,171 | 280 | 364 | 342 |
* SAR = stock appreciation rights = virtual share options
** The received compensation is listed for the Board of Management
The Supervisory Board's compensation was redetermined by the Annual Shareholders' Meeting of INDUS Holding AG in July 2010. It is governed by Item 6.16 of the articles of association. In addition to reimbursement of out-of-pocket expenses incurred in performance of their duties in the fiscal year ended, all Supervisory Board members receive basic compensation of EUR 30,000, along with an attendance fee of EUR 3,000 per meeting. The Chairman receives double the two aforementioned sums, and his deputy receives oneand-a-half times these amounts. There are no stock option plans or similar securities-based incentive systems in place for Supervisory Board members. The Supervisory Board convened five times in 2017 and five times in 2016.
The intention of the German Management Board Remuneration Act (VorstAG) newly adopted in August 2009 is that listed companies should make greater use of incentives for sustainable corporate development when setting the remuneration for their management board members in future. This obliged INDUS Holding AG to restructure the variable remuneration components for Board of Management members.
The long-term incentive plan was implemented as of January 1, 2010, offering SARs (Stock Appreciation Rights). These stock appreciation rights represent a commitment by INDUS Holding AG to pay the holder an amount determined by the difference between the exercise price and current market price of company shares upon option exercise. The SAR exercise price corresponds to the average closing price of company shares in XETRA trading over the last 20 trading days prior to option issuance. The option terms stipulate a maximum limit (cap) to the payment amount accruing to the holder. SARs may only be exercised if the share price has risen by a certain percentage above the option strike price at the time of exercise (payout threshold). Members of the Board of Management receive no payout if the payout threshold is not exceeded. SARs are subject to a restriction period of four years from the tranche allocation date. They cannot be exercised during the restriction period. The exercise period immediately following the statutory waiting period amounts to two years.
The number of SARs granted to Board of Management members in annual tranches is determined based on the option price at the grant date and the contractually specified target price. In fiscal 2017, 42,887 SARs were granted (previous year: 40,241). On the date on which they were granted, the total fair value of the SARs was EUR 298,000 (previous year: EUR 280,000). The stock of SARs granted up to December 31, 2017 amounted to 225,964 (previous year: 277,152). The fair value of previously granted SARs was calculated at a total of EUR 1,987,000 at the reporting date (previous year: EUR 1,974,000). A provision in this amount was formed in the annual financial statements. Personnel expenses include the EUR 564,000 change in fair value before discounting (previous year: EUR 567,000). The time value calculation is based on an option-price model of Black/ Scholes and reasonable volatility on the part of INDUS, along with a risk-free interest rate that takes the capping of payment claims into account.
In the event of a material change in the composition of the Supervisory Board and the company's business approach (change of control), the members of the INDUS Holding AG Board of Management have a special right to terminate their employment contracts within one year. In the event of a dismissal for cause, or if the Board of Management is dismissed within one year after a change of control without good cause within the meaning of Section 626 BGB, the company will pay out severance to the members of the Board of Management. This will be based on the member's full compensation, including all fixed and variable remuneration components and non-cash benefits. Severance payments will be paid for a maximum of the period through the end of their employment contracts, or a total period of two fiscal years if the regular end of the contract differs from this period.
For the 2017 and the 2016 fiscal year, the compensation paid to the members of the Board of Management of INDUS Holding AG comprised fixed basic salary (including taxable benefits in kind), performance-based variable compensation (short-term incentive program), and stock-based compensation in the form of virtual stock options (long-term incentive program).
In total, the members of the Board of Management were paid EUR 2,460,000 (previous year: EUR 2,220,000). Of that, EUR 1,506,000 was in fixed remuneration (previous year: EUR1,330,000), EUR653,000 to short-term variable remuneration (previous year: EUR 610,000), and EUR 298,000 to virtual stock options (previous year: EUR 280,000). See the remuneration section of the management report for individual Board of Management remunerations.
INDUS Group transactions with persons or companies which control or are controlled by the INDUS Group must be disclosed insofar as they have not already been included in the consolidated financial statements as a consolidated company. Affiliated companies are the companies in the consolidated financial statements accounted for using the equity method. The other categories concern management members in key positions and their family members.
| RELATED PARTY TRANSACTIONS | (in EUR '000) | ||||
|---|---|---|---|---|---|
| SALES AND OTHER OPERATING INCOME |
GOODS PURCHASED |
OTHER PURCHASES* |
OPEN ITEMS |
LOANS GRANTED |
|
| 2017 | |||||
| Related companies | 2,674 | 4 | 622 | 1,692 | 7,840 |
| Family members of BoM members and shareholder | 0 | 0 | 101 | 0 | 0 |
| Non-controlling shareholders | 2,772 | 0 | 984 | 0 | 0 |
| Managing directors of portfolio companies | 3,391 | 0 | 1,037 | 123 | 0 |
| Total related party transactions | 8,837 | 4 | 2,744 | 1,815 | 7,840 |
| 2016 | |||||
| Related companies | 2,722 | 18 | 456 | 1,675 | 5,880 |
| Family members of BoM members and shareholders | 0 | 0 | 38 | 0 | 0 |
| Non-controlling shareholders | 0 | 0 | 447 | 0 | 0 |
| Managing directors of portfolio companies | 1,484 | 1,006 | 2,092 | 28 | 0 |
| Total related party transactions | 4,206 | 1,024 | 3,033 | 1,703 | 5,880 |
| * Interest, rent, consulting service |
| 2017 | 2016 | |
|---|---|---|
| Employees per region | ||
| Germany | 7,487 | 6,999 |
| Europe (EU & Switzerland) | 1,411 | 1,277 |
| Rest of world | 1,312 | 1,175 |
| Total | 10,210 | 9,451 |
| Employees per segment | ||
| Construction/Infrastructure | 1,714 | 1,466 |
| Automotive Technology | 3,557 | 3,454 |
| Engineering | 1,830 | 1,585 |
| Medical Engineering/Life Science | 1,540 | 1,480 |
| Metals Technology | 1,538 | 1,439 |
| Other | 31 | 27 |
| Total | 10,210 | 9,451 |
The accounting and law firm Ebner Stolz GmbH & Co. KG charged a fee of EUR 238,000 (previous year: EUR 243,000) for auditing the financial statements, of which EUR 10,000 was for previous years (previous year: EUR 18,000), EUR 5,000 for other confirmation and valuation services (previous year: EUR 5,000), and EUR 6,000 for other services (previous year: EUR 4,000). "Confirmation services" refer to a covernance confirmation. "Other services" refers to payment for a training event.
Pursuant to Section 161 of the German Stock Corporation Act (AktG), the Board of Management and the Supervisory Board submitted a German Corporate Governance Code declaration in December 2017 and made it available to shareholders on the INDUS Holding Aktiengesellschaft website (www.indus.de).
In the complete list of shareholdings recorded in the electronic commercial register in accordance with Section 313 of the German Commercial Code (HGB), which constitutes part of the Notes, the subsidiaries are listed to which exemption from disclosure duties has been applied in accordance with Section 264 (3) and Section 264b of the German Commercial Code (HGB) as of December 31, 2017.
No events of material significance occurred after the end of the 2017 fiscal year.
Bergisch Gladbach, Germany, March 21, 2018
INDUS Holding AG
The Board of Management
Jürgen Abromeit Axel Meyer Dr. Johannes Schmidt Rudolf Weichert
158 INDUS Annual Report 2017
INDUS pursues a transparent corporate policy. The management and a team of employees maintain regular dialog with a variety of target groups – especially investors, capital market representatives, business partners, and public representatives.
If you have any questions, please visit our website or feel free to get in touch with the company directly.
We hereby certify, to the best of our knowledge, that in accordance with the applicable accounting principles as of December 31, 2017, the consolidated financial statements give a true and fair view of the assets, financial, and earnings position of the Group, and the combined management report for the 2017 fiscal year includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.
Bergisch Gladbach, March 21, 2018
The Board of Management
Jürgen Abromeit Axel Meyer Dr. Johannes Schmidt Rudolf Weichert
The following proposal will be submitted to the Annual Shareholders' Meeting regarding the appropriation of the balance sheet profit for the 2017 fiscal year to the amount of EUR 83,488,075.70:
| Payment of a dividend ofEUR 1.50 per no-par-value share (24,450,509) to the capital stock of EUR 63,571,323.62 | 36.675.763,50 |
|---|---|
| Transfer to other revenue reserves | 45,000,000.00 |
| Earnings carried forward | 1,812,312.20 |
| Balance sheet profit | 83,488,075.70 |
Bergisch Gladbach, March 21, 2018
The Board of Management
Jürgen Abromeit Axel Meyer Dr. Johannes Schmidt Rudolf Weichert
We have audited the consolidated financial statements of INDUS Holding AG, Bergisch Gladbach, Germany, and of its subsidiaries (the Group) – which comprise the consolidated statement of financial position as at December 31, 2017, the consolidated statement of comprehensive income, the consolidated statement of changes in net equity, and the consolidated cash flow statement for the fiscal year from January 1, 2017 to December 31, 2017, and notes including a summary of significant accounting policies.
In addition, we have audited the combined group management report (hereinafter referred to as combined management report) of INDUS Holding AG, Bergisch Gladbach, Germany for the fiscal year from January 1, 2017 to December 31, 2017. In accordance with German legal requirements, we have not audited the content of the separate non-financial group management report and the declaration on corporate governance in accordance with Sections 289f and 315d HGB [Handelsgesetzbuch: German Commercial Code] published on the company website to which reference is made in the "Corporate Governance" section of the combined management report.
In our opinion, on the basis of the knowledge obtained in the audit,
and appropriately presents the risks and opportunities of future development. Our opinion on the combined management report does not extend to the content of the separate non-financial group management report and the declaration on corporate governance in accordance with Sections 289f and 315d HGB published on the company website to which reference is made in the "Corporate Governance" section of the combined management report.
In accordance with Section 322 (3) sentence 1 HGB, we declare that our audit has not resulted in any reservations relating to the legal compliance of the consolidated financial statements and of the combined management report.
We conducted our audit of the consolidated financial statements and of the combined management report in accordance with Section 317 HGB and the EU -Audit Regulation No. 537/2014 (hereinafter referred to "EU Audit Regulation") and in compliance with German Generally Accepted Standards for Financial Statement Audits of the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under these requirements and principles are set out in further detail in the section "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report" in our Group auditor's report. In accordance with the requirements under European law and German commercial and professional law, we are independent of the group companies and we have fulfilled our other professional responsibilities under German law in accordance with these requirements. In addition, we declare in accordance with Article 10 (2) letter (f ) of the EU Audit Regulation that we have not provided prohibited non-audit services under Article 5 (1) of the EU Audit Regulation. We believe that the evidence we have obtained represents a sufficient and appropriate basis for our opinions on the consolidated financial statements and on the combined management report.
Key audit matters are those matters which in our professional judgment were of most significance in the audit of the consolidated financial statements for the fiscal year January 1, 2017 to December 31, 2017. These matters were considered in the context of our overall audit of the consolidated financial statements, and when forming our opinion in this regard, we have not provided a separate opinion on these matters.
We have set out what, in our view, constitute the key audit matters:
In the fiscal year 2017, company acquisitions were made with total consideration (not including consideration for minority interests, for which present ownership applies, and cash acquired) of EUR 38.7 million. The allocation of the purchase price into the acquired assets and liabilities was concluded for all company acquisitions in the fiscal year 2017. The full identification and correct measurement of asset and liabilities in the context of the purchase price allocation of newly acquired companies is subject to considerable complexity. The measurement of identified assets and liabilities is regularly carried out on the basis of future anticipated cash flows.
In this respect, the purchase price allocation is subject significantly to estimations on the part of the Group's legal representatives. Furthermore, the full identification and correct measurement of the net assets acquired in each case is highly significant as the goodwill is not amortized over subsequent years and is a residual value arising from the purchase price and the net assets acquired.
In light of this, these matters were in our view of particular importance in the context of the audit.
b) Audit approach and conclusions
An aim of audit procedures was to ensure full identification and correct measurement for material acquisitions of all relevant assets to be estimated and liabilities transferred as part of the initial consolidation.
For this purpose we inspected proposals prepared by the company for the Supervisory Board and the fairness opinion for the board of management available as part of the transaction, and also interviewed client employees and employees of the acquired company who were responsible in order to gain an understanding of the business model of each of the companies acquired, the motivations for purchase and an overall impression of the assets and liabilities to be estimated.
We have also inspected company acquisition agreements and articles of incorporation, employment contracts of managing partners, due diligence investigation reports and other relevant documents and agreements and where applicable have scrutinized available references to matters not yet considered.
The plausibility of forecasts used in the context of the measurements was ensured. Furthermore, the methodological and accounting accuracy of measurements undertaken was checked and the overall result scrutinized analytically.
We have audited the information regarding these company acquisitions contained in the notes on the basis of the findings obtained. The assessments of the legal representatives upon which the initial consolidation is based are, in our view, sufficiently justified and documented and allow for proper representation in the consolidated financial statements.
a) Financial statement risk
As at the reporting date, the consolidated statement of financial position reported goodwill at a total carrying amount of EUR 428.6 million, for which 42 cash generating units are identified as at December 31, 2017.
As a result of the annual impairment test, no impairment loss was recorded in relation to any cash generating unit. Company information relating to goodwill is contained in sections 3 and 18 of the notes.
In accordance with IAS 36.90, cash generating units to which goodwill is allocated must be impaired or subject to an impairment test on at least an annual basis if there is an indication of impairment. Under IAS 36.74, the recoverable amount of a cash generating unit, which must be compared with the carrying amount of the cash generating unit, is the higher of the two values from the fair value less costs of disposal or value in use.
In the context of this audit complex valuation models were used which are based on the expectations of the future development of the respective business operations and the payment flows resulting from this. The result of the impairment test is therefore very much subject to the influence of estimated values.
In light of this, these matters were in our view of particular importance in the context of the audit.
As part of our audit we have ensured the plausibility of forecasts upon which the impairment test of all material goodwill is based by means of analysis of the forecast premises and documentation presented to us and by means of in-depth discussion with the client employees responsible for the respective portfolio companies and the local management. In the process we have also examined these for potential judgment bias.
In addition to verifying the plausibility of the underlying forecasts, we have also assessed the forecast accuracy by comparing forecasts for the previous year against the actual values achieved.
We have focused in particular on that material goodwill for which there was an indication of impairment or for which the recoverable values of the cash generating unit were close to or under their carrying amount.
We have also audited the correct application of the calculation method used, the derivation of segment specific discount rate and, on a sample basis, the accounting accuracy.
We have validated the calculation results of the client using additional analyses which also included sensitivity analysis.
We have also assessed the accuracy and completeness of the assets and liabilities included in the carrying amount of the cash generating unit.
The evaluation parameters and assumptions used by the legal representatives were consistent overall with our expectations and have been derived correctly.
The classification of pension commitments as a defined contribution or defined benefit influences the type of accounting standard to be used. The financial statement accounting is dependent in particular on who bears the actuarial and capital investment risk. A defined contribution commitment exists in cases where the risk is borne solely by an external pension provider. However if the employer bears the risks or retains the risks, then this is a defined benefit commitment.
The financial statements accounting of pension commitments according to the IRS has been subject in some cases to lively and heated discussion in light of national features of pension systems. Defined benefit pension schemes of individual subsidiaries abroad have, to date, been treated in the consolidated financial statements of INDUS Holding AG as defined contribution schemes. For the most part these pension commitments involve fully-insured pension plans for which it was assumed, on the basis of insurance agreements with corresponding coverage of the commitments, that no significant risk rests with the reporting company and that a structuring equivalent to a contribution commitment is arrived at. This assessment was reviewed in the reporting period and amended to the effect that, in particular due to a change in the underlying economic conditions, use by individual subsidiaries can no longer be assessed as extremely unlikely. The relevant pension commitments are therefore now shown as defined benefit pension obligation in the consolidated statement of financial position as at December 31, 2017 as also explained in section 27 of the notes. The reassessment of the risk of use has been classified as a change to the actuarial assumptions. The net debt arising of EUR 12.6 million from the reassessment has been recorded as an actuarial loss in other income.
In light of this complex balance sheet assessment, these matters were in our view of particular importance in the context of the audit.
As part of our audit we have reviewed the financial statement accounting of pension commitments under IAS 19 on the basis of pension commitments and the structuring of pension systems under national law. For this purpose we entered into detailed discussion with the audit committee, the board of management and the local component auditors. Additionally, we conducted a consultation with pension experts. We have assessed the existing structures in terms of which risks exist of recourse against the company taking into account existing reinsurance of benefits.
In this respect we were satisfied that the assessments and assumptions made by the legal representatives relating to the change to the financial statement accounting of pension commitments based on risk allocation in national pension systems and the change in the general economic conditions were sufficiently documented and justified.
The legal representatives are responsible for the other information. The other information comprises:
Our opinions on the consolidated financial statements and on the combined management report do not cover the other information, and consequently we do not express an opinion or any other form of audit conclusion in relation to this.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, to consider whether the other information
— is materially inconsistent with the consolidated financial statements, with the combined management report or our knowledge obtained during the audit — Or otherwise appears materially misstated.
The legal representatives are responsible for preparing the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law in accordance with Section 315e (1) HGB and that the consolidated financial statements, on compliance with these requirements, give true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the legal representatives are responsible for internal controls which they determine necessary to enable the preparation of consolidated financial statements which are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the legal representatives are responsible for assessing the Group's ability to continue as a going concern. They are also responsible for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative other than this.
Furthermore, management is responsible for the preparation of the combined management report that, as a whole, provides an appropriate view of the Group's position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and presents the risks and opportunities of future development appropriately. The legal representatives are also responsible for arrangements and measures (systems) they consider necessary to enable the preparation of a combined management report on accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the combined management report.
The Supervisory Board is responsible for overseeing the Group's financial reporting process for the preparation of the consolidated financial statements and the combined management report.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements overall are free from material misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appropriate view of the Group's position and, in all material respects, if consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and presents the risks and opportunities of future development appropriately, as well as to issue an auditor's report that includes our opinions on the consolidated financial statements and on the combined management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Accepted Standards for Financial Statement Audits of the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. 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 consolidated financial statements and this combined management report.
We exercise professional judgment and maintain professional skepticism throughout the audit. We also:
may cause the Group to cease to be able to continue as a going concern.
We communicate with those responsible for governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant shortcomings on internal control identified by us during our audit.
We also provide those responsible for governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to impact on our independence, and where applicable, the related safeguards.
From the matters communicated to those responsible for governance, we determine matters that were of most significance in the audit of the consolidated financial statements of the current reporting period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation prevents public disclosure about the matter.
We were elected as group auditor by the Annual Shareholders' Meeting on April 24, 2017. We were engaged by the Supervisory Board on September 9, 2017. We have been the group auditor of INDUS Holding AG, Bergisch Gladbach, Germany continually since the fiscal year 2013.
We declare that the opinions expressed in this auditor's report are consistent with the additional report to the audit committee in accordance with Article 11 of the EU Audit Regulation (audit report).
The auditor responsible for the engagement is Herr Marcus Lauten.
Cologne, March 22, 2018
Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
Dr. Werner Holzmayer Marcus Lauten Wirtschaftsprüfer Wirtschaftsprüfer
Business graduate (Dipl.-Kfm.), Deputy CEO of Versicherungskammer Bayern Versicherungsanstalt des öffentlichen Rechts, Munich (until December 31, 2017) CHAIRMAN
Fully qualified lawyer, CEO of Investitionsbank Berlin, Berlin
Fully qualified lawyer, Management Board Spokesperson for the Brüder Schlau Group, Porta Westfalica
Economics graduate, Management Board Spokesperson for the Gebrüder Becker Group, Wuppertal
(SINCE MAY 24, 2017)
Physics graduate, Chaired Professor of Family Business at the WHU – Otto Beisheim School of Management, Vallendar
(UNTIL MAY 24, 2017) Engineer (Dipl.-Wirtschafts-Ing.), Driedorf
Engineer (Dipl.-Ing), Managing Director of Alfred H. Schütte GmbH & Co. KG, Cologne
Georgsmarienhütte CHAIRMAN
Graduate industrial engineer (Dipl.-Wirtschafts-Ing), LL.M., Esslingen am Neckar
Bergisch Gladbach
Business graduate (Dipl.-Kfm.), Erkrath
— Stock exchange council Börse Düsseldorf (since January 1, 2017)
| by Segments | CAPITAL (IN EUR MILLIONS) | INDUS STAKE (IN %) |
|---|---|---|
| Construction/Infrastructure | ||
| ANCOTECH AG, Dielsdorf/Switzerland* | 4.32** | 100 |
| BETOMAX systems GmbH & Co. KG, Neuss | 2.03 | 100 |
| FS-BF GmbH & Co. KG, Reichshof-Hahn* | 0.64 | 100 |
| HAUFF-TECHNIK GmbH & Co. KG, Hermaringen* | 1.62 | 100 |
| H. HEITZ Furnierkantenwerk GmbH & Co. KG, Melle* | 4.39 | 100 |
| MIGUA Fugensysteme GmbH, Wülfrath* | 1.69 | 100 |
| OBUK Haustürfüllungen GmbH & Co. KG, Oelde* | 0.52 | 100 |
| REMKO GmbH & Co. KG Klima- und Wärmetechnik, Lage | 1.56 | 100 |
| SCHUSTER Klima Lüftung GmbH & Co. KG, Friedberg | 1.05 | 100 |
| WEIGAND Bau GmbH, Bad Königshofen i. Grabfeld | 1.00 | 80 |
| WEINISCH GmbH & Co. KG, Oberviechtach | 0.53 | 100 |
| Automotive Technology | ||
| AURORA Konrad G. Schulz GmbH & Co. KG, Mudau* | 3.93 | 100 |
| BILSTEIN & SIEKERMANN GmbH + Co. KG, Hillesheim* | 3.11 | 100 |
| IPETRONIK GmbH & Co. KG, Baden-Baden* | 2.54 | 100 |
| KIEBACK GmbH & Co. KG, Osnabrück* | 0.64 | 100 |
| Konrad SCHÄFER GmbH, Osnabrück* | 1.62 | 100 |
| SELZER Fertigungstechnik GmbH & Co. KG, Driedorf* | 8.41 | 85 |
| SITEK-Spikes GmbH & Co.KG, Aichhalden | 1.05 | 100 |
| S.M.A. Metalltechnik GmbH & Co. KG, Backnang* | 2.60 | 100 |
| WIESAUPLAST Deutschland GmbH & Co. KG, Wiesau* | 13.78 | 100 |
| Engineering | ||
| ASS Maschinenbau GmbH, Overath* | 0.57 | 100 |
| M. BRAUN Inertgas-Systeme GmbH, Garching / Munich* | 1.92 | 100 |
| BUDDE Fördertechnik GmbH, Bielefeld* | 0.39 | 75 |
| ELTHERM GmbH, Burbach* | 1.25 | 100 |
| ELTHERM GmbH, Burbach* | 1.25 | 100 |
|---|---|---|
| GSR Ventiltechnik GmbH & Co. KG, Vlotho* | 0.57 | 100 |
| HORN GmbH & Co. KG, Flensburg* | 8.25 | 100 |
| IEF-Werner GmbH, Furtwangen / Black Forest | 1.28 | 75 |
| MBN – Maschinenbaubetriebe Neugersdorf GmbH, Ebersbach-Neugersdorf* | 0.74 | 75 |
| M+P International Mess-und Rechnertechnik GmbH, Hanover* | 1.23 | 77 |
| PEISELER GmbH & Co. KG, Remscheid* | 1.05 | 80 |
| TSN Turmbau Steffens & Nölle GmbH, Berlin | 0.50 | 100 |
| by Segments | CAPITAL (IN EUR MILLIONS) | INDUS STAKE (IN %) |
|---|---|---|
| Medical Engineering/Life Science | ||
| IMECO GmbH & Co. KG, Hösbach* | 0.75 | 100 |
| MIKROP AG, Wittenbach/Switzerland* | 1.13** | 100 |
| OFA Bamberg GmbH, Bamberg* | 1.55 | 100 |
| RAGUSE Gesellschaft für medizinische Produkte mbH, Ascheberg* | 0.91 | 80 |
| ROLKO Kohlgrüber GmbH, Borgholzhausen* | 0.65 | 75 |
| Metals Technology | ||
| BACHER AG, Reinach/Switzerland | 3.20** | 100 |
| BETEK GmbH & Co. KG, Aichhalden* | 6.08 | 100 |
| HAKAMA AG, Bättwil/Switzerland | 5.00** | 100 |
| Anneliese KÖSTER GmbH & Co. KG, Ennepetal* | 2.47 | 100 |
| MEWESTA Hydraulik GmbH & Co.KG, Münsingen | 0.54 | 100 |
| PLANETROLL GmbH & Co. KG, Munderkingen | 0.54 | 100 |
| Helmut RÜBSAMEN GmbH & Co. KG, Metalldrückerei-Umformtechnik, Bad Marienberg | 0.53 | 90 |
| Karl SIMON GmbH & Co. KG, Aichhalden* | 5.08 | 100 |
| VULKAN INOX GmbH, Hattingen* | 1.07 | 100 |
* including subsidiaries
** CHF in million
| in EUR '000 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|---|---|---|
| Consolidated Statement of Income |
||||||||
| Sales | 971,585 | 1,097,125 | 1,105,271 | 1,186,785 | 1,255,723 | 1,388,857 | 1,444,270 | 1,640,640 |
| of which domestic | 537,708 | 592,907 | 569,488 | 611,191 | 655,198 | 708,993 | 735,486 | 815,497 |
| of which abroad | 433,877 | 504,218 | 535,783 | 55,594 | 600,525 | 679,864 | 708,784 | 825,143 |
| Personnel expenses | 265,128 | 292,129 | 306,240 | 322,628 | 349,010 | 392,012 | 430,230 | 479,679 |
| Personnel expenses ratio (personnel expenses as % of sales) |
27,3 | 26,6 | 27,7 | 27,2 | 27,8 | 28,2 | 29,8 | 29,2 |
| Cost of materials | 461,988 | 544,840 | 523,555 | 562,789 | 598,204 | 651,562 | 648,685 | 745,894 |
| Cost of materials ratio (cost of materials as % of sales) |
47,5 | 49,7 | 47,4 | 47,4 | 47,6 | 46,9 | 44,9 | 45,5 |
| EBITDA | 145,032 | 159,972 | 151,778 | 162,270 | 175,156 | 186,408 | 200,910 | 215,303 |
| Depreciation/amortization | 43,596 | 46,759 | 45,818 | 43,685 | 47,970 | 50,103 | 55,976 | 62,438 |
| EBIT | 101,436 | 113,213 | 105,960 | 118,585 | 127,186 | 136,305 | 144,934 | 152,865 |
| EBIT margin (EBIT as % of sales) |
10,4 | 10,3 | 9,6 | 10,0 | 10,1 | 9,8 | 10,0 | 9,3 |
| EBIT adjusted | * | * | * | * | 135,232 | 145,773 | 155,361 | 163,719 |
| EBIT margin adjusted | * | * | * | * | 10,8 | 10,5 | 10,8 | 10,0 |
| Interest | 27,390 | 22,961 | 21,093 | 19,889 | 26,481 | 27,010 | 21,556 | 23,674 |
| EBT | 74,047 | 90,252 | 84,867 | 98,696 | 100,705 | 109,295 | 123,378 | 129,191 |
| Group net income for the year (earnings after taxes) |
46,943 | 55,635 | 52,481 | 63,974 | 63,314 | 68,287 | 80,418 | 83,074 |
| Earnings per share, basic as per IFRS (in EUR) |
2.59 | 2.75 | 2.47 | 3.02 | 2.74 | 2.78 | 3.27 | 3.37 |
| Statement of Financial Position |
||||||||
| Assets | ||||||||
| Intangible assets | 306,644 | 313,877 | 310,706 | 360,493 | 412,268 | 453,630 | 483,008 | 515,044 |
| Property, plant and equipment |
244,460 | 245,453 | 253,917 | 271,833 | 306,818 | 334,846 | 369,331 | 397,008 |
| Inventories | 178,756 | 222,778 | 219,058 | 236,056 | 265,690 | 281,612 | 308,697 | 339,154 |
| Receivables | 117,617 | 108,422 | 137,054 | 156,218 | 162,091 | 160,744 | 177,626 | 197,528 |
| Other assets | 28,772 | 26,530 | 41,333 | 40,383 | 45,029 | 56,752 | 55,762 | 68,571 |
| Cash and cash equivalents | 96,840 | 123,107 | 98,710 | 115,921 | 116,491 | 132,195 | 127,180 | 135,881 |
| Equity and liabilities | ||||||||
| Equity | 309,489 | 382,095 | 414,138 | 515,330 | 549,872 | 595,430 | 644,568 | 673,813 |
| Provisions | 62,211 | 65,552 | 68,229 | 74,566 | 80,750 | 92,235 | 96,815 | 118,730 |
| Financial liabilities | 476,231 | 434,283 | 440,497 | 423,529 | 462,315 | 488,550 | 503,731 | 534,846 |
| Other equity and liabilities | 125,158 | 158,237 | 137,914 | 167,479 | 215,450 | 243,563 | 276,490 | 325,797 |
| Total assets | 973,089 | 1,040,167 | 1,060,778 | 1,180,904 | 1,308,387 | 1,419,778 | 1,521,604 | 1,653,186 |
Group equity ratio (equity/total
Net debt (non-current and current financial liabilities -
Advance payments and
Non-current financial
| production orders received with balances on the liabilities side |
7,207 | 16,694 | 16,016 | 21,983 | 30,263 | 39,860 | 58,409 | 67,569 |
|---|---|---|---|---|---|---|---|---|
| Working capital (inventories + trade receivables - Trade payables - advance payments - production orders with |
||||||||
| balance on liabilities side) | 253,113 | 268,450 | 302,783 | 324,748 | 349,576 | 355,746 | 372,505 | 402,951 |
| Net debt/equity | 1.2 | 0.8 | 0.8 | 0.6 | 0.6 | 0.6 | 0.6 | 0.6 |
| Equity ratio (Earnings after taxes/equity) |
||||||||
| in % | 15.2 | 14.6 | 12.7 | 12.4 | 11.5 | 11.5 | 12.5 | 12.3 |
| Investments | 52,042 | 58,259 | 53,926 | 100,895 | 97,156 | 107,380 | 103,884 | 111,425 |
in EUR '000 2010 2011 2012 2013 2014 2015 2016 2017
assets) as % 31.8 36.7 39.0 43.6 42.0 41.9 42.4 40.8
liabilities 326,417 322,604 331,146 304,769 367,935 376,935 389,757 439,545 Current financial liabilities 149,814 111,679 109,351 118,760 94,381 111,616 113,974 95,301
cash and cash equivalents) 379,391 311,176 341,787 307,608 345,824 356,356 376,551 398,965 Net debt/EBITDA 2,6 1,9 2,3 1,9 2,0 1,9 1,9 1,9 Trade payables 36,053 46,056 37,313 45,543 47,942 46,749 55,409 66,162
| Statement of Cash Flows | ||||||||
|---|---|---|---|---|---|---|---|---|
| Operating cash flow | 81,903 | 130,158 | 68,428 | 117,411 | 104,385 | 157,341 | 137,945 | 144,942 |
| Cash flows from operating activitie |
54,297 | 106,238 | 45,919 | 97,522 | 86,961 | 130,942 | 114,564 | 123,962 |
| Cash flow from investing activities |
-38,425 | -56,929 | -53,525 | -99,625 | -95,234 | -112,768 | -104,454 | -109,956 |
| Cash flow from financing activities |
-13,888 | -23,349 | -16,523 | 19,977 | 8,195 | -3,149 | -14,938 | -3,898 |
| Cash flow per share (in EUR) | 2.91 | 5.17 | 2.07 | 4.35 | 3.56 | 5.36 | 4.69 | 5.07 |
| Other performance indicators |
||||||||
|---|---|---|---|---|---|---|---|---|
| XETRA year end price (in EUR) | 21.99 | 18.86 | 20.26 | 29.20 | 38.11 | 44.51 | 51.64 | 59.50 |
| Average number of shares | 18,676,200 | 20,543,819 | 22,227,737 | 22,410,431 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 |
| Number of shares at year end | 20,207,035 | 22,227,737 | 22,227,737 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 |
| Market capitalization | 444,353 | 419,215 | 450,334 | 713,955 | 931,809 | 1,088,292 | 1,262,624 | 1,454,805 |
| Total dividend (in EUR million)** |
18,186 | 22,228 | 22,228 | 26,896 | 29,341 | 29,341 | 33,008 | 36,676 |
| Dividend per share (in EUR)** | 0.90 | 1.00 | 1.00 | 1.10 | 1.20 | 1.20 | 1.35 | 1.50 |
| Number of portfolio companies |
40 | 39 | 38 | 40 | 42 | 44 | 44 | 45 |
* The adjusted EBIT and the margin of the adjusted EBIT have not been determined until 2013 (year incl.)
** Total dividend amount and dividend per share for the fiscal year; dividend proposal for the 2017 fiscal year – to approval at Annual Shareholders' Meeting on May 24, 2018
Our portfolio companies operate independently within their markets. They use this freedom to actively develop their businesses further, tailoring them closely to customers' needs. This keeps both the individual firms and our Group as a whole successful and resilient.
THE INDUS WORLD
PORTFOLIO COMPANIES IN GERMANY AND SWITZERLAND
| 5 24 1516 36 8 7 22 35 |
29 | 31 | ||
|---|---|---|---|---|
| 45 6 3040 2 3 21 23 43 13 |
INDUS HOLDING AG 17 32 |
10 34 |
20 | 27 |
| 44 38 26 |
12 19 14 18 |
4 41 9 42 |
11 28 |
|
| 37 39 AUTOMOTIVE TECHNOLOGY |
1 33 |
ENGINEERING |
ANCOTECH
AURORA BILSTEIN & SIEKERMANN IPETRONIK KIEBACK SCHÄFER SELZER SITEK S.M.A. WIESAUPLAST
IMECO MIKROP OFA RAGUSE ROLKO
BACHER BETEK HAKAMA KÖSTER MEWESTA PLANETROLL RÜBSAMEN SIMON VULKAN INOX
19 8 7 9 LOCATIONS OF THE INDUS GROUP WORLDWIDE LOCATIONS WORLDWIDE
Serbia
Finland
20.1% EUR 330.4 MILLION OF TOTAL SALES
The construction and infrastructure sectors are elementary in any country. SMEs in the construction industry ensure that we in Germany can live and work comfortably. Immigration and urbanization provide the sector with further momentum. The increase in mobility will also cause demand for infrastructure services to rise sharply. Another sector gaining in importance is the safety technology sector.
The companies in this INDUS segment operate in various areas within the construction industry. Their products and services range from reinforcements and construction materials to air conditioning and heating technology along with accessories for private housing construction.
ANCOTECH AG, DIELSDORF
Special reinforcements and tanker transport systems Sales 2017: EUR 35.3 million www.ancotech.com
GMBH & CO. KG, NEUSS Concrete construction solutions Sales 2017: EUR 17.7 million www.betomax.de
Sealants made from silicone and acrylic Sales 2017: EUR 40.1 million www.fsbf.com
Edge and wrapping veneer for the furniture and construction industries Sales 2017: EUR 28.1 million www.h-heitz.de
Innovative sealing systems for cables and pipes Sales 2017: EUR 62.0 million www.hauff-technik.de
Section construction for expansion joints Sales 2017: EUR 14.3 million www.migua.de
GMBH & CO. KG, OELDE Individual front door panels Sales 2017: EUR 28.2 million www.obuk.de
Efficient heating technology Sales 2017: EUR 39.8 million www.remko.de
Energy-efficient ventilation and air-conditioning technology Sales 2017: EUR 13.0 million www.klima-schuster.de
BAD KÖNIGSHOFEN IM GRABFELD Modern pipeline and cable duct construction Sales 2017: EUR 46.0 million www.weigandbau.de
OBERVIECHTACH High-quality powder coating of metals Sales 2017: EUR 5.7 million www.weinisch.de
Sales by portfolio companies with external third parties
For further information on the portfolio companies please scan this page with the "Augmented Reality" – function within the INDUS app.
24.0% EUR 394.1 MILLION OF TOTAL SALES
The automotive industry is one of the mainstays of the German economy. Roughly every sixth job depends on it. This sector is critically dependent on the expertise and skills of small and medium-sized manufacturers and suppliers. Their flexibility and capacity for innovation ensure that Germany is the market leader in this area. These qualities will be much in demand in the coming years, because the market is facing fundamental changes due to the changes in drive systems.
The companies in this INDUS segment provide a broad range of products and services for the automotive industry: from design and model or prototype construction to pilot and small-scale production, from testing and measurement solutions and solutions for specialized vehicles to series production of components for manufacturers of cars and commercial or special-use vehicles.
GMBH & CO. KG, MUDAU Heating and air-conditioning systems for commercial vehicles Sales 2017: EUR 49.7 million www.aurora-eos.com
Cold extrusion parts, turned parts and locking screws Sales 2017: EUR 17.7 million www.bsh-vs.com
Measurement systems and services for automotive Sales 2017: EUR 38.3 million www.ipetronik.com
Prototype parts and small series for the automotive industry Sales 2017: EUR 10.4 million www.kieback.de
Model and mold construction for the automotive and aviation industries Sales 2017: EUR 25.2 million www.konrad-schaefer.de
Precision metal technology for the series production of automobiles Sales 2017: EUR 97.1 million www.selzer-automotive.de
Tire studs and carbide tools Sales 2017: EUR 18.6 million www.sitek.de
GMBH & CO. KG, BACKNANG Products for automotive air-conditioning and servo technology Sales 2017: EUR 80.0 million www.sma-metalltechnik.de
Precision plastics Sales 2017: EUR 56.8 million www.wiesauplast.de
For further information on the portfolio companies please scan this page with the "Augmented Reality" – function within the INDUS app.
Sales by portfolio companies with external third parties
No other industry embodies the phrase "Made in Germany" as well as the engineering industry. Industrial production would be unimaginable without this segment. All over the world, German companies in this sector have a first-class reputation. With their expertise and quality, German SMEs have for many decades ensured that German products are in high demand internationally.
The INDUS companies in this segment develop complete conveying systems and robotic gripping systems, produce valve technology, automation components (including those used for vehicle assembly), and installations for clean room systems, and design electric heat tracing systems.
Robotic hands and automation systems for manufacturers Sales 2017: EUR 24.0 million www.ass-automation.com
Specialist in logistics and materials flows Sales 2017: EUR 57.0 million www.budde-foerdertechnik.de
Specialist in electrical heat tracing systems Sales 2017: EUR 36.3 million www.eltherm.com
Innovative valve technology for demanding industrial applications
Sales 2017: EUR 22.0 million www.ventiltechnik.de
Refueling technology and workshop solutions worldwide Sales 2017: EUR 30.9 million www.tecalemit.de
Automation components and systems Sales 2017: EUR 23.7 million www.ief-werner.de
Sophisticated solutions for special machinery and plant technology
Sales 2017: EUR 59.4 million www.mbn-gmbh.de
GMBH & CO. KG, GARCHING Inert gas glove box systems for industry and research Sales 2017: EUR 81.0 million www.mbraun.de
Measurement and test systems for vibration control and analysis Sales 2017: EUR 10.0 million www.mpihome.com
High-precision indexing devices and rotary tilt tables for machine tools Sales 2017: EUR 20.5 million www.peiseler.de
International construction of towers Sales 2017: EUR 10.2 million www.turmbau-berlin.de
with the "Augmented Reality" – function within the INDUS app.
Sales by portfolio companies with external third parties
As the population ages, healthcare is becoming a huge growth market, driven by a high pace of innovation. SMEs seize new knowledge and use it to develop products which are compatible with markets and everyday life. By focusing their efforts in this way, they become specialists that assert themselves outstandingly in the competitive market – and not just in the field of treatment, but also in the care and prevention fields.
The companies in this INDUS segment produce orthotic devices and medical compression garments, develop lenses and optical devices, and produce surgical accessories, rehabilitation technology and hygienic products for both medical applications and household use.
Nonwoven products – "More than Nonwoven" Sales 2017: EUR 29.9 million www.imeco.de
Miniaturized precision optics Sales 2017: EUR 13.8 million www.mikrop.ch
Compression hosiery and bandages Sales 2017: EUR 73.8 million www.ofa.de
RAGUSE GESELLSCHAFT FÜR MEDIZINISCHE PRODUKTE MBH, ASCHEBERG-HERBERN Indication-specific production of surgical drapes Sales 2017: EUR 12.5 million www.raguse.de
ROLKO KOHLGRÜBER GMBH, BORGHOLZHAUSEN Rehabilitation equipment Sales 2017: EUR 25.1 million
www.rolko.de
For further information on the portfolio companies please scan this page with the "Augmented Reality" – function within the INDUS app.
Sales by portfolio companies with external third parties
23.5% EUR 385.6 MILLION OF TOTAL SALES
Metals and metal processing play a significant part in the base materials processing industry. It is mainly SMEs which, thanks to the precision of their work and the quality of their products, create the conditions for high-quality end products. The reliability of its performance makes this segment a stable pillar in the day-to-day economy.
The companies in this INDUS segment provide a range of products and services that encompasses solutions for rail technology, the production of carbide tools for road construction and mining, the manufacture of housings for laboratory diagnostic equipment, blasting agents for the steel industry, and bolt welding technology for bridges and other applications.
Components made from steel and aluminum Sales 2017: EUR 24.0 million www.bacherag.ch
AICHHALDEN Carbide-tipped wear parts Sales 2017: EUR 192.8 million www.betek.de
High-performance sheet metals Sales 2017: EUR 20.8 million wwwhakama.ch
Cold working parts and stud welding technology Sales 2017: EUR 15.7 million www.koeco.net
GMBH & CO. KG, MÜNSINGEN Hydraulic control blocks and systems Sales 2017: EUR 6.7 million
www.mewesta.de
Stirring technology and power transmission technology Sales 2017: EUR 5.8 million www.planetroll.de
Metal processing and forming technology Sales 2017: EUR 51.7 million www.helmut-ruebsamen.de
Components and assemblies made from metal and plastic Sales 2017: EUR 42.9 million www.simongruppe.de
Granules for surface treatment Sales 2017: EUR 25.3 million www.vulkan-inox.de
Sales by portfolio companies with external third parties
For further information on the portfolio companies please scan this page with the "Augmented Reality" – function within the INDUS app.
Nina Wolf Senior Manager Corporate Communications Phone: +49 (0)2204/40 00-73 Email: [email protected]
Julia Pschribülla Manager Investor Relations Phone: +49 (0)2204/40 00-66 Email: [email protected]
INDUS HOLDING AG Kölner Straße 32 51429 Bergisch Gladbach
P.O. Box 10 03 53 51403 Bergisch Gladbach
Phone: +49(0)2204/40 00-0 Fax: +49 (0)2204/40 00-20 Email: [email protected]
www.indus.de
| DATE | EVENT | ||||
|---|---|---|---|---|---|
| March 27, 2018 | Publication annual report and annual earnings 2017 | ||||
| March 27, 2018 | Press conference on the results of FY 2017, Düsseldorf | ||||
| March 28, 2018 | Analysts' conference on financial year 2017, Frankfurt/Main | ||||
| May 15, 2018 | Interim report Q1 2018 | ||||
| May 24, 2018 | Annual Shareholders' Meeting 2018, Cologne | ||||
| August 14, 2018 | Interim report Q2/H1 2018 | ||||
| November 14, 2018 | Interim report Q3 2018 |
March 27, 2018
PUBLISHER INDUS Holding AG, Bergisch Gladbach
CONCEPT/DESIGN Berichtsmanufaktur GmbH, Hamburg
PHOTOS Catrin Moritz, INDUS Group
PRINT Gutenberg Beuys Feindruckerei GmbH, Langenhagen
THE INDUS APP: download free of charge in the App Store or directly with this QR code
This annual report is also available in German. Both the English and the German versions of the annual report can be downloaded from the internet at www.indus.de under investor relations, financial reports and presentations. Only the German version of the annual report is legally binding.
This annual report contains forward-looking statements based on assumptions and estimates made by the Board of Management of INDUS Holding AG. Although the Board of Management is of the opinion that these assumptions and estimates are accurate, they are subject to certain risks and uncertainty. Actual future results may deviate substantially from these assumptions and estimates due to a variety of factors. These factors include changes in the general economic situation, the business, economic and competitive situation, foreign exchange and interest rates, and the legal setting. INDUS Holding AG shall not be held liable for the future development and actual future results being in line with the assumptions and estimates included in this annual report. Assumptions and estimates made in this annual report will not be updated.
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