Annual Report • Apr 11, 2019
Annual Report
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INDUS HOLDING AG
KEY FIGURES 2018 — PROFILE – GOALS – VALUE CREATION
Those who know where their journey ends travel a straight path. This is something that people apply in their everyday lives as well as in business. Insight into a fundamental factor for success.
DETOURS INCLUDED [26]
AURORA took an alternative route
Detours can often be difficult for companies – unless they lead to new opportunities that create added value.
The next round for the INDUS strategy program
The challenges of succession
an interview with parkour champion Amadei Weiland
A good parkour athlete combines many abilities to successfully reach the finish line. In Berlin, we met one of the best.
DR. JOHANNES SCHMIDT Chairman of the INDUS Holding AG Board of Management
Dear Reader,
Did you set yourself personal or professional goals at the end of last year? Did you write them down? If you answered yes to the first question you are, statistically speaking, part of a minority. If you answered yes to the second question, too, you're an exception.
However, it is actually worthwhile to set goals for ourselves. They're important signposts for the up to 100,000 decisions that we have to make every day, most of them subconsciously. Goals give us direction and help us progress in life.
In the entrepreneurial world and therefore for us at INDUS, setting goals is a part of our everyday work. As a listed company we are specifically expected to set clear goals. Our investors do not just hand over their money hoping we will make them more money in any way we can think of. They have made a conscious decision not to invest their money elsewhere and chosen to become shareholders in our SME-focused business – with specific expectations resulting from our promises.
Over the past years we have formulated these promises using a strategy that we have gradually implemented. We have now developed our successful strategy further and named it PARKOUR. It is our plan for the next seven years. You can find out more about this and our goals on the following pages.
Together with my colleagues on the Board of Management, I hope you enjoy this edition of the INDUS Magazine.
Johannes Schmidt
"I've wanted to sail around the world since I was 10. There were moments when I thought to myself: What on earth am I doing here? But I never wanted to quit. It was a dream and I wanted to make it come true."
At 16, Laura Dekker became the youngest person to sail around the world.
Reed Hastings was annoyed about the 40-dollar fine for a misplaced video tape of Apollo 13. On the way to the gym, he realized that the gym's business model was much more customer friendly: for a fixed fee every month, you can exercise as much as you want to.
23 years later and 125 million hours of video are streamed from NETFLIX every day. And NETFLIX has even begun producing series and films.
"EVERYTHING IMPORTANT I HAVE EVER ACHIEVED WERE THINGS EXPERTS SAID COULDN'T BE DONE."
7
Henry Ford
GOALS ARE THE DRIVING FORCE OF SUCCESS How innate ambition is to humans is a question that scientists have not yet been able to answer definitively. But one thing is clear: curiosity and a desire to improve are qualities that have driven humanity to ever faster technological and economical development cycles since at least the 19th century. Progress is always particularly successful wherever people have set themselves specific goals.
Hannibal and Scipio, Napoleon and Alexander I, Edison and Westinghouse, Scott and Amundsen, Kennedy and Khrushchev, Gates and Jobs, Bezos and Zuckerberg – human history is punctuated by pairs of names that connect two things: the desire to develop and the desire to succeed. We know their names because at the end of their stories they have created something we remember: great achievements, victories or defeats, and often surprises.
To achieve their goals, these people pushed themselves to their limits and often redefined these limits through their actions. They developed plans, walked new paths and took risks. They always found extraordinary strength that allowed them to overcome obstacles, survive lean times and clear away all doubts. Their most important driving force was the image of the moment in which they would achieve their goals.
In business, setting goals is part of the job. That is because people react to incentives. Goals offer incentives because achieving goals is always
coupled with a reward, whether directly or indirectly: more recognition, more money, greater market share, greater entrepreneurial flexibility. But to ensure we don't achieve our goals at the expense of others, we follow set values and rules derived from our goals: laws, standards and governance and compliance guidelines; all things we can expect others to stick to, too.
We develop strategies for our business within these guidelines. These strategies help us secure competitive advantages, be successful over the long term and create added value for society. Those who studied economics in the 1980s will have heard of the U.S. economist Michael Porter. He defined several possibilities of securing competitive advantages: cost leadership (advantage of costs) or differentiation (advantage of uniqueness). A third possibility is specialization in a niche position, focusing on market segments, products or uniqueness in special areas. These possibilities form the central frame of reference for INDUS companies in defining their corporate goals to secure their competitiveness to this day. But how do we achieve these goals as quickly and efficiently as possible?
Management plays an important role in achieving corporate goals. This is because goals cannot be achieved by simply having management set suitable goals, creating the right conditions and checking the team's progress. Peter Drucker, whose "Management by Objectives" approach has made him one of the most influential management pioneers of the 20th century, believes the company's "followers" are the decisive factor in achieving goals.
I N D I V I D U A L A N D A C T I V E S U P P O R T E N A B L E S C O M P A N I E S T O G R A S P T H E I R N E X T D E V E L O P M E N T OPPORTUNITY
Followers, or supporters, are those who actively and voluntarily follow the leader, in this case the company's management, and take responsibility.
Management trainer Reinhard Sprenger once said: "Those who lead with no followers are merely taking a stroll." To make sure this does not happen, management must not only lead the way but also paint a clear image of the what they aim to achieve. And not with numbers. Numbers are abstract, cannot motivate and are almost always unappealing for employees. Harvard professor John Kotter believes managers need to inspire their employees. And to do that, they need a positive, emotional mission statement.
INDUS' mission statement shows a Group consisting of SME specialists in future growth industries that are expanding their businesses with courage and creativity, independently, successfully and reliably, under the umbrella of a solid holding company. The Group has built up such a positive image that it has become the first contact for SMEs in German-speaking countries looking to sell. For INDUS this is closely related to their interest in maintaining a corresponding culture (of values) shared by all companies in the Group.
The role that INDUS plays in implementing this mission statement is that of an active assistant and supporter. This internal understanding can also be described as servant leadership strategy, an approach that is tried and tested in the business world. The British entrepreneur Sir Richard Branson used this strategy in the 1970s to turn a small mail-order company for vinyl records into a multibillion-dollar business with companies now operating in a wide range of sectors. In addition to his pioneering spirit and his passion for business, his relationships with the people around him are one of his focal points. As a mentor he considers his job to be promoting self-confidence and decisiveness in his employees, even if that results in pursuing unconventional paths. Passing his fascination for listening to and learning from one another on to his employees and contemporaries is a material factor in his successful management philosophy, which has contributed to the outstanding development of his businesses.
The servant leadership strategy can be applied perfectly to INDUS: actively promoting topics that will be relevant in future keeps the companies healthy, boosts their confidence and motivates them to strive for new goals.
Those who set themselves goals without having the appropriate tools are just dreamers. This never works out well in the business world. Overconfidence, bad preparation and bad market assessments are just three reasons why countless companies fail. Texaco and Chrysler, AEG and Babcock Borsig, Arcandor, Praktiker and Schlecker – market mechanisms do not care if a company is a well-known brand with a long history.
The importance of financial resilience was recently demonstrated by the Kirch Group. With one sentence, the CEO of Deutsche Bank at the time, Rolf Breuer, caused financial market partners' trust in the Group to erode, which swiftly brought down the media company.
That is one reason why INDUS considers the economic stability of the Group and its companies to be of the utmost importance. The management of the holding company would never consider economically gouging its portfolio companies with profit-transfer agreements. The individual companies are not just expected to choose their path independently, they are expected to do so from a position of economic balance. This approach gives us a realistic image of each portfolio company's "bill of health."
A S O U N D E C O N O M I C B A L A N C E I S A P R E R E Q U I S I T E FOR INDEPENDENCE
INDUS' role is to economically and strategically strengthen the companies and to provide security should unexpected events occur. And of course, in light of the severe changes in the market currently, to actively and individually support each portfolio company's development potential, so the INDUS companies can continue to pursue their goals in future from a balanced position, both for themselves and the Group as a whole.
What happens when we have achieved a goal? We're happy, feel we are on the right path, and are proud to have set a milestone for everyone to see. Now we could sit back and rest … but we don't. Instead of resting and enjoying our success for a while, we immediately set new goals and get to work implementing them. Why?
Nature itself wants us to keep moving. Whenever we achieve something special, our brains release dopamine, a reward hormone that makes us feel happy, and we want to experience it again. Dopamine is a success driver that stimulates creativity and helps us persevere through strenuous tasks. It is both motivation and reward in one.
Without doubt, though, we keep moving because our successes have awoken expectations, too. In the business world, particularly where others have invested in our abilities by buying shares, the short version of our mission is "to earn money." This can only be achieved by keeping up in an environment that is in constant flux. Those who stand still in the competitive environment are not only overtaken, but in the worst case they are run off the road altogether.
INDUS never rests. The strategy program was just realigned with our latest goals, and the Group is highly motivated to complete the next chapter of the company's story successfully.
PROGRAM The path we began to pursue in 2012 under the name COMPASS 2020 has proven successful. Now the INDUS Board of Management has outlined the next round's finish line: In the coming years, the Group companies will be expected to pick up the pace of development to ensure the Group grows further by 2025 and INDUS solidifies its position as leading German SME holding company.
In many emerging countries, the economy continues to grow at a fast pace and their view of themselves on the world market is changing. This applies above all to China, which is positioning itself strategically in key industries and raw materials markets. Driven by protectionist tendencies coming from the United States' politicians, the supposedly incontrovertible principle of free trade is in question. Brexit and a row of new crises in Europe are simultaneously threatening the stability of the common economic area. And in Germany? All eyes are on the automotive industry with its emissions
problems and the challenges posed by e-mobility, and everyone expects politicians and companies to find the right solutions quickly, as they have always done in the past. After all, it's no accident that Germany is one of the world's leading economies.
However, "as always" is not as easy as it sounds in a phase of permanent change, especially as the current digitalization process is putting all global economies through their paces. The world will not wait for Germany. And the global industry will not wait for INDUS Group companies. This is why they take the reins themselves. They will be boosting their entrepreneurial power and increasing their development speed considerably.
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"WE WILL STRENGTHEN THE PORTFOLIO WITH SUCCESSFUL COMPANIES FROM GROWTH INDUSTRIES."
Dr.-Ing. Johannes Schmidt
The Board of Management has chosen PARKOUR for the new strategy program name, a discipline from the modern world of sports. In parkour, athletes move from A to B as quickly and efficiently as possible using only their own power and no equipment. The athlete overcomes a variety of obstacles by climbing, running and jumping. Just like parkour athletes, INDUS and the Group companies must find new ways to achieve their goals. The new INDUS strategy focuses specifically on three areas.
INDUS wants to offer its shareholders a managed portfolio of attractive SMEs. So the portfolio remains viable for the future over the long term, it should cover a healthy mix of relevant industries. Since these industries develop and their importance fluctuates, the portfolio, too, has to adapt. Whether Industry 4.0 or digitalization, innovative structural engineering or public and private safety, medical technology for an aging society, intelligent logistics infrastructure or Green Tech – societal mega trends define the future fields that hold growth potential. To effectively exploit these opportunities, INDUS will acquire more companies for the portfolio from these relevant growth industries. These industries include automation, measuring technology and control engineering, safety technology, medical engineering and life science, technology for infrastructure and logistics and energy and environmental technology. The goal stands at two to three company acquisitions per year for the portfolio in these growth industries.
The newly acquired and existing companies will be developed in line with the business model "buy, hold & develop" on a long-term basis. The conditions in the Automotive Technology segment have, however, deteriorated further in recent years. In the area of series suppliers to the automotive industry, the Board of Management is currently looking at whether individual portfolio companies may develop better under new ownership, especially as the achievable EBIT margins in this
"WE PROVIDE EACH COMPANY WITH THE SUPPORT IT NEEDS."
Rudolf Weichert
1 5
area are currently significantly below the 10% target.
In the area of innovations, too, INDUS is gearing up another notch. In tapping new market opportunities the primary focus is no longer new products and services but rather increasingly the transformation of processes and structures as well as the digital development of the company's DNA. INDUS is also promoting internal and external networks that nurture innovation through mutual exchange.
To help the portfolio companies master the challenge of overcoming technological hurdles, INDUS supports them in acquiring new and innovative companies that are closely related to their own industry. The innovation know-how and economic means provided by the devel-
"OUR PORTFOLIO COMPANIES MUST SECURE THEIR LEADING MARKET POSITIONS USING THEIR INNOVATION SKILLS."
Dr. Jörn Großmann
opment bank, which have become well-established forms of support in the Group, will be continued. The holding company will increase personnel resources and double the approved development budget to an average of 3% of consolidated EBIT each year.
The new strategy's third field of action is improving operational excellence. This involves developing the suitability of added-value core processes from order placement to order processing. The goal is to exploit further productivity potential in marketing and sales, procurement, production and logistics. By providing support in these areas, the Board of Management hopes to exploit the still-positive economic situation for the benefit of the portfolio companies to make them more resilient in difficult periods. And such periods will come. Either due to a slowdown in the economy or because companies in similar sectors or from other regions will increase the competitive pressure.
A forward-looking strategy that improves the health of companies and provides opportunities is internationalization. Here, too, portfolio companies can rely on active support from INDUS – whether in the form of capital for international
acquisitions and to set up new locations, or in the form of know-how and networking connections.
Changes are coming more rapidly – at INDUS too: More creativity. More courage. And more reliability. These are the qualities the Group has to secure stability and drive growth. The goal for 2025 is: sales amounting to EUR 2.5 billion with an ongoing target margin of "10% + X" resulting in a profitability that continues to satisfy our shareholders.
"OPERATIONAL EXCELLENCE WILL ALLOW OUR PORTFOLIO COMPANIES TO TAP DEVELOPMENT AND EFFICIENCY POTENTIAL."
Axel Meyer
The days of different technologies with their respective machinery and devices existing separately next to each other are over in an increasing numer of sectors. Digitalization is bringing them together at breakneck speed. HORNGROUP, a specialist in refueling technology, is using the new opportunities provided by networking to gain important competitive advantages.
Based in Flensburg, Germany, HORNGROUP offers companies comprehensive products and services focusing on refueling and measuring fuels, gases and other substances. One example of their products is the mobile dispensing system for AdBlue®, which is used in car and truck workshops around the world.
Due to their company history and the variety of companies in the Group, HORNGROUP is working on data collection and evaluation with a variety of solutions. The company has developed the mytecalemit Cloud Solution project, a digital platform that will connect the Group's full product range. HORNGROUP is using a special software that can be gradually adapted to the specific needs of different applications and users.
In the first step, HORNGROUP connects the fueling pumps of private fueling stations managed by the Group to the cloud. In future, the operator of a fueling station, such as a courier, can read the output data of the pump directly over a cloud connection, independent of location, rather than having to be on site.
The same will be possible with tank fill-level measurements in the second mytecalemit step. This doesn't just make dipsticks redundant but also optimizes the order process: once the liquid drops to a certain level, reordering can be set to occur fully automatically if necessary.
In a third step, HORNGROUP will connect the workshops it manages to make engine and transmission oil management simpler. Using the dealer management system, the workshops will be able to book the oil used directly over a workshop assignment. Operation of the new software is intuitive.
The development goal for this project was an economy of scale that was transferable to other sectors. INDUS provided a large amount of support with its innovation support offer. The IoT software that HORNGROUP uses, for instance, could in future be used by other INDUS companies. The software can be highly individualized and the necessary changes can be made quickly and economically. And every additional user can build on the experiences of previous users. This lays a solid foundation for creating a digital ecosystem from this project that many portfolio companies can benefit from.
In any change of management, employees are an important constant.
Approximately 150 employees are working on ROLKO's international sites in Germany, the Netherlands, Denmark and China.
When SMEs face succession, the questions raised go much deeper than economic issues. The issues include continuing success stories that not only the management but also many employees identify with, the people who have made the success possible. This gives the leaving managers a responsibility to make the right decision when appointing a successor.
Sooner or later, handing over the reins of responsibility becomes a central issue for every company. For those who have built up a business with love over many years, it means letting go and handing the reins over to the next generation. The next generation is expected to take over existing principles (because they have proved successful) while also developing the company in line with their own vision. How can that be done?
To successfully hand over a business, you don't just need the right successor – you have to do it at the right time. Many successful entrepreneurs fall into this typical trap by dealing with urgent issues before the important ones. And so they invest more time in the ever-more difficult dayto-day business than they do in strategic planning for the future.
One of our hidden champions' success factors is their orientation toward quality and the urge to progress.
What if there is no successor to take over a family business? This was the case at ROLKO, a manufacturer of rehabilitation technology based in East Westphalia. Founded in 1990 from an industry representative in Borgholzhausen, Germany, the company's history flowed like a storybook in the early years with the founder Willi Kohlgrüber and his son Achim. With wheels and tires for wheelchairs, and accessories such as wheelchair ramps and adjustable head rests, the two entrepreneurs tapped into the medical engineering/life science future growth market and saw rapid growth. In 2013, ROLKO was perfectly positioned with four plants in four countries and a worldwide customer base in 40 countries.
At this point in time, the now sole managing director, Achim Kohlgrüber, planned to hand over responsibility, but there was no suitable candidate in the family to hand the business over. At this critical point, his entrepreneurial network put him in contact with INDUS.
The success of the SME holding company INDUS, the promise to keep companies for the long
" IN TORSTEN EIKEMEIER WE HAVE FOUND A SUCCESSOR, WHO WAS ABLE TO EXPERIENCE OUR SPECIAL ʻ ROLKO-CULTURE' FROM THE BEGINNING AND WHO HAS BEEN ACTIVELY SHAPING IT IN HIS 30 YEARS OF SENIORIT Y. THUS, A SMOOTH TRANSITION WAS GUARANTEED."
Achim Kohlgrüber, former managing director and owner of ROLKO
term and the offer of a gradual handover of management responsibilities convinced Achim Kohlgrüber and his father, who was still a partner, to sell. And so, INDUS acquired a majority share in mid-2014.
One of the most important factors in the entrepreneurs' decision to choose INDUS was the development opportunities that ROLKO would have with INDUS: The economic power of the parent company and their experience in supporting internationalization processes were two more factors.
Overall, the two former entrepreneurs were not only certain that they were handing over their business to an owner who would treat their life's work responsibly, they were also sure that their company would be able to overcome the increasingly tough challenges of international competition.
But signing a contract with one or more former owners is only the first of two important steps. The second is carefully ushering in a new era for the company. That is why INDUS always employs a gradual process wherever possible, where both the shares and the management of the company itself are transferred in stages.
This was also the case at ROLKO. After INDUS had acquired the majority of shares, the former owner remained on the management team for over two years. In the fall of 2016, Achim Kohlgrüber handed over the reins to his former sales manager Torsten Eikemeier. A smart decision. After 30 years with the company, the new managing director not only had long-term experience, he also had the support of his employees. They knew he was one of them and would protect the corporate culture that had been built at ROLKO. Achim Kohlgrüber still advises the company and keeps in close contact.
It is now almost five years since INDUS acquired the company, and we can say the transfer was a success. Sales and income have improved, new employees have been hired, and the company is currently working on increasing production capacity through the construction of a new plant in Changtai, China. The goal: driving internationalization and serving not only a wider but also deeper market with additional products. Good wheels are not only in demand in the medical engineering/life science market, but also in industry.
On October 16, 2011, Fauja Singh, 100 years old, completed a marathon, the oldest person to ever do so. Following a crisis, he took up running at 81; he completed his first marathon at 89. What spurs him on? An optimistic outlook and goals that help him stay active.
A long-term study of Harvard graduates showed that the income of graduates who had set their career goals clearly and in writing was on average ten times more than that of those who had not set themselves goals.
Goal for 2040: -90% trash
At the age of 16, Boyan Slat was snorkeling on holiday and saw more trash than fish. He researched how to remove plastic from the world's oceans and founded the initiative The Ocean Cleanup. The goal: clearing 90% of the trash from the world's oceans by 2040. With his idea, he has collected approx. 35 million dollars from sponsors and supporters. At the beginning of 2018, the first device was set into the water in Alameda near San Francisco.
Before the future Bayer CEO Marijn Dekkers landed his first CEO position, he visited a management seminar held by the renowned Harvard professor Michael Porter. At dinner the night before, the professor gave the surprised participants the task of writing a ten-minute farewell speech as CEO. Looking back, this was the best advice Marijn Dekkers had ever been given:
If you start at the end, the path you need to follow to keep your eyes on your goal becomes much clearer.
In this time he let nothing and nobody dissuade him from his plans. AMAZON is now worth more than 700 billion dollars and is not only the largest book store but the largest department store in the world.
"radioactive"
Marie Skłodowska, later Curie, set herself the goal of completing a scientific degree in Paris early on. This was not the only hurdle she mastered with apparent ease. In her scientific career, she was awarded two Nobel Prizes and was the first woman to teach and research at a university. She coined the term "radioactive" and changed the world with her research.
Originally, AURORA planned to set up its own software and electronics department. But the shortage of skilled workers in rural areas put an end to this plan. In the end it became clear that acquiring external know-how was the smarter solution: In 2018 AURORA acquired Dutch company EE ELECTRONIC EQUIPMENT, which has opened up many more opportunities.
AURORA operates around the world as a specialist in the area of heating and air-conditioning technology for commercial vehicles. The company's systems ensure that the drivers of combine harvesters can do their work in air-conditioned cabs during Minnesota's hot summers. And that construction machinery drivers can level the ground and stay warm in the cooler Chinese provinces. And the bus driver in your city, too.
However, AURORA has not only been interested in achieving the right climate within driver's cabins regardless of the cold, warm, wet or dry conditions outside for a number of years now. Air-conditioning has also become more energy efficient during this time.
With the ongoing cooperation project e-bus cluster, which received considerable funding from the INDUS development bank, AURORA's heating and air-conditioning systems are interconnected with complex complete systems: Together with a group of companies, AURORA is developing innovative system solutions to increase energy efficiency, comfort and safety in electric buses. For example, the interior can be air-conditioned efficiently and individually using a new and intelligently controlled heat pump. To achieve this, the components must communicate with
one another within the bus and, in the future, throughout the fleet.
This sounds simple, but it is a complex technical task and requires in-depth software knowhow in addition to a comprehensive knowledge of electronics. Both require personnel resources that can't be acquired at the push of a button or by placing advertisements. And especially not in rural Neckar-Odenwald, where AURORA is based in the small town of Mudau.
AURORA has already tried building up skills resources organically: As the tasks became more complex at the turn of the century, the company focused intensely on training and new positions. This worked at first and ensured that the key skills remained in house. But this clearly restricted the speed of development.
In 2013, the opportunity arose to acquire HEAVAC. The Dutch company had electronic control skills and also gave AURORA another point of access to the complementary bus market. The acquisition shows that integration isn't just about buying pure knowledge but that many development processes can be speed up by exchanging information.
And advancing digitalization presented further opportunities. To exploit this potential, AURORA needed more in-depth software expertise. And again, the opportunity came from the Netherlands: AURORA acquired EE ELECTRONIC EQUIPMENT at the beginning of 2018. The new subsidiary produces circuit boards and electronic components and was already an important supplier of hardware and software for controlling air-conditioning at the time of acquisition.
Today, the AURORA Group successfully combines software and hardware expertise under one roof, and none of the new units had to sacrifice their own development approach. And why should they? The exchange between Mudau, Nuenen and Weert is lively, because they all realize progress toward a common goal can be even faster when you connect the different tried-andtested approaches cleverly.
At AURORA they've long since stopped thinking about individual vehicles: The future lies in collecting and evaluating the performance and consumption data for different vehicles so the fleet can be deployed and maintained as efficiently as possible.
AN INTERVIEW WITH PARKOUR CHAMPION AMADEI WEILAND While the majority of people see walls and chasms as obstacles, parkour runners see a challenge. The runner feels compelled to overcome these obstacles as quickly and creatively as possible. He chooses his own path based on his individual abilities. 30-year-old Amadei Weiland from Berlin has made this trendy urban sport his profession. In an interview, the world-record holder, world champion and Laureus Award winner gives us an insight into his extraordinary world.
[QUESTION] Amadei, when did you first come across this unusual sport?
AMADEI WEILAND I started learning kung fu when I was ten. I was fascinated by Jackie Chan films, where martial arts and acrobatics where combined. I thought: "I want to do that, too!" The first time I heard of parkour, when I was 14 or so, I knew I'd found a new love.
[QUESTION] And you were gone …
WEILAND Yeah. I knew this was right for me, even though at the time there was no way I could have known that I would be able to earn money from it. I had fun trying out new things and gradually getting better. I was able to design my own concepts and find the right partner. Finding the right partner today is easy, by the way. Almost everywhere I go now, I find another runner. It's amazing.
[QUESTION] When did you know this is what you wanted to do professionally?
WEILAND Before I started studying economics – which I did complete – I was already working as a professional parkour runner. I still looked for a "normal" job after I graduated, and I found something in the sports marketing field. But I quickly realized that I needed more action and I decided to concentrate on my career as parkour runner. Not a bad decision, I think! The sport is now so well established that there is talk of including it in the Olympics, which makes me both happy and sad, I must admit.
[QUESTION] Why do you feel so ambivalent about it?
WEILAND I love parkour, and commercialization is always a doubleedged sword. But it certainly aids get more people interested in the sport, which helps the sport develop. And, last but not least, it gives athletes like me the opportunity to earn a living from it. Assignments always result in fascinating experiences. I get to know different companies and see the world. Like Israel, for example. I was filmed in Jerusalem's old town for the tourism office. Working in a historic location and working with great people was absolutely inspiring.
[QUESTION] Why do you love the sport so much?
WEILAND Competition is a positive art form. You don't just develop through intense training – of course that is part of it – but through experiences with others, learning from them and being inspired by them. And before you know it, you're working on moves that people thought were impossible. If you succeed you're so motivated and it drives other parkour athletes to work on their moves.
[QUESTION] In the 100m sprint you get in the blocks and run in a straight line. Parkour is different.
WEILAND That's what makes it interesting. Track athletes spend years whittling down their personal best. In parkour we try to avoid this. Our "track" is endlessly flexible and no two runs are the same. Many parkour moves are similar to gymnastics. The main difference is that gymnasts are fixated on their sequences. If a device is set up slightly differently, their sequences are completely messed up. This doesn't happen to us because our training focuses " TRAINING HARD IS A BIG PART – BUT SO IS WORKING WITH OTHERS, LEARNING FROM THEM AND BEING INSPIRED BY THEM."
on evaluating new situations and obstacles correctly with lightning speed.
[QUESTION] Does this flexibility make the sport particularly dangerous?
WEILAND No. The most important thing is to keep your mind focused so you can assess your abilities and limits correctly. By deciding what I will do myself I can control the risk. I haven't broken a bone in the last 15 years and have only torn one ligament. I learned: When I force myself to do something on a bad day, I injure myself. When I've tackled harder jumps on other days, but was subconsciously confident that I could do it, I did. Without problems. Parkour is actually less dangerous than football. Another player could tackle you at any time. With parkour you only have to concentrate on yourself.
[QUESTION] What makes a good parkour runner?
WEILAND A good parkour runner avoids feeling pressured. That's not to say that he isn't happy to face challenges or competition. It's about allowing a positive "push," but staying in control.
are the foundation of his success. He overcomes them not by dwelling on what could go wrong but focusing on the finish line.
Obstacles
The second trait is being hardworking: Usually parkour runners don't have a trainer to motivate them. You have to motivate yourself. And unlike in team sports, you alone are responsible for your success. You can't just return to your position and hope the others pull something out of the bag when things aren't going well. There is always a direct resonance. If you haven't trained and can't manage the jump, you'll notice it immediately and painfully.
And despite all his flexibility, a good parkour runner will think about what he's going to do in advance and then complete the run. Hesitating or thinking while you're running means you'll be distracted and literally miss a step. And that usually hurts. You need to know your goal before you start. That's the only way to run well.
The business graduate started taking kung fu lessons when he was 10 and came in second in the European championship in 2002. He has been a successful parkour athlete since 2004, with achievements including coming second in the 2008 world championship and winning the championship in 2009 together with the German team. He has set several Guinness world records, is regularly booked as a stunt double and has more than 660,000 subscribers on his online video channel.
Find out more at: www.parkour-amadei.de
Our innovativeness and training initiatives were particularly acknowledged in the second half of 2018:
INDUS' support for innovation is growing. Numerous development bank projects have reached market maturity.
The AURORA heat pump, which intelligently uses waste heat to aircondition and heat electric buses, was installed in around 400 units from international bus manufacturers in 2018.
BETEK can successfully deploy PTAplated carbide metal tools, developed thanks to a development bank project, in numerous series productions.
To increase operational excellence at the portfolio companies, optimization projects for portfolio companies' added value processes are being introduced and supported by INDUS.
A multi-tiered lean management training offer for management and skilled production employees forms the foundation for exploiting further efficiency potential:
Nina Wolf Senior Manager Corporate Communications Phone: +49 (0)2204/40 00-73 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
PHOTOS Catrin Moritz, AdobeStock, gettyimages, Amadei Weiland, Dimitri Roggon, Björn Beau, INDUS-Gruppe
ILLUSTRATIONS Christian Sommer, Thomas Kappes
Gutenberg Beuys Feindruckerei GmbH, Langenhagen
| in EUR million | 2018 | 2017 | 2016 |
|---|---|---|---|
| Sales | 1,710.8 | 1,640.6 | 1,444.3 |
| EBITDA | 218.4 | 215.3 | 200.9 |
| EBIT before impairment | 150.8 | 152.9 | 144.9 |
| EBIT margin before impairment (in %) | 8.8 | 9.3 | 10.0 |
| Impairments* | -16.1 | 0.0 | 0.0 |
| EBIT after impairment | 134.7 | 152.9 | 144.9 |
| EBIT margin after impairment (in %) | 7.9 | 9.3 | 10.0 |
| Group net income for the year | 71.2 | 83.1 | 80.4 |
| Operating cash flow | 96.0 | 145.0 | 137.9 |
| Cash flow from operating activities | 74.7 | 124.0 | 114.5 |
| Cash flow from investing activities | -98.3 | -110.0 | -104.4 |
| Cash flow from financing activities | -2.8 | -3.9 | -14.9 |
| Earnings per share (in EUR) | 2.90 | 3.37 | 3.27 |
| Cash flow per share (in EUR) | 3.05 | 5.07 | 4.69 |
| Dividend per share (in EUR) | 1.50** | 1.50 | 1.35 |
| Dividend yield (in %) | 3.8** | 2.5 | 2.6 |
| Dividend payout ratio (in %) | 48.0** | 43.9 | 42.7 |
| DEC. 31, 2018 | DEC. 31, 2017 | DEC. 31, 2016 | |
| Total assets | 1,720.0 | 1,653.2 | 1,521.6 |
| Equity | 709.8 | 673.8 | 644.6 |
| Equity ratio in % | 41.3 | 40.8 | 42.4 |
| Net debt | 482.8 | 398.9 | 376.6 |
| Cash and cash equivalents | 109.6 | 135.9 | 127.2 |
| Total assets of INDUS Holding AG | 1,551.3 | 1,450.8 | 1,360.2 |
| Equity of INDUS Holding AG | 893.5 | 855.6 | 806.9 |
| Equity ratio INDUS Holding AG (in %) | 57.6 | 59.0 | 59.3 |
Portfolio companies (number as of Dec. 31) 45 45 44
(on average) 10,714 10,210 9,451
(in % / number of portfolio companies)
5 TO 10 YEARS 7 / 3
MORE THAN 10 YEARS
7 8 / 3 5
2018 SALES BREAKDOWN BY SEGMENT (in %/EUR million)
METALS TECHNOLOGY 24.5 / 420.0
* Impairments on goodwill and property, plant and equipment.
** Subject to approval at ASM on May 29, 2019.
Employees within the Group
… 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.
| BUSINESS PERFORMANCE | (in EUR million) | DEVELOPMENT VALUE CREATION | (in EUR million) | |||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | GROSS ADDED VALUE | NET ADDED VALUE | |||||
| Sales | 1,710.8 | 1,640.6 | 700 | |||||
| Other operating income | 20.6 | 16.5 | 600 | |||||
| Own work capitalized | 7.8 | 5.1 | 500 | |||||
| Changes in inventory | 35.1 | 5.2 | 400 | |||||
| Income from shares accounted for using the equity method |
0.1 | 1.1 | 300 | |||||
| Financial income | 0.2 | 0.3 | 200 | |||||
| Interest income | 0.3 | 0.2 | 100 | |||||
| Business performance | 1,774.9 | 1,669.1 | 0 | 520.9 472.9 |
579.0 528.9 |
631.7 575.7 |
632.8 695.2 |
641.6 725.3 |
| 2014 | 2015 | 2016 | 2017 | 2018 |
| ADDED VALUE | (in EUR million) | |
|---|---|---|
| 2018 | 2017 | |
| Business performance | 1,774.9 | 1,669.1 |
| Material expenditure | -811.9 | -745.9 |
| Other operating expenditure | -237.7 | -228.0 |
| Gross added value | 725.3 | 695.2 |
| Depreciation | -83.7 | -62.4 |
| Net added value | 641.6 | 632.8 |
LETTER TO THE SHAREHOLDERS MANAGEMENT BODIES ◉ The INDUS Board of Management ◉ The INDUS Supervisory Board REPORT OF THE SUPERVISORY BOARD THE INDUS SHARE PARKOUR – LAUNCH 2019 P. 4 P. 7 P. 7 P. 8 P. 10 P. 16 P. 20
The INDUS Group once again achieved solid financial figures for the fiscal year past. Occasional lows, particularly in the Automotive Technology segment, were largely balanced out by the good performance of the other Group companies. This shows again that the diverse setup of our Group gives us a good amount of stability. Nevertheless, we must find solutions for the companies that are currently not performing as well. This is what we are working on.
With the new strategy program PARKOUR we have added new focal points to our successful measures for promoting our portfolio companies. It is our aim to increase the INDUS portfolio's future viability, and raise the fitness of our Group companies overall, by stepping up our activities.
It is important that we intensify our activities because the framework conditions for our portfolio companies are becoming ever more complicated: The digital transformation is increasing the pressure to change our current business models. Numerous crises and protectionist tendencies are noticeably weakening economic momentum. In such a situation it is vital that we concentrate on the virtues that make SMEs successful: courage, creativity and reliability. As part of our new strategy program, we will be stepping up our support for our hidden champions' core skills.
This means we will be there for our companies as a kind of "fitness trainer": We will disseminate knowledge relevant to the future of their industry and assist them in establishing their expertise in this area. We will push them to become even better in their value-adding core processes. And if they search out and pursue innovative paths to their successful development, we will make even more funds available to them than in the past.
We will also remain true to our philosophy – every INDUS company must find its own way – and we are using the image of a well-trained parkour athlete, who moves toward his finish line in as straight a line as possible, quickly, despite many obstacles, because the competition never sleeps.
The escalating situation that series suppliers in the automotive industry are facing shows this attitude will be vital to success. In this area in particular, companies must significantly focus on their operational excellence and consistently take advantage of the opportunities afforded by new business models, for instance in relation to e-mobility.
But in the INDUS segments that achieved good to very good income in the past fiscal year, we will be focusing on innovations and improving performance. Increased prices for raw materials and energy along with rising salary costs in relation to the increasing lack of skilled labor are noticeable in the prospering Construction/Infrastructure and Engineering segments. These factors are also restricting growth opportunities in the Metals Technology segment. The Medical Engineering/Life Science segment, which continues to offer good margins and very good growth prospects, is facing mounting competition and new regulatory requirements.
"We anticipate further growth for our portfolio companies in 2019. We have laid out a solid foundation for this with our PARKOUR strategy program."
DR. JOHANNES SCHMIDT
A look at the figures: INDUS again achieved very good growth in sales in the fiscal year 2018. Sales increased by 4.3% to EUR 1.71 billion. At the end of the year, EBIT before impairment came to approximately EUR 151 million, slightly below our planned figure. We are convinced that our Group is heading along the right track with PARKOUR, and, in light of the good growth prospects in four of five segments, we are optimistic about the current fiscal year. Even if macroeconomic growth momentum is on the decline, as we are currently seeing signs of.
We anticipate an increase in sales to between EUR 1.72 billion to EUR 1.77 billion and operating income (EBIT) between EUR 156 million and EUR 162 million. This will put the earnings margin with an EBIT margin of 9–10% again below the target figure aimed for, especially in light of the ongoing repositioning projects in the Automotive Technology segment. Supported by the PARKOUR strategy program, we will be able to achieve the EBIT margin target of "10% + X" again in the medium term.
"Operational excellence is a central success factor amid ever fiercer global competition. INDUS is backing its portfolio companies in this area with full force."
In addition to developing the individual portfolio companies further, we also want to strengthen our Group through targeted acquisitions. New acquisitions will help us represent a cross-section of relevant industries in our portfolio in the future. Our search for new subsidiaries and sub-subsidiaries is focusing particularly on the automation, measuring and control engineering industries, construction technology and safety technology and medical engineering/life science technologies, technology for infrastructure and logistics along with energy and environmental technology. This is where we believe the decisive future growth opportunities lie.
We are also looking, on a case-by-case basis, at whether another owner may be able to offer certain companies and their employees a more promising future than INDUS can. However, INDUS's successful strategy "buy, hold & develop" will remain unaffected by such exceptional and well-founded cases.
We'd much rather by than sell. And we have budgeted EUR 50 million for new acquisitions in 2019. We were only able to acquire two complementary additions and complete one asset deal to strengthen our existing portfolio due to the tense situation on the M&A market in 2018. But the number of attractive companies on offer has already risen noticeably in the first months of 2019. We are therefore confident that we will achieve our target of two growth acquisitions in 2019.
As the Board of Management, we would like to thank our shareholders for the trust they have shown in our company. We look forward to pushing ahead with INDUS's successful business model in the current fiscal year, together with you and our 10,000+ employees around the world, and to further improve the fitness of our portfolio companies.
Bergisch Gladbach, March 2019
Dr. Johannes Schmidt Dr. Jörn Großmann Axel Meyer Rudolf Weichert
* Detailed information concerning the professional qualifications of the Board of Management members may be found on our website. For information concerning memberships on Supervisory Boards, see page 173.
Chairman of the Board
Dr. Johannes Schmidt (born 1961) has been a member of the Board of Management of INDUS Holding AG since January 2006. He assumed the position of Chairman of the Board of Management in July 2018. 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.
Board Member
Dr. Jörn Großmann (born 1968) has been a member of the INDUS Holding AG Board of Management since January 2019. After graduating with a degree in material sciences and completing his doctorate in the field of natural sciences, Dr. Großmann worked as a development engineer and later as technical director for Doncasters Precision Castings GmbH in Bochum, Germany. In 2004 Dr. Großmann became the managing director of Buderus Feinguss GmbH in Moers. In 2007 he joined the Georgsmarienhütte Group – initially as the managing director of Mannstaedt GmbH in Troisdorf. He was then appointed managing director of GMH Engineering GmbH, Georgsmarienhütte, and GMH Edelstahl Service Center GmbH, Burg. Up until his move to the INDUS Board of Management, he worked for the Dutch Group Aalberts Industries N.V., with his last position being sole managing director of Impreglon GmbH in Lüneburg.
Board Member
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.
Board Member
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.
Shareholders appointed new shareholder representatives to the Supervisory Board at the extraordinary INDUS Holding AG Annual Shareholders' Meeting on November 29, 2018, in Cologne. This came about as a result of a decision by the Higher Regional Court of Düsseldorf made June 4, 2018, according to which INDUS Holding AG is subject to the German Codetermination Act (MitbestG). In light of this decision, new shareholder representatives had to be appointed to the Supervisory Board. Four of the six former Supervisory Board members were eligible for reelection: Dr. Jürgen Allerkamp, Dr. Dorothee Becker, Helmut Späth and Carl Martin Welcker. Their reelection was confirmed at the Annual Shareholders' Meeting. Isabella Pfaller, member of the Board of Management of Versicherungskammer Bayern, and Jürgen Abromeit, former Chairman of the Board of Management of INDUS Holding AG were also appointed to the Supervisory Board as new members. Employee representatives to the Supervisory Board were selected during a separate election process, which was carried out in German INDUS Group companies and completed January 30, 2019. Until this point, employees had been represented by six court-appointed Supervisory Board members. Five of the six court-appointed employee representatives were confirmed at the works election. Cornelia Holzberger was the only new member elected to the Supervisory Board to replace Sergej Schönhals, who had been appointed by the court. All members' terms end with the end of the Annual Shareholders' Meeting in 2023.
Supervisory Board Chairman (since November 29, 2018)
Deputy Supervisory Board Chairman (since November 29, 2018)
Member of the Supervisory Board (since November 29, 2018) Deputy Supervisory Board Chairman (until November 29, 2018)
Member of the Supervisory Board (until November 29, 2018)
Member of the Supervisory Board
Member of the Supervisory Board (since November 29, 2018)
Member of the Supervisory Board (since November 29, 2018)
Member of the Supervisory Board (since January 30, 2019)
Substitute Member of the Supervisory Board (since November 29, 2018) Member of the Supervisory Board (until November 29, 2018)
Member of the Supervisory Board (since November 29, 2018)
Member of the Supervisory Board (since November 29, 2018)
Member of the Supervisory Board (from November 29, 2018, to January 30, 2019)
Member of the Supervisory Board (since November 29, 2018) Supervisory Board Chairman (until November 29, 2018)
Member of the Supervisory Board (since November 29, 2018)
Member of the Supervisory Board
Jürgen Abromeit (Chairman) / Isabella Pfaller / Carl Martin Welcker
Jürgen Abromeit (Chairman) / Wolfgang Lemb / Dr. Dorothee Becker / Dorothee Diem
Helmut Späth (Chairman) / Dr. Jürgen Allerkamp / Dr. Dorothee Becker
Dr. Jürgen Allerkamp (Chairman, Financial Expert) / Dr. Ralf Bartsch / Prof. Dr. Nadine Kammerlander
Isabella Pfaller (Chairman, Financial Expert) / Dr. Jürgen Allerkamp / Gerold Klausmann
Jürgen Abromeit (Chairman) / Wolfgang Lemb / Isabella Pfaller / Pia Fischinger
** Employee representative.
* 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. Detailed information concerning the professional qualifications of the Supervisory Board members may be found on our website. For information concerning memberships on other Supervisory Boards, see page 172.
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 Incorporation. 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 information concerning the straying of actual developments from previously reported goals and of actual business developments from the originally communicated planning.
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 informed of current business performance and asset development at all times. 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. Where necessary due to the law, the Articles of Incorporation or the rules of procedure, the Supervisory Board provided approval on a case-by-case basis for specific business transactions. Between board meetings, the Supervisory Board Chairman also engaged in an intensive exchange of information and ideas with the Board of Management and kept himself informed of significant company developments.
In fiscal year 2018 six ordinary Supervisory Board meetings were held up to the extraordinary Annual Shareholders' Meeting on November 29, 2018. The Board of Management attended five of these meetings. In addition, three extraordinary telephone conferences took place.
Following the extraordinary Annual Shareholders' Meeting on November 29, 2018, a constituent meeting was held of the newly elected, equally represented Supervisory Board, now consisting of twelve members. The extraordinary Annual Shareholders' Meeting elected Jürgen Abromeit, Dr. Jürgen Allerkamp, Dr. Dorothee Becker, Isabella Pfaller, Helmut Späth and Carl Martin Welcker to the Supervisory Board as shareholder representatives. The Local Court of Cologne appointed Dorothee Diehm, Pia Fischinger, Gerold Klausmann, Wolfgang Lemb, Sergej Schönhals and Uwe Trinogga to the Supervisory Board effective November 29, 2018, as requested by the company, because the election of employee representatives to the Supervisory Board had not been performed as of the day of the extraordinary Annual Shareholders' Meeting. The request for the court appointments was based on nominees already decided upon through the employee election process. The election process for selecting employee representatives to the Supervisory Board was completed on January 30, 2019, with the meeting of delegates.
At the Supervisory Board constituent meeting held directly following the extraordinary Annual Shareholders' Meeting on November 29, 2018, Jürgen Abromeit and Wolfgang Lemb were elected as Chairman and Deputy Chairman of the Supervisory Board, respectively. Members and a chairman were elected for the Mediation Committee in accordance with Section 27 (3) of the Codetermination Act, and members and chairmen were also elected for the Audit Committee, the Personnel Committee and the Nomination Committee. Details on the composition of the committees can be found on p. 9 of the "Management Bodies" chapter.
The Supervisory Board regards its individualized disclosure of participation in meetings of the full Supervisory Board and of its committees as an element of good corporate governance.
| SUPERVISORY BOARD MEETINGS AND WORK OF THE COMMITTEES IN THE 2018 FISCAL YEAR | ||
|---|---|---|
| PARTICIPATION | IN % | PARTICIPATION | IN % | ||
|---|---|---|---|---|---|
| Supervisory Board (until 11/29/2018) | Supervisory Board (from 11/29/2018) | ||||
| Helmut Späth | 6/6 | 100 | Jürgen Abromeit | 1/1 | 100 |
| Dr. Jürgen Allerkamp | 6/6 | 100 | Wolfgang Lemb | 0/1 | 0 |
| Dr. Ralf Bartsch | 6/6 | 100 | Dr. Jürgen Allerkamp | 1/1 | 100 |
| Dr. Dorothee Becker | 6/6 | 100 | Dr. Dorothee Becker | 1/1 | 100 |
| Prof. Dr. Nadine Kammerlander | 6/6 | 100 | Dorothee Diehm | 1/1 | 100 |
| Carl Martin Welcker | 6/6 | 100 | Pia Fischinger | 1/1 | 100 |
| Personnel and Nomination Committee (until 11/29/2018) | Gerold Klausmann | 1/1 | 100 | ||
| Helmut Späth | 4/4 | 100 | Isabella Pfaller | 1/1 | 100 |
| Dr. Jürgen Allerkamp | 4/4 | 100 | Sergej Schönhals | 1/1 | 100 |
| Dr. Dorothee Becker | 4/4 | 100 | Helmut Späth | 1/1 | 100 |
| Audit Committee (until 11/29/2018) | Uwe Trinogga | 1/1 | 100 | ||
| Dr. Jürgen Allerkamp | 2/2 | 100 | Carl Martin Welcker | 1/1 | 100 |
| Dr. Ralf Bartsch | 2/2 | 100 | |||
| Prof. Dr. Nadine Kammerlander | 2/2 | 100 |
Please note: no committee meetings were held between 11/29/2018 and 12/31/2018.
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, ensuring that the Supervisory Board, as the controlling body, was included in all fundamental decisions. There were no indications that members of the Supervisory Board or Board of Management had conflicts of interest, which must be promptly disclosed to the Supervisory Board and of which the Annual Shareholders' Meeting is to be informed.
Main topics of the first meeting, on March 22, 2018, were the submission and clarification of the annual financial statements for 2017 of the AG and the Group as well as the resolutions taken. The Supervisory Board discussed the Audit Committee's submissions regarding the development of the financial position, the financial statement accounting for Swiss pension plans according to IFRS, the development of the currency result and the appropriate consideration of the focal points specified by the German Financial Reporting Enforcement Panel. At the Audit Committee's recommendation and after thorough exchanges with the external auditor, Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne, the Supervisory Board approved the annual financial statements and the consolidated financial statements for the fiscal year 2017.
The Board of Management informed the Supervisory Board of the main investment targets in the past year, provided information on the annual risk management and compliance reports, and the economic position of the INDUS Group as of February 2018. The Board of Management also reported on the progression of the ongoing status proceedings at the Higher Regional Court of Düsseldorf. The Supervisory Board approved the dividend proposed by the Board of Management and the agenda suggested by the Board of Management for the Annual Shareholders' Meeting on May 24, 2018.
Regarding complementary additions, the Board of Management reported on the successful acquisition of ELECTRONIC EQUIPMENT B.V. by AURORA Konrad G. Schulz GmbH & Co. KG on January 25, 2018, and OFA Bamberg GmbH's planned takeover of activities at a retail company for medical aids in Southern Germany.
The Supervisory Board held a second ordinary meeting on May 23, 2018, the day before the Annual Shareholders' Meeting. The Supervisory Board dealt in depth with the report concerning business developments in the months from January to April 2018 at this meeting. The Board of Management 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 2018. The Board of Management also reported on the progression of the ongoing status proceedings at the Higher Regional Court of Düsseldorf.
The Supervisory Board had already approved the acquisition of a renowned supplier of high-quality air conditioners before the meeting via a circulatory written ballot. The Board of Management informed the Supervisory Board in the meeting of the successful signing on the day of the meeting.
As the Chairman of the Board of Management Jürgen Abromeit gave notification of his intention to leave the Board of Management on June 30, 2018, the Supervisory Board resolved to appoint Dr. Johannes Schmidt as Chairman of the Board of Management from July 1, 2018, in line with the recommendation of the Personnel and Nomination Committee.
The third ordinary meeting took place on June 17, 2018. The decision of the Higher Regional Court of Düsseldorf dated June 4, 2018, in the pending status proceeding, was one of the main topics. The Court dismissed the company's appeal against the decision of the Regional Court of Cologne dated April 28, 2018, deciding that the INDUS Holding AG Supervisory Board had to include equal representation. The Board of Management informed the Supervisory Board of both the court ruling and the necessary steps to be implemented. To prepare for the election of the Supervisory Board, the Supervisory Board members made the decision to reject full fulfillment of the gender ratio within the meaning of Section 96 (2) (1) of the Stock Corporation Act (AktG). This means that the gender ratio of the equally represented Supervisory Board must be fulfilled separately by the shareholder representatives and the employee representatives to the Supervisory Board.
The Supervisory Board also dealt with the current status of the search for a fourth Board of Management member, launched in May 2018, to fill the vacant position for a Board member responsible for technology and innovation as swiftly as possible.
In the fourth ordinary meeting, on September 13, 2018, the Board of Management reported to the Supervisory Board on the financial performance of the INDUS Group in the first seven months of fiscal year 2018, the current status of both repositioning projects and the development of the Automotive Technology segment as a whole. Taking into consideration the current Forecast II for the portfolio companies, the Board of Management confirmed the annual outlook for the whole of 2018.
Following personal interviews with the candidates and discussions among the full Board, the Supervisory Board resolved to appoint Dr. Jörn Großmann as the fourth member of the Board of Management, effective January 1, 2019, in line with the recommendation of the Personnel and Nomination Committee, and completed the employment contract.
The Supervisory Board also prepared for the extraordinary Annual Shareholders' Meeting on November 29, 2018. The legal firm Kanzlei Luther Rechtsanwaltsgesellschaft mbH, Köln, invited to attend the meeting, outlined the changes that would need to be made to the Articles of Incorporation, particularly in light of the equal representation on the Supervisory Board in future. Following an in-depth discussion, the Supervisory Board resolved to present the new version of the company's Articles of Incorporation at the Annual Shareholders' Meeting. The Supervisory Board also reported on the nomination of the candidates for shareholder representatives on the Supervisory Board that would be suggested for election at the extraordinary Annual Shareholders' Meeting. In light of the fact that the election process for employee representatives to the Supervisory Board would only be complete on January 30, 2019, with the planned meeting of delegates, the Board of Management informed the Supervisory Board of the option of court-appointed employee representatives to the Supervisory Board.
The main topic of the fifth ordinary meeting, on October 5, 2018, and the three telephone conferences on October 10 and 26, 2018, and November 1, 2018, was the nomination of candidates to be presented for election to the extraordinary Annual Shareholders' Meeting as shareholder representatives to the Supervisory Board. The Board of Management were not involved with the meeting or the telephone conferences.
The last ordinary meeting of the year on November 29, 2018, directly before the extraordinary Annual Shareholders' Meeting, focused on the updated outlook for the 2018 fiscal year and planning for 2019. In this meeting, too, the Board of Management reported to the Supervisory Board on the ongoing repositioning projects in the Automotive Technology and Metals Technology segments, and the reasons for below-expectation development in other portfolio companies in the Automotive Technology segment. The Board of Management explained the details behind the recognition of noncash impairments mainly on goodwill in the amount of approx. EUR 16 million in the fourth quarter of 2018, as communicated in the ad-hoc release dated November 20, 2018, and presented the end-of-year forecast for the 2018 fiscal year, including impairment, which was based on the actual figures from September 30, 2018. In the discussion that followed, the Board of Management considered the details of the planning process. The Supervisory Board adopted the annual planning without changes.
Another topic at the meeting was the preparations for the extraordinary Annual Shareholders' Meeting that was taking place the same day. The Board of Management and the Supervisory Board also 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 constituent meeting of the newly appointed, equally represented Supervisory Board with its twelve members, was held directly following the extraordinary Annual Shareholders' Meeting on November 29, 2018. At this meeting Jürgen Abromeit was elected as Chairman of the Supervisory Board and Wolfgang Lemb as Deputy Chairman.
The main task of the Supervisory Board committees is to prepare decisions and topics for the complete Board's 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. In the past year, two committees met in the constellation that applied until November 29, 2018. The new committees composed in the constituent meeting of the Supervisory Board on November 29, 2018, only began their committee work in 2019. The personnel makeup of the committees is presented in the Annual Report under the heading "Management Bodies".
The Audit Committee met twice in the 2018 fiscal year: on March 22, 2018, and May 23, 2018. 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 external 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 external 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 consultation were the 2017 annual financial statements, review of the 2017 risk management and compliance report, development and adoption of an external auditor guideline for the individual and consolidated financial statements and the issue of IT security.
In the 2018 fiscal year, the Personnel and Nomination Committee prepared personnel decisions for the Supervisory Board in three meetings on March 20, 2018, May 23, 2018, and August 22, 2018, and in two additional telephone conferences on August 29 and 31, 2018. Where necessary, decisions were made or resolutions to be taken were recommended to the Supervisory Board. The focal points of the meetings were in particular – in connection with Jürgen Abromeit's decision to leave the Board of Management – the preparation of a suggestion for the appointment of a successor for the position of Chairman of the Board of Management effective July 1, 2018, and the search for another suitable candidate as fourth member of the Board of Management. Another important topic was the nomination of candidates to represent shareholders on the new Supervisory Board from November 29, 2018. In addition to other contractual business, the committee dealt with Supervisory Board compensation and the compensation system concept, particularly as it regards setting compensation and bonuses. Details regarding compensation for the Supervisory Board 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 Annual Shareholders' Meeting of May 24, 2018, audited the annual financial statements, the consolidated financial statements and the combined 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 external 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.
Annual financial statements, consolidated financial statements and the combined management report, along with the external auditor's audit report were presented to all members of the Supervisory Board in good time, as was the non-financial group management report. These were discussed in detail at the Supervisory Board meeting held on March 22, 2019, for adoption of the financial statements. This meeting was attended also by the external 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.
Following the final review of the documents submitted and the recommendations of the Audit Committee, the Supervisory Board raised no objections to the annual financial statements, the consolidated financial statements or the combined management report, and agreed with the external auditor's findings. The Supervisory Board thus approved the 2018 annual financial statements and the 2018 consolidated financial statements. The annual financial statements for 2018 have therewith been adopted in accordance with Section 172 (1) of the German Stock Corporation Act (AktG). Following its review of the proposal, the Supervisory Board concurred with the Board of Management's proposed appropriation of distributable profit. The Supervisory Board also reviewed the separate non-financial group management report. To form its opinion, it drew on the review performed by the external auditor, Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Cologne. The Supervisory Board raised no objections to the separate non-financial group management report.
The Supervisory Board members Dr. Ralf Bartsch and Prof. Dr. Nadine Kammerlander absolved of her duties from the Supervisory Board with the end of the extraordinary Annual Shareholders' Meeting. The Supervisory Board would like to thank them for their committed cooperation.
The Supervisory Board would also like to thank the managing directors and all employees of the portfolio companies as well as the Board of Management and all employees of INDUS Holding AG for the extraordinary dedication they have displayed in the past fiscal year.
Bergisch Gladbach, March 22, 2019
On behalf of the Supervisory Board, Jürgen Abromeit Chairman
As early as the fourth quarter of 2017, the INDUS share performance was subject to more pronounced fluctuations, to which the SDAX and DAX reference indexes were also exposed. Despite the abundance of global factors already impacting performance at the time, the INDUS share listing was able to hold its own to the end of the year at almost EUR 60 and with noticeable growth over the year of approximately 15%. The high price level therefore achieved at the end of 2017 provided a solid basis from which to start the fiscal year 2018. The INDUS share approached an all-time high in January (EUR 66.00 on January 23, 2018). Over the course of the reporting year, however, the share faced many uncertainties on the capital market, and, like many other second-line stocks, was generally more affected than the benchmark indices, and was therefore unable to hold on to its high price until the end of the year.
The first two months of the fiscal year were positive for the INDUS share. The share price remained stable between 60 and EUR 65 until the end of February. However, the share's
| 2018 | 2017 | 2016 | |
|---|---|---|---|
| Earnings per share Group | 2.90 | 3.37 | 3.27 |
| Cash flow per share Group | 3.05 | 5.04 | 4.69 |
| Dividend per share1 | 1.50 | 1.50 | 1.35 |
| Dividend yield in %1 | 3.8 | 2.5 | 2.6 |
| Sum disbursed in EUR million1 | 36.7 | 36.7 | 33.0 |
| Year-high2 (01/23/2018) |
66.00 | 65.10 | 54.15 |
| Year-low2 (12/27/2018) |
37.65 | 50.48 | 36.75 |
| Price at year-end2 | 39.00 | 59.50 | 51.64 |
| Market capitalization3 in EUR million |
953.57 | 1,454.81 | 1,262.6 |
| Average daily turnover in number of shares |
24,711 | 31,116 | 35,578 |
1) Subject to approval at Annual Shareholders' Meeting on May 29, 2019.
2) Closing price XETRA.
3) As of reporting date, based on complete capital stock of 24,450,509 shares.
performance was partially boosted by the publication of the preliminary figures for 2017. In addition to other global uncertainties, the decline in early indicators in the euro area along with the American Federal Reserve Bank's raising of the base rate meant that the INDUS share faced considerable pressure from March, resulting in the share falling below the 60-euro mark. By the end of March 2018, the share had recorded a decline of 4.4% (SDAX +0.3%, DAX -6.4%).
In the second quarter of 2018, the publication of the solid figures for 2017 and the confirmation of the forecast for the fiscal year 2018 in the Interim Report for the first quarter of 2018 produced increased demand among investors and boosted the share price, pushing the share back up over the 60-euro mark at the beginning of May. In light of the complicated macroeconomic situation (escalation of the trade war, ongoing weakness in the euro area, disappointing economic data from Germany, etc.), however, the share price swiftly began declining again at the end of May. The Federal Reserve's second base rate hike exacerbated the negative effects so that the share price fell under the 60-euro mark once more, and it did not exceed the 60-euro mark again over the rest of the fiscal year. The share closed the end of June with a minus of 10.3% (SDAX +0.5%, DAX -4.7%).
The third and fourth quarters of 2018 were characterized by increasing economic and political uncertainties, both domestic and abroad. The declining economic data in Germany, rising inflation around the globe, the further escalation of the trade conflict between the United States and China, the concerns about Brexit, the Italian government's unexpected high deficit target and the two base rate hikes called by the Federal Reserve in November and December, to name just a few factors, had a considerable impact on sentiment on the capital market that the INDUS share, despite its solid and reliable nature, could not pull away from. In addition, there were internal issues, such as another problematic case in the INDUS Group Automotive Technology segment's series supplier field and the ad-hoc notice published in November regarding the recognition of non-cash impairments on goodwill and property, plant and equipment. The forecast published with the reporting for the third quarter of 2018 for operating activities remained unchanged at the lower end of the EUR 154 million to EUR 160 million range, but, due to the impairments on goodwill and property, plant and equipment, expectations for EBIT declined to between EUR 138 million and EUR 144 million.
The complex interaction between primarily disturbing external factors, the increasing number of profit warnings in the second half of the year and additional internal issues at the end of the year all led to a disappointing year for the INDUS share in 2018. Although the price of the INDUS share stabilized between EUR 50 and EUR 55 in the third quarter of 2018, the INDUS share listing closed the year, following a difficult December on the exchange, at EUR 39.00, down 34.5% (SDAX -20.0%, DAX -18.3%). Fortunately, this low point was overcome as early as January 2019, bringing with it a more positive outlook for the INDUS Group for the fiscal year 2019.
As in the previous year, demand on the capital market met a rather restrained supply. On average, according to the statistics of the German Stock Exchange, 24,711 shares were traded per day on XETRA and the German regional exchanges during the fiscal year; in total, the figure amounted to more than 6 million shares in 2018. In addition, larger trades were made outside of the exchanges: according to Bloomberg, another 5.2 million shares were transferred directly between buyers and sellers and over alternative trading platforms. Roughly 55% of trading volume was on XETRA and regional German stock markets, according to Bloomberg, and was traded at the level of the previous year. The renewed decline in average daily trading volume in fiscal year 2018 is a reflection of investor preference for investing in robust securities, and holding on to them, in uncertain times.
* The German Stock Exchange defines free float as all shares not held by major shareholders (share of share capital of at least 5%). According to this definition, free float amounts to 74.8%.
Source: company information
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, became one of INDUS Holding AG's larger shareholders in November 2017. 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 a good 50% of profits are to be reinvested in the company and at least 50% distributed. As of December 31, 2018, the holding company had EUR 76.3 million in balance sheet profit. The Board of Management and the Supervisory Board will therefore propose a dividend payment of EUR 1.50 per share (previous year: EUR 1.50) at the Annual Shareholders' Meeting. This brings the total sum disbursed to EUR 36.7 million with a dividend payout ratio of 48.0%.
| Bankhaus Lampe | — March 2019 |
|---|---|
| ---------------- | -------------- |
Commerzbank — November 2018
— Buy, target price EUR 66.00
| SIN / ISIN | 620010 / DE0006200108 |
|---|---|
| Stock exchange code | INH.DE |
| Share class | No-par-value bearer shares |
| Stock exchanges | XETRA, Düsseldorf, Frankfurt (regulated market) Tradegate Exchange, Berlin, Hamburg, Hanover, Munich, Stuttgart (over the counter) |
| 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 |
| HSBC | — November 2018 |
|---|---|
| — Buy, target price EUR 66.00 | |
| Independent Research | — February 2019 |
| — Buy, target price EUR 57.00 | |
| LBBW | — February 2019 |
| — Hold, target price EUR 45.00 | |
| M.M. Warburg | — February 2019 |
| — Buy, target price EUR 60.00 | |
| Pareto Securities | — February 2019 |
| (Formerly Equinet Bank) | — Buy, target price EUR 51.50 |
A central topic in the dialogue with the capital market in 2018 was providing information on current business performance, implementing and developing the COMPASS 2020 strategy by Dr. Johannes Schmidt, who took over as Chairman of the Board of Management from Jürgen Abromeit in July 2018. 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.
| January | — German Corporate Conference, |
|---|---|
| Frankfurt am Main | |
| April | — German Conference, Baden-Baden |
| May | — Roadshow Hannover |
| July | — Roadshow Rhineland, |
| Cologne and Düsseldorf |
| August | — Roadshow Frankfurt am Main |
|---|---|
| — Commerzbank Sector Conference, | |
| Frankfurt am Main | |
| September | — Roadshow Zurich |
| — Zurich Capital Market Conference | |
| October | — Family Office Day, Vienna |
| November | — German Equity Forum, |
| Frankfurt am Main | |
| December | — Prior Capital Market Conference, |
| Dreieich-Götzenhain | |
| — DSW Investor Forum, Düsseldorf |
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 dialogue with private investors through the Annual Shareholders' Meeting, participating in the DSW Investor Forum and through personal contact. Interested investors can stay abreast of current events through the INDUS newsletter.
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), the German Investor Relations Association, since 2009. The financial calendar appearing at the end 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 2019 and other Investor Relations information can be found at: www.indus.de/investor-relations
With its new strategy program PARKOUR, the INDUS Board of Management remains committed to the three targets of growth, increasing value and a balanced portfolio structure. On the way to achieving these targets, the Board is also setting a new focus on increasing company fitness: the portfolio companies and the Group as a whole should aim to develop faster and improve themselves even more in terms of operations. PARKOUR has three focal points: the targeted strengthening of the portfolio structure, driving innovations and improving performance through operational excellence at the portfolio companies.
Strengthening the portfolio structure by pushing ahead with acquisitions in growth industries (average of two to three first-level acquisitions per year) and company disposals (in the Automotive Technology segment's series supplier field) on a case-by-case basis.
excellence (particularly in the areas of strategic marketing, sales and production).
Driving innovation, particularly through the "Boosting Innovation Ability" initiative. INDUS is expanding its understanding of innovation to include services, business processes and business models in addition to products. Successful support measures such as the innovation toolbox and the training program "Leadership and Innovation" will be continued. The holding company also supports the development of individual innovation road maps and is doubling INDUS development banks' development funds for specific innovation projects to an average of 3% of consolidated EBIT per year. INDUS will also be providing portfolio companies with more support in acquiring innovative companies with interesting intersections with the respective portfolio companies' business.
HOLDING COMPANY ACQUISITIONS IN SIX GROWTH INDUSTRIES
AUTOMATION AND MEASURING TECHNOLOGY AND CONTROL ENGINEERING 2
1
CONSTRUCTION TECHNOLOGY
3 SAFETY TECHNOLOGY
4 MEDICAL ENGINEERING/LIFE SCIENCE
5 TECHNOLOGY FOR INFRASTRUCTURE/LOGISTICS
6 ENERGY AND ENVIRONMENTAL TECHNOLOGY
For focal points two and three, the focus is on improving value-adding core processes at the INDUS portfolio companies by driving innovations (more know-how support, financial support for innovation projects and acquiring new, innovative companies) and actively supporting operational SUPPORTING THE ACQUISITION OF INNOVATIVE COMPANIES IN SIX FUTURE FIELDS
INNOVATIVE STRUCTURAL ENGINEERING
3 PUBLIC AND PRIVATE SAFETY
6 GREEN TECH
Improving performance with two initiatives to improve operational excellence: the "Operational Excellence in Strategic Marketing/Sales" initiative: In this area, INDUS primarily provides portfolio companies with support with market/potential and competitor analysis, the
expansion of international/export business, the optimization of sales organizations and channels, pricing products and services, and customer relations and value management. This is done through the dissemination of methodological skills and best-practice knowledge, setting up network partnerships and providing assistance in the design, planning and implementation of corresponding optimization projects.
The "Operational Excellence in Production" initiative: As part of this initiative, INDUS provides its portfolio companies with support in designing, planning and implementing optimization projects related to production and warehousing logistics. This includes the redesign of product layouts, the optimization of production planning and management, the automation of production processes or the introduction of lean principles in the production environment. Support takes the form of methodological skill dissemination on the one hand and the depoyment of internal and external experts on the other. INDUS also offers the portfolio companies a three-stage training and certification program in lean management. In addition, portfolio companies can cooperate with external partners through INDUS that allow the company to build up new skills rapidly, for example in the field of additive manufacturing. "Best Practice Days" are also held to encourage exchanges within the Group on best practices for specific topics.
INDUS is the SME holding company in Germanspeaking Europe and – thanks to its reliability, courage and creativity – the first contact for companies looking to sell.
02 SUSTAINABILITY AT INDUS
Sustainable operations create competitive advantages, increase enterprise value and make for a stronger corporate culture. Based on these convictions, the INDUS Group continually works to optimize its commitment to sustainability.
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 performs comprehensive information work by collecting sustainability-related data and forwarding it to Group companies to enable feedback on target attainment. INDUS Holding AG also provides advice to the portfolio companies as required, helping them effectively improve their "sustainability balance".
INDUS Holding AG's tasks also include providing constant assistance for the portfolio companies and acquiring new 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.
Reviewing relevant sustainability criteria in the value chain falls under the operational responsibility of the portfolio companies, however, each portfolio company joined the INDUS Group (hereafter also INDUS) following a due diligence process. 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 developments in manufacturing processes at our portfolio companies and the technological advances made by manufacturers in the manufacture of machinery 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 January 2019. And it retained its "Prime" status in the sustainability ratings of ISS-oekom/oekom research AG.
The basis for successful work on sustainability issues, and ultimately for long-term entrepreneurial 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.
| RELEVANT STAKEHOLDER GROUP | EXPLANATION | |
|---|---|---|
| Investors | external 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. |
|
| Interested owners of family-run businesses |
external | They are interested in having a financially strong partner that understands the SME sector, enjoys a good reputation, and can provide a solid foundation for the perpetuation of their own life's work. |
| Portfolio companies | internal They seek to have, and expand as needed, the leeway to develop their businesses. They therefore look for support in the form of capital, market access and know-how. |
|
| Customers of the portfolio companies | external They seek the security of having the right partner at their side who can be depended upon to assist them on a lasting basis with innovations and highly valuable services. |
|
| Employees | internal They seek an attractive and secure position in which they can apply their abilities meaningfully and an employer who both challenges and supports them. |
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 dialogue with institutional investors and interested owners of family-run businesses 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. In the 2018 fiscal year, the dialogue focused on the views of the internal stakeholder group "portfolio companies". Managing directors of the portfolio companies were surveyed to verify the completeness of the fields of action currently being addressed, and to assess the materiality of these fields. The materiality matrix was revised as a result of this survey (see page 26).
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. Topics deemed material are those that are very significant in terms of operating activities, business performance and income for INDUS and its internal and external stakeholders as far as sustainability is concerned (outside-in view) or topics likely to impact sustainability aspects through INDUS's operating activities (inside-out view). The results of this analysis were verified during the course of the previously mentioned stakeholder dialogue both from an external point of view (2017) as well as an internal point of view (2018). We were also able to confirm the seven key topics previously identified:
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. Progress in the key topics is continually driven forward through the implementation of measures and concepts. Individual key topics are highlighted in the reporting on an annually rotating basis. The reporting for the 2018 fiscal year features project examples from the key topic of resource efficiency.
Underlying the key topics identified above are fields of action from which concrete measures can be derived. The fields of action were entered into a conventional materiality matrix. This matrix reflects the significance 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 initially classified within the matrix through assessments by the sustainability team and the Board of Management and were then compared with the assessments of the internal and external stakeholders. In 2018 a survey was conducted within the portfolio companies (represented by the managing directors). The survey showed that the action fields refining the acquisition profile, managing risks during acquisitions, boosting innovation ability, defining responsibilities in the value chain, securing financial stability, encouraging new members of staff, the efficient use of raw materials and energy should have higher priority than previously determined. The materiality matrix was revised to reflect this and approved by the Board of Management.
According to the CSR Directive Implementation Act (CSR-RUG), INDUS Holding AG has been obliged to report on sustainability issues since 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 dialogue. 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 Chairman of the Board of Management is responsible for sustainability management. The topics of discussion between the Board of Management and the managing directors of the portfolio companies include relevant sustainability aspects, 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 regularly at the annual entrepreneurs' conference (Unternehmertagung). In 2016, INDUS Holding AG integrated an incentive for progress in sustainability issues into the Board of Management compensation system.
As a part of the annual corporate planning process, risks and opportunities are assessed according to the probability 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 operating activities 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 opportunities and risk report (cf. management report, "Opportunities and Risk Report" chapter). 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, four are not reported on due to the fact that they are not material, significant or do not apply to INDUS. More information is available at the end of the key figure overview. The key figures reported in accordance with EFFAS are also applied during our new-acquisition due diligence process.
The key figures that have been gathered pertain to fiscal year 2018 and are compared to those 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.
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 report 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 compared with industrial sectors that have high levels of raw material and energy consumption. Sectors that have high levels of raw material and energy consumption in INDUS's opinion include those legally obliged to participate in the European Union's emissions trading program. This includes the chemical industry, the paper industry and the cement industry, for instance. None of the INDUS portfolio companies are classified as operating in an industrial sector with high raw material or energy consumption. 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 processes may have a relevant environmental impact, such as those with galvanization and painting processes, are subject to corresponding statutory regulations and monitoring processes. 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 portfolio companies' managing directors develop rules and measures to conserve resources independently – taking into account the company's individual corporate philosophy. This does not just apply to production processes, but also product development. Examples include the optimization measures in the field of compressed air supply at OFA and BILSTEIN & SIEKERMANN, which have led to energy savings.
As part of the standardized due diligence process, INDUS Holding AG ensures that at least the statutory requirements are observed during the acquisition process, 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 Holding AG's acquisition profile was revised and refined in the 2017 fiscal year – and includes sustainability aspects. INDUS does not invest in companies with high energy consumption or high emissions (defined by their obligation to participate in the European Union's emissions trading program), or companies whose focus lies in the weapons industry.
| GOAL | EFFAS KPI | MEASURES | TIME FRAME |
|---|---|---|---|
| Reduction of energy consumption and waste produced |
Total energy consumption (EFFAS E01-01), waste produced (EFFAS E04-01), share of waste recycled (EFFAS E05-01) |
Portfolio companies pursue measures to achieve targets independently; raising awareness and increasing transparency through Group-wide recording and communication of energy consumed and waste produced |
ongoing |
| Taking environmental protection aspects into account during new acquisitions |
– | Excluding energy-intensive companies from acquisition; reviewing environmental protection aspects during the due diligence process for all new acquisitions |
ongoing |
| Reducing Scope 1 & 2 emissions by 12% (2020) and 42.5% (2040) against the base year 2014 |
Scope 1 & 2 greenhouse gas emissions (EFFAS E02-01) |
Purchasing electricity generated emission-free (green electricity); reduction measures in the areas of building infrastructure and vehicle fleet |
2020/2040 |
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 of countering 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, where Scope 1 & 2 emissions in the amount of 184 tons of CO2e were calculated).
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 reporting year, 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) rose slightly in comparison with the previous year, due to the further expansion of resources in the holding company. However, the holding company is still on track to meet its reduction target set for the year 2020. In 2018 the holding company again fully compensated for its remaining emissions with investments in projects to lower emissions. The Group's total energy consumption (EFFAS E01-01) on the other hand has increased due to growth, despite numerous energy-saving measures. In comparison with the previous year, however, the total amount of waste produced by the Group declined (EFFAS E04-01), and the Group also recorded a higher recycling ratio (EFFAS E05-01).
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 that may impact the local environment 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. Through various commitments, they support local cultural, scientific and social projects. For example, many portfolio companies work with workshops for disabled people. Inspired by its successful cooperation, ASS developed a module system under the brand name Auxilio Systems that makes assembly work in workshops for the disabled more efficient and ensures compliance with processes.
Other portfolio companies grant student scholarships, or make donations to schools and daycare centers (see "Social Engagement" chapter). No payments are made to political parties, however.
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.
The portfolio companies maintain regular dialogue 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. 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 entrepreneurs' conference (Unternehmertagung) and through internal non-financial reporting. The volume of donations rose slightly in 2018 against the previous year.
| GOAL | EFFAS KPI | MEASURES | TIME FRAME |
|---|---|---|---|
| Retaining the portfolio companies' independent commitment in their region and beyond |
– | Supporting best practice exchanges; raising awareness and increasing transparency by recording and communicating donation volumes throughout the Group and monitoring local complaints |
ongoing |
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 do any such risks exist on the part of INDUS Holding AG's 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, for example:
(Skilled worker) training beyond what is required to satisfy their own needs, ensuring employee satisfaction and boosting employee motivation.
Increasing employees' sense of identification with the company.
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. In 2018, MBN was named an exemplary company for trainees by IHK (German Chamber of Commerce and Industry) Dresden, for example.
As part of the due diligence process carried out for new acquisitions, the holding company confirms that the company to be acquired observes fundamental social and ethical principles and in particular appropriate working conditions. The holding company's and the portfolio companies' requirements, including those relating to employee concerns, are documented in the company-specific codes of conduct. These contain the fundamental commitment to employee rights and ensuring the rights to dignified work both internally and externally, i. e., also at 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 strate-
| GOAL | EFFAS KPI | MEASURES | TIME FRAME |
|---|---|---|---|
| Increasing employer attractiveness |
Development expenditure per employees (EFFAS S02-02) Age structure (EFFAS S03-01) Share of female employees (EFFAS S10-01) Share of female executives (EFFAS S10-02) |
Portfolio companies set their own targets and pursue measures to fulfill them independently; raising awareness and increasing transparency by recording and communicating development expenditure, age structure and share of female employees and executives throughout the Group |
ongoing |
| Committing to responsible conduct that is in accordance with legal requirements |
– | Formulating and committing to company-specific codes of conduct | ongoing |
| Taking employee and human rights concerns into account during new acquisitions |
– | Reviewing occupational health and safety aspects and upholding human rights in the due diligence process for new acquisitions |
ongoing |
gic development of the company, this also includes regular on-site visits (including at sub-subsidiaries). This gives the Board of Management a direct insight into the working conditions on site that goes beyond the formal reports.
Indicators relating to employee concerns and respect for human rights to be reported pursuant to DNK include average development expenditure per employee (EFFAS S02-02), age structure (EFFAS S03-01), number of SA 8000 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 in the portfolio companies (EFFAS S03-01) has only changed slightly in comparison with the previous year. The average development expenditures per employee (EFFAS S02-02), on the other hand, declined slightly. The number of female employees in the total workforce (EFFAS S10-01) has remained constant in comparison with the previous year, as has the share of female executives (EFFAS S10-02). Some portfolio companies are OHSAS 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 SA 8000 certified (EFFAS S07-02 II). SA 8000 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. INDUS Holding AG will continue to support exchanges among the portfolio companies regarding best-practice solutions relating to personnel activities in 2019.
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 Holding AG and the managements of our portfolio companies regard proper conduct in business transactions as a basic corporate duty. The management of portfolio companies is 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 fundamental 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. This goal is the result of a commitment made by the holding company and the portfolio companies. Adherence to this goal is monitored via a corresponding data request.
In 2018 INDUS Holding AG concluded a membership for itself and some of the portfolio companies in the trade association Verband Deutscher Maschinen- und Anlagenbau e.V. (VDMA). Apart from this, 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 and information for executives of the portfolio companies (cf. the section "Shareholder's Role"). In 2018 the main topics were data protection, cybercrime and foreign trade law. The holding company also offers regular training on the topics competition law and antitrust law. 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.
Compliance 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. Indicators to be reported relating to combating corruption and bribery pursuant to DNK also include expenses and fines following claims and processes due to anti-competitive conduct, anti-trust and monopoly violations (EFFAS V01-01), and sales by country with a higher corruption risk (EFFAS V02-01). 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. Expenses and/or fines following claims or processes due to anti-competitive conduct amounted to approximately EUR 1.4 thousand, and were thus not relevant (EFFAS V01-01). This expenditure consists of expenses for legal advice that were incurred by a portfolio company during a legal dispute with a competitor. Sales in countries with high corruption risk (Transparency International Corruption Index greater than 60) increased slightly against the previous year (EFFAS V02-01).
For 2018 INDUS has planned a continuation of its training program for the companies in governance, risk and compliance matters.
| GOAL | EFFAS KPI | MEASURES | TIME FRAME |
|---|---|---|---|
| No payments to political parties |
Payments to political parties (EFFAS G01-01) | Portfolio companies' individual commitments (documented in CoC) | ongoing |
| Avoiding compliance breaches | Expenses and fines following legal suits/action due to anti-competitive behavior, violations of anti-trust laws and monopoly legislation (EFFAS V01-01) Sales in countries with a high risk of corruption (EFFAS V02-01) |
Raising awareness and increasing transparency by recording and communicating sales in risk countries and expenses resulting from fines and legal action |
ongoing |
| Taking compliance requirements into account during new acquisitions |
– | Monitoring adherence to compliance requirements in the due diligence process for new acquisitions |
ongoing |
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 2018 fiscal year, a total of EUR 280.9 thousand (previous year: EUR 243.4 thousand) was donated to regional causes and EUR 201.1 thousand (previous year: EUR 190.1 thousand) was donated to causes outside of the region. The range of institutes and projects supported spans from sport and education to art and culture.
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.
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. 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 breaches, 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 dialogue with the managements.
INDUS Holding AG adheres to its decentralized management structure and its fundamental "buy, hold & develop" strategy.
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 the 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. This partially results in some significant changes in the framework conditions for the INDUS Holding AG portfolio companies. To determine and evaluate the resulting financial risks, INDUS Holding AG performed its first climate-related scenario analysis in 2018, based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The aim of the climate-related scenario analysis was to examine the qualitative consequences of various scenarios on INDUS. Portfolio companies in the Automotive Technology segment were given particular consideration in the scenario analysis as this is where the greatest impacts from legislation, technological developments (e.g. e-mobility) and changing user behavior (e. g. car sharing) were expected. The analysis made use of established scenarios from various organizations. The International Energy Agency's (IEA) 2DS scenario formed the foundation for the analysis. It shows a path for achieving the Paris Agreement's 2-degree Celsius target using industry sector decarbonization methods. With the help of additional information from BDI (association of the German industry), Greenpeace and BP scenario studies, two consistent scenarios were developed with the observation points 2030 and 2050. An ambitious scenario in terms of infrastructure expansion, technological development and spread, and regulation, and a conservative scenario that assumes virtually constant structures.
For the relevant investment portfolio, opportunities primarily arise from the ambitious scenario, for example from e-mobility. Great potential arises particularly in cases where portfolio companies offer energy-efficient technologies (e.g. heat pumps from AURORA for electric buses). For some portfolio companies that are heavily involved in the value chain for conventional power trains, the developments and spread of CO2-neutral fuels (synthetic, organic-based or H2) are also decisive. Because the observation points of several product life cycles lie in the future, the analysis of corresponding developments in the automotive and transport sector and improving INDUS companies' ability to adapt to these developments is crucial. INDUS Holding AG will continue to support the portfolio companies in these tasks in future.
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 for new constructions and expansions.
In addition, the individual portfolio companies are working in various ways to increase their use of secondary (recycled) raw materials. The portfolio companies also use environmentally friendly substitution raw materials when possible and avoid the use of toxic materials.
Based on the previous year, the Group's emissions remained largely constant (Scope 1 & 2 of the portfolio companies in relation to gross added value).
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 the coming years, the Group will also deal with the requirements arising from national and international climate protection plans.
On the go – with the environment in mind: REMKO has committed itself to e-mobility with free charging stations.
Sarah Ostmann, design engineer at SIMON in the toolmaking division, tests bicycles and e-bikes from regional providers.
Sustainable mobility is an important topic for INDUS. INDUS therefore considers electric cars to be an important lever in reducing greenhouse gas emissions. As part of the energy audits that will be performed in the Group in 2019, the use of e-vehicles and hybrid vehicles to reduce direct emissions will be considered a separate measure and suggested wherever it makes sense. INDUS Holding AG in Bergisch Gladbach will also expand infrastructure to accommodate e-mobility. As one employee has been using a fully electric vehicle for some time, INDUS decided to install a charging station on the premises in 2018 to enable charging on site.
The INDUS portfolio companies are also making good progress in terms of e-mobility. As a climate technology company, REMKO has a particular interest in this topic. In 2018 four company vehicles with electric drives were procured so employees could have an emission-free commute to work. REMKO rewarded its employees' openness to this change by fitting charging stations where the vehicles could be charged for free.
But e-mobility isn't making just a grand entrance; there have also been small changes at INDUS. The SIMON GROUP and REMKO have made e-bike leases available to their employees via a leasing partner as a subsidized company vehicle since 2018. The idea was immediately popular and now employees are also making longer commutes to work with e-bikes than in the past.
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.
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 SMEsector 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 Group's 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.
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.
The increasing saturation of domestic markets is putting limits on the potential of numerous portfolio companies to achieve further growth in those markets. Moreover, larger customers expect their suppliers to be within close reach in their foreign markets as well. This makes tapping into international markets an all the more attractive option for the companies in the Group.
In 2018, the share of sales generated outside Germany and Europe amounted to 26.2%, a slight decrease from the previous year (previous year: 27.3%). The share of sales generated in other European countries remained virtually constant (22.4% in 2018 as compared with 22.9% in 2017). The portfolio companies were able to stabilize long-term customer relationships, develop new customer relationships, and realize additional potential for added value by means of a strong 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. Examples of internationalization activities in fiscal year 2018 include the establishment of production locations in China and Romania by SELZER and SMA.
Upon request from the management, INDUS Holding AG can provide the portfolio companies with advice regarding expansion activities abroad 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.
INDUS Holding AG assists its portfolio companies in their innovation management, 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. The holding company also provides 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 3.0 million in internal development funds for innovation projects in 2018. At the end of the 2018 fiscal year, the holding company was providing support to a total of 18 innovation projects. Two projects that had been receiving support were also completed in 2018. The results of the projects are new products and solutions that are currently still being validated but that will be brought onto the market in 2019. Some projects, partially even before completion, generated contributions to sales of EUR 5.3 million in 2018.
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 2018 the holding company provided such methodological support once more 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.
Activities designed to build or strengthen networks, especially at the R&D level, also were continued and escalated. Working group meetings, for instance, were held regularly, covering the main topics "Additive manufacturing processes" (3D printing), current trends in the automotive sector, and IoT (Internet of Things) business models.
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 innovation projects as well as the inclusion of INDUS in the university's teachings, during seminars for instance.
In 2019, 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 2019. The PARKOUR strategy also includes plans to considerably increase the funds for supporting innovation projects (development bank).
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 the PARKOUR strategy currently under development, 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 marketrelated 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 2018, the portfolio company AURORA acquired ELECTRONIC EQUIPMENT, a strategic second-level addition. Other strategic additions were the acquisition of a retail company for medical aids by OFA and a manufacturer of air-conditioning devices by one of our other portfolio companies. We invested in total EUR 11.5 million in company acquisitions. Another EUR 90.9 million was invested in property, plant and equipment, and intangible assets. The acquisitions contributed 1.13% to our growth in sales.
In the 2019 fiscal year, we wish to successfully continue the holding company's acquisition strategy of the last several years. That means the direct acquisition of two to three growth companies by the holding company and up to four companies at sub-subsidiary level. We have allocated an investment budget of not less than EUR 50 million for this. As in the past, the new Group companies are expected to be viably positioned for the long term in terms also of sustainability considerations.
INVESTMENTS IN PROPERTY, PLANT AND
Julia Pschribülla Manager Investor Relations Phone: +49 (0)2204/40 00-66
| KEY TOPICS | KEY FIGURES | UNIT | 2018 | 2017 | AUDITED |
|---|---|---|---|---|---|
| Investments | Direct acquisitions | number | 0 | 2 | |
| Add-on acquisitions (on sub-subsidiary level) | number | 3 | 0 | ||
| Investments in company acquisitions | in EUR million | 11.5 | 32.4 | ||
| Investments in property, plant and equipment and intangible assets | in EUR million | 90.9 | 79.0 | ||
| Inorganic growth in sales | in % | 1.1 | 3.1 | ||
| Innovation | Expenses for research and development | in EUR million | 17.3 | 16.4 | |
| Approved internal subsidies for innovation projects | in EUR million | 3.0 | 2.2 | ||
| Current cooperative relationships with universities and research institutions |
number | 49 | 29 | ||
| Received public subsidies for research projects | in EUR '000 | 624.8 | 283.4 | ||
| Industrial property rights applied for in the year under review | number | 233 | 241 | ||
| Internationalization | External sales in Europe (exclusive of Germany) | in % | 22.4 | 22.9 | |
| External sales outside Europe | in % | 26.2 | 27.3 | ||
| Employees in Europe (exclusive of Germany) | in % | 14.3 | 13.8 | ||
| Employees outside Europe | in % | 13.0 | 12.9 | ||
| Shareholder's role | Equity ratio | in % | 41.3 | 40.8 | |
| EBIT margin | in % | 7.9 | 9.3 | ||
| Organic growth in sales | in % | 3.2 | 10.5 | ||
| Direct portfolio companies | number | 45 | 45 | ||
| Average length of time portfolio companies have been affiliated with the INDUS Group |
in years | 15.5 | 14.6 | ||
| Total monetary value of significant fines (> EUR 10,000) | in EUR '000 | 0 | 86.5 | ||
| Expenses for legal suits/action due to anti-competitive behavior, violations of anti-trust laws and monopoly legislation |
in EUR '000 | 1.4 | 0 | ||
| Non-monetary penalties for non-compliance with laws and regulations |
number | 0 | 0 | ||
| Share of sales in regions with a Transparency International Corruption Index <60 (EFFAS V02-01) |
in % | 18.9 | 19.9 | ||
| Number of all portfolio companies with SA 8000 certification (EFFAS S07-02 II)1 |
in % | 0 | 0 | ||
| Personnel | Female executives (first and second management levels) (EFFAS S10-02)2, 3 |
in % of FTE | 15.4 | 15.6 | |
| Female employees as a share of the total workforce (EFFAS S10-01)2, 3 | in % of own FTE | 31.4 | 31.3 | ||
| Temporary workers as a share of the total workforce2, 3 | in % of FTE | 2.7 | 3.9 | ||
| Trainees3 | number | 433 | 434 | ||
| Participants in dual study programs3 | number | 82 | 65 | ||
| Reportable accidents at work (exclusive of commuting accidents) | number | 339 | 329 | ||
| Fatal accidents at work (exclusive of commuting accidents) | number | 0 | 0 | ||
| Percentage of employees of INDUS Holding AG who have received its Code of Conduct |
in % | 100 | 100 | ||
| Age structure and distribution (number of FTE by age group) (EFFAS S03-01)3 |
number in 10-year intervals |
232/1722/2292 2348/2524/722* |
253/1629/2136 2309/2356/664* |
||
| Average expenditure for training per FTE per year (EFFAS S02-02)3 | in EUR | 271.9 | 305.9 |
| KEY TOPICS | KEY FIGURES | UNIT | 2018 | 2017 | AUDITED |
|---|---|---|---|---|---|
| Social engagement | Legitimate complaints from the local area | number | 0 | 1 | |
| Percentage of companies that cooperate with social institutions (workshops for disabled persons, etc.) |
in % | 30.6 | 42.0 | ||
| Local donations and sponsoring (culture, education, sports, social affairs) |
in EUR '000 | 280.9 | 243.4 | ||
| Non-local donations and sponsoring (culture, education, sports, social affairs) |
in EUR '000 | 201.1 | 190.1 | ||
| Payments to political parties as percentage of total sales (EFFAS G01-01) |
in % | 0 | 0 | ||
| Resource efficiency | Holding company's Scope 1 emissions (EFFAS E02-01)4 | in t CO2 e |
162.8 | 154.2 | |
| Holding company's Scope 2 emissions (market-based, GHG Protocol Scope 2) (EFFAS E02-01)4 |
in t CO2 e |
0 | 0 | ||
| Holding company's Scope 2 emissions (location-based, GHG Protocol Scope 2) (EFFAS E02-01)4 |
in t CO2 e |
51.2 | 56.1 | ||
| Holding company's Scope 3 emissions4 | in t CO2 e |
127.0 | 437.0 | ||
| Portfolio companies' Scope 1-3 emissions4 | in Tt CO2 e |
3,283.2 | 2,892.1 | ||
| Portfolio companies' emissions intensity (Scope 1 & 2)4, 5 | in t of CO2 e/EUR million value added |
122.8 | 122.4 | ||
| Waste intensity5 | in t of CO2 e/EUR million value added |
24.8 | 27.3 | ||
| Total weight of waste (EFFAS E04-01) | in t | 16,050.7 | 17,470.7 | ||
| Share of total waste that is recycled (EFFAS E05-01) | in % | 58.9 | 50.9 | ||
| Total water withdrawal intensity5,6 | in m3 /EUR million value added |
1,023.6 | 708.2 | ||
| Total energy consumption (EFFAS E01-01) | in MWh | 225,657 | 218,904 |
The scope of consolidation for sustainability reporting was expanded in 2018 to the IFRS scope of consolidation. Where this resulted in material changes to individual key figures, the prior-year figures were adjusted.
1) SA 8000 is an international standard designed to improve the working conditions of workers and defines minimum requirements on social and labor standards. | 2) The number of employees is expressed in full-time equivalents; part-time employees are accounted for proportionately according to the contractual work hours. | 3) Personnel numbers are reporting date figures on 12/31/2018 or 12/31/2017. | 4) Included in the calculation besides CO2 were nitrous oxide (N2 O), methane (CH4 ) and partly fluorinated hydrocarbons (F gases) | 5) Added value corresponds to unconsolidated gross added value (business performance minus material expenditure and other operating expenses) | 6) The water withdrawals also include withdrawals for ground water heat pump systems. These withdrawals are fed back into the supply locally. * Aged under 20/between 20 and 29/between 30 and 39.
** Aged between 40 and 49/between 50 and 59/over 60.
| KEY FIGURES | DECLARATION |
|---|---|
| EFFAS V04-12 Total investments in research on ESG-relevant aspects of business |
Due to the portfolio companies' business models, R&D activities (usually development rather than research activities) are primarily reflected in the corresponding expenditure. 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 manufactured. 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. It is thus currently not possible to determine a relevant key figure and, taking the findings of the materiality analysis into account, there are currently no efforts to obtain this figure. |
| 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. It is thus currently not possible to determine a relevant key figure and, taking the findings of the materiality analysis into account, there are currently no efforts to obtain this figure. |
05 FURTHER INFORMATION
04 CONSOLIDATED FINANCIAL STATEMENTS
| P. 48 | ◉ | The Company |
|---|---|---|
| P. 51 | ◉ | Targets and Strategy |
| P. 55 | ◉ | Management Control |
| P. 56 | ◉ | Non-financial Performance Indicators |
| P. 58 | ◉ | Corporate Governance |
| P. 59 | REPORT ON THE ECONOMIC SITUATION | |
| P. 59 | ◉ | Changes in the Economic Environment |
| P. 62 | ◉ | Performance of the INDUS Group |
| P. 74 | ◉ | Financial Position |
| P. 81 | ◉ | Financial Performance of INDUS Holding AG |
| P. 84 | FURTHER LEGAL INFORMATION | |
| P. 84 | ◉ | Compensation Report |
| P. 88 | ◉ | Acquisition-related Disclosures |
| P. 93 | OPPORTUNITIES AND RISKS | |
| P. 93 | ◉ | Opportunity Management |
| P. 94 | ◉ | Description of the Opportunities |
| P. 95 | ◉ | Risk Management |
| P. 96 | ◉ | Description of Individual Risks |
| P. 100 | ◉ | The Board of Management's Overall Assessment |
| P. 101 | FORECAST REPORT | |
| P. 101 | ◉ | Development of the Economic Outlook |
◉ Expected Group Performance
P. 104
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 owner-managed companies and assists them in their entrepreneurial development on a long-term basis. We intend to further expand the 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: 45). In total, 189 fully consolidated enterprises (previous year: 187) 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. INDUS has positioned itself in the competitive environment as 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 holding companies, INDUS sees itself as one of the leading companies.
INDUS has its registered offices in Bergisch Gladbach in North Rhine-Westphalia. The holding company is managed by the Board of Management, which consists of four members. On July 1, 2018, the long-serving Chairman of the Board of Management Jürgen Abromeit resigned from the Board of Management, handing over the reins to his colleague on the Board of Management, Dr. Johannes Schmidt. Dr. Jörn Großmann joined the Board of Management on January 1, 2019. His areas of expertise are technology and innovation. The Board of Management now consists of Dr. Johannes Schmidt (Chairman), Dr. Jörn Großmann, Axel Meyer and Rudolf Weichert. As of the reporting date, the holding company had 31 employees, not including the Board of Management (previous year: 30). 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, are already profitable at an above-average level at the time of acquisition, and have good long-term development prospects. The Group primarily acquires owner-managed companies. Continuity and the company's identity as an SME are secured with 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. Continual portfolio expansion enhances the development prospects of the entire Group and ensures through acquisitions that, over the course of time, the portfolio will constitute an up-todate 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. This results in a high level of diversification in the Group's portfolio. With their respective core capabilities the companies as a rule occupy market niches of great interest for their sector, in which they assume a leading position. Ideally, an INDUS portfolio company fulfills all of the criteria of a "hidden champion".
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 investments in fixed assets and for development projects that enable strong future growth among the subsidiaries. INDUS also facilitates investment particularly in innovation, internationalization and company acquisitions at sub-subsidiary level. Another area where INDUS provides specific support are projects that focus on expanding operational excellence. The Board of Management provides the managing directors of the portfolio companies with advice through strategy meetings and encourages transfer of knowledge by establishing networks within the Group as well as with external partners. The Board of Management basically acts as a fund manager when it comes to overall portfolio development.
INDUS's business model can be summarized as "buy, hold & develop". This strategy represents the intention to hold the company for a longer period while simultaneously developing the portfolio companies.
This allows the portfolio companies to develop long term in a fast-changing market environment while preserving their identity as an SME and with a financially strong partner at their side. With their equity investments in a managed investment portfolio in the otherwise little-accessible SME business segment, shareholders in INDUS are able to make sound investments while profiting from regular dividend distribution.
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 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. Globalization is increasingly thrusting SMEs into direct price competition with foreign competitors that are, in some cases, able to produce under economically more favorable conditions. Material, energy and personnel costs are especially relevant cost variables. Using technological and innovation leadership to set companies apart is all the more important in such an environment, and this is where INDUS provides important support for its portfolio companies.
In light of the increasing lack of qualified employees, recruiting personnel while salaries are rising is an increasingly important factor. INDUS is facing global competition and rising cost pressures by helping portfolio companies improve their organization internationally, too.
Another relevant factor impacting success is mastering the general technological shift. The digital transformation currently demands an even more intense development process from manufacturing companies. This may mean adapting business models and a corresponding noticeable increase in the need for investment. Due to the importance of these external factors, INDUS supports investment in innovation through the INDUS development bank.
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 current global economic situation (including potential escalation of the trade war sparked by the USA, Brexit, the known Middle East crises, Italy's economic position as an important EU member) leads to a fragile situation overall, with additional risks for the macroeconomic environment. Group companies are attempting to mitigate these risks by considering affected markets during their entrepreneurial decisions.
The portfolio consisted of 45 portfolio companies on the reporting date. These companies are allocated to five segments: Construction/Infrastructure, Automotive Technology, Engineering, Medical Engineering/Life Science and Metals Technology. In fiscal year 2018, 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 | 358.7 | 391.0 | 387.0 | 154.3 | 420.0 |
| Operating result (EBIT) | 49.8 | -4.3 | 52.2 | 17.3 | 28.3 |
| Companies | 11 | 9 | 11 | 5 | 9 |
| Employees | 1,839 | 3,524 | 2,027 | 1,687 | 1,602 |
Three quarters of the portfolio companies have belonged to the INDUS Group for more than ten years. Three portfolio companies have been in the INDUS portfolio for between five and ten years and seven of the 45 portfolio companies have been acquired in the past five years.
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 figures of at least EUR 25 million. Just one-fifth generate annual sales figures below 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 Germany at 51%. The companies generate another 23% of their revenue in the EU exclusive of Germany and 26% elsewhere abroad. The INDUS strategy also calls for an increase in the international share of sales in the years to come.
In the last fiscal year, three INDUS portfolio companies announced acquisitions:
No companies were disposed of and no businesses were discontinued in the fiscal year.
GOALS
Our aim is for the INDUS Group to grow organically through the operational success of its portfolio companies. On average, the Group has consistently increased income over the past years. The target is to achieve an EBIT margin of "10% + X" in the medium term. A considerable portion of the income earned is made available to the portfolio companies to finance further growth.
The value of the individual portfolio companies should increase in line with their development, which in turn should result in value appreciation of the whole portfolio. INDUS therefore systematically provides its portfolio companies with capital that they can use for their further development. INDUS actively advises the operationally independent portfolio companies on strategic decisions, shares its methodological expertise and helps companies build internal and external networks.
Inorganically, the INDUS Group will grow particularly through direct acquisitions in defined growth industries: 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 positioned in growth industries to ensure that the investment portfolio will continue to maintain a balanced, and hence stable, structure in the future.
INDUS applies definite investment criteria when acquiring companies for the portfolio: 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 figures 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 sector principles.
The ability to acquire a majority of shares as a first step is a key factor in their acquisition. INDUS considers it important that the senior management and executives are retained at the portfolio companies beyond the purchase date. Purchase contracts are drafted in such a way that INDUS has access to the remaining shares left by the former company owner when he leaves the company's management at conditions clearly defined in advance.
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.
In addition to growth acquisitions for the portfolio, INDUS will seek out complementary additions to strengthen individual portfolio companies. For strategic acquisitions at sub-subsidiary level, the investment decisions are linked to the portfolio companies' individual investment strategies, although INDUS is promoting more innovation-oriented acquisitions. 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 and the viability of their business model has already been proven.
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 the company and its employees.
As owners, the shareholders are entitled to share in the success of their company through 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 balance sheet profit. At least 50% of the balance sheet profit is reinvested in the Group to ensure further profitable growth.
The INDUS Group developed very well under the COMPASS 2020 strategy program adopted by the Board of Management in 2012. All decisive targets were achieved or exceeded. The new strategy program PARKOUR builds on the successful elements of COMPASS 2020, acknowledges changes in framework conditions and focuses on the further development of the INDUS Group until 2025.
DIVIDENDS PER SHARE* WITH PAYOUT RATIO FROM 2014 TO 2018 (in EUR/in %)
THE PREFERRED SIX INDUSTRIES OF THE FUTURE FOR COMPANY ACQUISITIONS
INDUS's core task as portfolio manager in future will continue to be the purposeful development of a diverse overall portfolio.
In light of the increasingly complex global conditions, a rise in global competition and the challenges posed by the digital transformation, INDUS will support its portfolio companies with more know-how and capital to secure their competitiveness. To get the INDUS portfolio companies fit for the current and future task PARKOUR, INDUS will sharpen its focus on supporting innovation and operational excellence. Assisting the companies in their internationalization measures will also remain a central pillar of the INDUS strategy. INDUS will set ambitious targets, encourage cooperation and share the right methods.
The strategy comprises in essence three levers:
The Board of Management is aiming to modernize the portfolio structure so 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 six growth industries that will be prioritized during acquisitions:
All six industries have above-average to very good prospects for development according to the relevant expert assessments.
PARKOUR also aims to have INDUS add two to three companies to the portfolio each year. The holding company is increasingly setting its sights on larger companies with annual sales figures of between EUR 50 million and EUR 80 million.
In light of the structural upheaval in the automotive industry, which has resulted in high pressure on margins, series suppliers in the Automotive Technology segment will not be able to achieve INDUS's margin targets for the foreseeable future. In addition to asking ourselves whether a company can deliver an EBIT contribution that is satisfactory for INDUS, another question we ask is whether another owner could offer the company and its employees better development opportunities in the long term. That is why INDUS is examining whether an exit might be the best solution in individual cases for companies in this segment.
In line with INDUS's strategy, however, disposing of companies will remain an exception and is not part of the business model.
The portfolio companies' investment strategies as they apply to the acquisition of strategic additions at sub-subsidiary level vary by company and are linked to the individual portfolio company. PARKOUR includes plans for three to four strategic additions at portfolio level per year.
For SMEs in particular, the main challenges faced today are the rapid technological shift and digital transformation. As specialists and market leaders in their niches, INDUS companies must review their business models to seize opportunities from the shift early to cement their market position and tap into new markets.
INDUS helps its portfolio companies cross the threshold into digital industries and make the most of new opportunities. Our innovation course has already delivered some successful results.
As the shift is gathering pace in the markets, INDUS will boost its support for innovation over the coming years at various levels:
Development bank: INDUS provides financial support for promising innovation projects designed to produce new technologies or tap into new markets. The development funds cover 50%–80% of the project volume. The holding company will therefore double the annual budget of up to 3% of the consolidated EBIT for this purpose. In addition to product innovations, INDUS is also increasingly looking into service and business process innovations.
Innovation tool box: By imparting methodological knowledge, INDUS supports the portfolio companies in developing their innovation strategies and in systematically tapping into future fields. The aim of the advisory and training services it offers is to further professionalize the portfolio companies' efforts towards innovation management. 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.
Acquiring innovative companies: Innovative companies in growth industries are currently springing up in close proximity to our markets with attractive points of contact for our portfolio companies. INDUS includes these companies with new, fresh business models in its acquisition profile for sub-subsidiaries.
INDUS companies counter growing global competition and increasing pressure on margins by improving their operational excellence, i. e., the continual improvement of all business processes. INDUS assists its portfolio companies with the optimization of value-adding core processes from order entry to order processing. Lean management approaches are at the heart of our activities. These approaches avoid waste and focus on added value in all tasks.
Order entry: INDUS provides advice and support for gaining customer orders through strategic marketing and in sales. The support offer includes market and competition analyses, advice concerning the structure of the sales organization, optimizing product and service pricing, and organizing sales training.
Order processing: INDUS assists the portfolio companies in realizing productivity potential in procurement, production and logistics. One significant element here is providing support for the portfolio companies to introduce lean management to achieve waste-free, lean corporate processes. The support offer consists of an overarching training program on lean management as well as individual workshops with the portfolio companies to impart specific methodological knowledge. Specific optimization projects are accompanied directly by INDUS or by external partners commissioned by the holding company.
PARKOUR will continue to pursue the successful path of internationalization. The central focus will remain on Asia and North America in particular, in addition to Europe. INDUS supports the portfolio companies' internationalization in the following specific ways:
As a financial holding company, INDUS actively represents its interests as owner by providing advice and assisting the companies in their development. The primary aims are to take advantage of existing opportunities, generate new opportunities, prevent damage to the Group, and protect the development of assets over the long term.
The portfolio companies inform INDUS about the financial performance of the companies on an ongoing basis. The companies send monthly reports covering the financial situation to the holding company. INDUS also receives information focused on specific topics. This gives the holding company's management an overview of the situation at the portfolio companies and thus an overview of the Group's overall situation.
The economic indicators used by the holding company to assess the situation correspond to the operational financial performance indicators commonly used for manufacturing companies. In addition, strategic financial performance indicators are used for direct investment decision-making.
INDUS monitors the performance of the companies in light of projections based on monthly figures. The controlling system delivers early warning if 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 entire Board of Management and individual managing directors. INDUS's role here is specifically that of a strategic discussion partner.
Using the flow of information and the exchanges with the managing directors, the INDUS Board of Management can gain an overall view of the business performance to be expected. The Board of Management uses this to create the planning for the necessary liabilities and then communicates the consolidated planning and expectations to INDUS's shareholders and creditors. The business objectives of INDUS Holding AG are thus based primarily on annual targets set by the portfolio companies.
At the end of fiscal year 2018, the holding company had 31 employees (previous year: 30), 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 INDUS Group had an annual average of 10,714 employees (previous year: 10,210). 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. SMEs assume a high level of responsibility when it comes to training; this is especially true of the companies within the INDUS Group. A total of 433 trainees were employed throughout the Group in 2018 (previous year: 434); this equates to a trainee ratio of 4.0% (previous year: 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 also 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: 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.
Knowledge platform & methodological support: Many of the INDUS portfolio companies are focusing their development resources on continuous (incremental) development of existing product programs. To support this important element in their development work, too, 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. For example, 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 & raising awareness: 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 dialogue with their managements. INDUS also supports information exchange between the portfolio companies to allow innovation to flourish through changes in perspective and mutual inspiration. INDUS also helps set up helpful connections between its portfolio companies and external partners and institutions, and is continually seeking opportunities to collaborate in the fields of science, research and economics.
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 2018 amounted to EUR 17.3 million (previous year: EUR 16.4 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. Collaboration with external partners on innovation projects funded by the INDUS development bank has become particularly important.
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 is directly and indirectly conducive to entrepreneurial success. These are the key points of INDUS's point of view:
Economically, INDUS uses traditional economic key figures, thus consciously aligning itself with conservative/stabilityoriented benchmarks. Its goal is to ensure its entrepreneurial 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 align themselves with traditional SME industry benchmarks. 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 been improving transparency step by step over the last years, and is supporting portfolio companies in their efforts to conserve resources, for example by making funds available for efficiency measures. As far as governance and compliance are concerned, the Board of Management and Supervisory Board have always considered themselves bound to create added value in a responsible, transparent and sustainable manner. 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 again publish a non-financial report for the INDUS Group for the period to December 31, 2018. 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 Section 161 of the German Stock Corporation Act (AktG) constitutes a part of the Declaration on Corporate Governance. This was issued by the Board of Management and the Supervisory Board on November 29, 2018. In it they state that, with two exceptions, INDUS Holding AG is in compliance with all of the recommendations made by the government commission for the German Corporate Governance Code. The two exceptions relate to confidential whistle-blowing possibilities and the recommendation of a limit for serving on the Supervisory Board. The full declaration of conformity can be viewed on the INDUS website under the heading "Responsibility/Corporate Governance".
INDUS recorded a solid business performance in 2018, albeit with occasional downturns. Sales increased by 4.3% to EUR 1.71 billion. Operating income was negatively impacted by goodwill impairment of EUR 16.1 million and a known downturn in the Automotive Technology segment. Overall therefore operating income including impairment amounted to EUR 134.7 million. Before impairment, operating income totaled EUR 150.8 million, slightly down from the prior-year figure of EUR 152.9 million. The Group attained an operating EBIT margin of 7.9% and excluding impairments 8.8%. The ongoing excellent performance of the Construction/Infrastructure and Engineering segments deserves a special mention. In the Automotive Technology segment, companies continued to struggle against the increasing pressure on margins in the automotive sector and a severe downturn in income at one series supplier in the second half of 2018.
Global economic growth slowed down in 2018. With total growth of 3.7%, the growth rate was on a par with the previous year (2017: 3.7% ), but the global economy lost momentum in the second half of the year. Two material causes were the increasing trade conflicts and the tightening of monetary policy in the United States. The latter caused a reversal in international capital flows, which put the brakes specifically on expansion in emerging economies. Following a moderate start in the first quarter, global production experienced a strong upswing in the summer months, but from the third quarter it subsided once more. The bleaker economic outlook in China also contributed to the decline.
While the previous year was marked by economic synchronicity across all countries, the situation in 2018 was more variable: while the growth rate in the United States picked up once more as a result of fiscal policy, the economies in the euro area and Japan lost momentum. The same was observed in the emerging economies: while production expansion in a number of Asian countries, Russia and parts of Latin America only declined slightly, Argentina and Turkey slipped into recession.
The pace of growth in the advanced economies declined over the course of 2018. This was particularly due to the slowdown in the second half of the year. The U.S. economy, on the other hand, proved comparatively stable with demand growing continually. In Japan, both domestic and external demand weakened unexpectedly. One thing that affected the economy in the euro area was the decline in automotive production, resulting from the introduction of new standards for measuring exhaust fumes. Production declined in the UK once more against the already low level recorded in the previous year.
Despite the fact that emerging countries' economies faced pressure in 2018, they proved relatively stable. Production only declined slightly, with the exception of Argentina and Turkey. In the Asian countries, growth rates remained high overall despite slight declines. In India the rate even climbed. Production in Russia continued to show clear increases. Production in Brazil began to climb again, albeit from a low level.
In 2018, the German economy continued the upward trend observed in the past years, but growth is increasingly starting to falter. The economic performance declined for the first time in three years in the third quarter. The reasons were temporary in nature – production disruptions in automotive construction, of particular importance to Germany, and transport difficulties on internal waterways – but amid high capacity utilization, companies are increasingly struggling to continue expanding production at the same fast pace. This is particularly obvious in the construction industry. Over the full year, calendar-adjusted gross domestic product increased 1.5%, 0.7 percentage points below the previous year's figure.
The drop in automotive manufacturing didn't just affect up and downstream industries, but also the domestic and external user components of consumption, capital expenditure and exports. Private household spending was restrained, despite rising incomes. Expenditure increased by 1.1% (previous year: 1.8%). Companies, too, increased capital expenditure by 2.3% but acted slightly slower than in the previous year (2017: 2.9%). Exports rose 2.0% in 2018 (previous year: 4.6%). Exports to the UK and Russia, however, declined markedly, while goods shipped to the United States and China increased significantly. Imports also increased more slowly than in the previous year at 3.3% (previous year: 4.8%).
The unemployment figure declined once more in 2018, falling to 5.2% (previous year: 5.7%) and the trend continues towards further decline. This occurred alongside an increase of 565,000 in the domestic labor force. Consumer prices rose by an average of 1.9% over the year (previous year: 1.8%).
Source: Kiel Institute for the world economy; values for Germany adjusted for calendar and seasonal effects
The slight decline in economic momentum was reflected in the developments on the financial markets from the middle of the year. Political factors also began to weigh heavier on the financial markets again recently: in Europe this included Italy's government disregarding fiscal rules, and the difficult situation in Turkey and the growing tensions regarding trade with the United States. The global financial system proved robust once more, however, in 2018. The American Federal Reserve Bank continued with its interest policy from the end of 2015 and increased its base rate further in four steps in the past year, with the last base rate ranging between 2.25% and 2.50%. The European Central Bank ECB stuck to its low interest rate phase. The deposit facility rate remained at -0.4% throughout the year.
Economic uncertainties were reflected on the international capital markets, particularly the stock markets, through high levels of volatility. The main indexes partially showed strong declines viewed over the full year. Over the course of the year, the Dow Jones lost 6.2% and the DAX tumbled 18.3%. The MSCI World Index, which includes the most important exchanges, declined 11.4% over the year.
The euro depreciated from USD 1.20 to USD 1.14 over the year. The base rate rise in the United States, the economic slowdown in the euro area and Italian fiscal policy all had an impact on the currency. The yield on 10-year German federal bonds fluctuated sharply in 2018 between 0.76% in February and 0.15% at the end of the year.
The German industry continued to grow in 2018, but development was hampered by the difficult external environment and the temporary one-off effects in the automotive industry. Incoming orders, for instance, climbed, but not at the same rate as in 2017. Internal and euro-area demand was weaker than demand from third countries. Adjusted for calendar and seasonal effects, incoming orders even declined 1% against the previous quarter in the third quarter. At -1.6%, the result came in negatively for the first time in two years in a year-on-year comparison. In the individual main industrial goods groups, the manufacturers of intermediate goods received 1.6% fewer orders in the third quarter of 2018 than in the same quarter of the previous year. Despite this slowdown, the Federation of German Industries (BDI) anticipates a 2.5% increase in production in the German manufacturing sector in 2018.
The construction boom continued unabated in 2018. According to estimates from the Hauptverband der Deutschen Bauindustrie (HDI), sales in the main construction sector climbed a solid 2% (6.5–7% nominally) in 2018. The sector recorded no breaks in any quarter: between January and August, price-adjusted incoming orders grew 3%, the total volume of building permits (construction cost quotes) rose 10.6% nominally in the same period against the previous year. Simultaneously, the highest order backlog ever recorded occurred mid-year at EUR 48 billion. This development continued without interruption into the fall. Following many years of reluctance to invest, the federal government, states and municipalities all recorded marked growth in building activity. The federal government was the first to act, increasing investments and investment subsidies in federal highways, railways, waterways and combined traffic from EUR 10.3 billion to EUR 13.3 billion between 2014 and 2017. The average number of employees for the year was approx. 832,000. That represents a 20,000 or 2.5% increase against the previous year. And the situation on the labor market for construction is becoming more tense. In the first three quarters of 2018, there were just 1.3 unemployed skilled construction workers per vacancy, and for construction engineers there were even two vacancies for each unemployed worker. Companies in the main construction sector have been turning to the European construction labor market for some time.
German manufacturers increased international production by 1% to 12.4 million cars in the first nine months of the year. This is despite the changes to test procedures for exhaust emissions (WLTP) for all new cars registered in the EU from August 1, 2018, and the resulting delivery problems. This growth is thanks primarily to a 6% increase in manufacturing abroad. Domestic production on the other hand declined by 8% between January and September. The German automotive sector recorded a 9% decrease in domestic car manufacturing for the whole of 2018. German car exports tumbled 20% to 4.0 million cars. The effects of the diesel scandal on the German car market, on the other hand, remained limited: as in the previous year, car sales came to 3.4 million vehicles. Every third new car registered was a modern Euro 6 diesel vehicle. Performance varied on the global automotive markets in 2018: The European car market (EU28+EFTA) maintained the high level of the previous year (+/-0%), while the United States even recorded a slight increase (+0.5%). The Brazilian and Russian markets achieved solid growth (+13.8% and +12.8%). India also recorded an increase (+5.1%). China, with its high market volume, recorded a decrease for the first time (-3.8%).
In line with expectations at the beginning of the year, the German engineering sector continued to grow in 2018. According to information from the trade association Verband Deutscher Maschinen- und Anlagenbau e.V. (VDMA), sales in this sector increased by 5% to EUR 228 billion over the course of the year, making 2018 the second consecutive year of growth. After the first ten months, mechanical engineering registered a 3.7% increase in production. Incoming orders in the mechanical engineering sector achieved a 7% increase by October in comparison with the previous year. Mechanical engineering exports in Germany increased 5.2% nominally to EUR 131.9 billion in the first nine months of the year in comparison with the previous year. East German mechanical engineering companies in particular laid down a solid sprint to the end of the year. China and the United States remain the most important export markets. The number of employees in this sector increased further to more than 1.3 million people in 2018, whereby the engineering sector remains Germany's largest industrial employer. Bottlenecks in the supply chain and on the labor market continued to cause difficulties for companies in this sector.
According to the trade association Bundesverband Medizintechnologie (BVMed), international sales increased once more by almost 6% in the medical engineering sector in 2018. The domestic market recorded a 4.2% increase (previous year: +2.8%). This marks a return to the better performance seen in the years 2015 and 2016. The profit situation in the companies remained strained due to falling prices (low reimbursement levels) and rising costs (stricter regulatory requirements). With its higher requirements, the EU medical device regulation (MDR) in particular has made many companies consider removing numerous products from the market for economic reasons, or to cancel market launches of new products. Despite the ongoing pressure on prices, companies continued to increase investment in their German production locations. More funds also flowed into research again, with the aim of increasing companies' competitiveness. Companies in Germany again benefited from highly qualified staff and the high level of benefits in their locations. This was offset somewhat by the low level of reimbursement and low research subsidies.
The metals and electronics industry continued to grow in 2018. According to preliminary sector statistics, production grew by between 2.0% and 2.5% in real terms. This, however, puts the increase at least one percentage point below the previous year's figure. The reason for the faltering increase was slow periods in the third quarter. Incoming orders and production picked up again in October and showed signs of stabilizing in the fourth quarter. As far as individual sectors are concerned, however, recovery was heterogeneous: while incoming orders in the Automotive Technology segment picked up considerably in October, orders in metal processing and mechanical engineering continued to decline. Employment rates remained intact. Unit labor costs increased 3.6% between January and September against the previous year. Labor costs also continued to climb. On the sales side, prices rose more slowly, resulting in the companies' earning power declining slightly.
The INDUS Group clearly achieved its sales targets in the 2018 fiscal year. Sales climbed a good 4.3% to EUR 1.71 billion, putting it above the forecast range of EUR 1.65–1.70 billion. Organic growth in sales was 3.2%.
Operating income (EBIT) before goodwill impairment remained below expectations. At EUR 150.8 million it was slightly under the previous year's figure of EUR 152.9 million. The main reason for the slight discrepancy from the EBIT forecast (before impairment) was the downturn in the Automotive Technology segment, which was unexpectedly considerable in the second half of 2018 due to contracts ending and decreasing call-off figures. Taking the EUR 16.1 million impairment loss on goodwill in the Automotive Technology and Metals Technology segments into consideration, operating income (EBIT) amounted to EUR 134.7 million. The non-cash impairment losses occurred over the course of the annual planning process and reflected the declining future expectations for three INDUS portfolio companies. The INDUS Group's EBIT margin was 8.8% and 7.9% after
| ACTUAL 2017 | 2018 PLAN | ACTUAL 2018 | ATTAINMENT LEVEL | |
|---|---|---|---|---|
| GROUP | ||||
| Acquisitions | 2 growth acquisitions | 2 growth acquisitions | 2 complementary additions at sub-subsidiary level |
not achieved |
| Sales | EUR 1,640.6 million (+13.6%, of which 10.5% organic) |
EUR 1.65–1.70 billion | EUR 1.71 billion (+4.3%, of which 3.2% organic) |
achieved in full |
| EBIT | EUR 152.9 million | EUR 154–160 million | EUR 134.7 million (before impairment EUR 150.8 million) |
not achieved |
| Investments in property, plant and equipment and intangible assets |
EUR 79.0 million | EUR 88 million | EUR 90.9 million | achieved in full |
| Equity ratio (in %) | 40.8% | >40% | 41.3% | achieved in full |
| Net debt/EBITDA | 1.9 years | between 2.0 and 2.5 | 2.2 years | achieved in full |
| SEGMENTS | ||||
| Construction/Infrastructure | ||||
| Sales | EUR 330.4 million | slight increase in sales | EUR 358.7 million | better than expected |
| EBIT | EUR 49.4 million | proportional increase in earnings |
EUR 49.8 million | not achieved |
| EBIT margin (in %) | 15.0% | 13-15% | 13.9% | achieved in full |
| Automotive Technology | ||||
| Sales | EUR 394.1 million | no change | EUR 391.0 million | almost achieved |
| EBIT | EUR 14.7 million | perceptible increase in earnings |
EUR -4.3 million (before impairment EUR 5.2 million) |
not achieved |
| EBIT margin (in %) | 3.7% | 5-7% | -1.1% (before impairment +1.3%) |
not achieved |
| Engineering | ||||
| Sales | EUR 375.1 million | slight increase in sales | EUR 387.0 million | achieved in full |
| EBIT | EUR 53.5 million | proportional increase in earnings |
EUR 52.2 million | not achieved |
| EBIT margin (in %) | 14.3% | 12-14% | 13.5% | achieved in full |
| Medical Engineering/Life Science | ||||
| Sales | EUR 155.2 million | slight increase in sales | EUR 154.3 million | not achieved |
| EBIT | EUR 20.8 million | no change | EUR 17.3 million | not achieved |
| EBIT margin (in %) | 13.4% | 13-15% | 11.2% | not achieved |
| Metals Technology | ||||
| Sales | EUR 385.6 million | slight increase in sales | EUR 420.0 million | better than expected |
| EBIT | EUR 24.2 million | perceptible increase in earnings |
EUR 28.3 million (before impairment EUR 34.9 million) |
achieved in full |
| EBIT margin (in %) | 6.3% | 8-10% | 6.7% (before impairment 8.3%) |
achieved (without impairment) |
impairment. This is a noticeable decrease in comparison with the previous year (9.3%) and an unsatisfactory result in light of our target margin of "10% + X".
Looking at the individual segments, the Construction/Infrastructure and Metals Technology segments have recorded an increase in income. Both were able to achieve their target margins with 13.9% and 8.3% respectively (before impairment). The Engineering segment was also within the target range with a margin of 13.5% for the past fiscal year. The segment was not quite able to match the outstanding income generated in 2017, however. Despite a solid margin level (11.2%), income in the Medical Engineering/Life Science segment was again negatively affected by increasing competition and the EU Medical Devices Directive regulations. The Automotive Technology segment did not attain the target figures for 2018. The pressure on margins in the automotive sector and a severe downturn in income at one series supplier in the second half of the year squeezed the operating margin to 1.3% before impairment. In addition, the ongoing repositioning process at one portfolio company is still impacting figures in this segment. The simultaneous operational correction process is on schedule as is the repositioning project in the Metals Technology segment.
INDUS was able to complete two strategically sound complementary additions in 2018: AURORA acquired electronics specialist ELECTRONIC EQUIPMENT B.V., based in Weert (Netherlands) in January, and another INDUS portfolio company was able to acquire a renowned air-conditioning supplier in July. Effective August 1, 2018, OFA Bamberg was also able to acquire the operations of a retail company for medical aids in Southern Germany.
Investments in property, plant and equipment, and intangible assets were increased once more in 2018. At EUR 90.9 million INDUS portfolio companies invested more in the last year than ever before.
The Group's financial position remained very stable in 2018. At 41.3% the Group's equity ratio significantly exceeds the lower target ratio of 40% and is slightly higher than the previous year's figure of 40.8%. Its traditionally favorable liquidity position gave INDUS enough economic strength for the capital investment it made or intended to make. This is why the company maintains liquidity buffers and credit lines. The repayment term (net debt/EBITDA) was 2.2 years (previous year: 1.9 years) and was within the stipulated target range of 2 to 2.5 years.
Despite the fact that the INDUS Group's total comprehensive income was noticeably influenced by negative developments in the Automotive Technology segment, the large majority of INDUS portfolio companies are doing well to very well. These companies are perfectly positioned for further success in 2019. Parallel to the search for new portfolio companies, the INDUS Board of Management will concentrate on increasing operational excellence in the portfolio companies and supporting the development of innovations in 2019. The new strategy program PARKOUR was developed for this purpose and will be implemented in the coming years.
Non-financial performance indicators are not used as management variables by the Group.
INDUS Group sales rose 4.3% to EUR 1,710.8 million in the fiscal year. Organic growth amounted to 3.2% while inorganic growth amounted to 1.1%. The growth in sales is attributable to approximately 75% of the INDUS portfolio companies. Some companies in the Automotive Technology segment (series suppliers) and two large-scale plant manufacturers were not able to achieve the high level of sales achieved in the prior year. The inorganic part consisted of sales from two new acquisitions at sub-subsidiary level and the inorganic partial sales contributions of two new acquisitions in 2017 (M+P INTERNATIONAL and PEISELER).
The cost of materials developed at a disproportionately higher rate and increased by 8.8% to EUR 811.9 million, as compared to the previous year (previous year: EUR 745.9 million). This is due to the increased expenditure on raw materials, consumables, and supplies, specifically the materially
04 CONSOLIDATED FINANCIAL STATEMENTS
DIFFERENCE 2018 TO 2017
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | |
|---|---|---|---|---|---|
| Sales | 1,710.8 | 1,640.6 | 1,444.3 | 70.2 | 4.3 |
| Other operating income | 20.6 | 16.5 | 20.2 | 4.1 | 24.8 |
| Own work capitalized | 7.8 | 5.1 | 6.2 | 2.7 | 52.9 |
| Changes in inventory | 35.1 | 5.2 | 11.1 | 29.9 | >100 |
| Overall performance | 1,774.3 | 1,667.4 | 1,481.8 | 106.9 | 6.4 |
| Cost of materials | -811.9 | -745.9 | -648.7 | -66.0 | -8.8 |
| Personnel expenses | -506.6 | -479.6 | -430.2 | -27.0 | -5.6 |
| Other operating expenses | -237.7 | -228.0 | -203.5 | -9.7 | -4.3 |
| Income from shares accounted for using the equity method | 0.1 | 1.1 | 1.0 | -1.0 | -90.9 |
| Other financial income | 0.2 | 0.3 | 0.5 | -0.1 | -33.3 |
| EBITDA | 218.4 | 215.3 | 200.9 | 3.1 | 1.4 |
| Depreciation/amortization | -83.7 | -62.4 | -56.0 | -21.3 | -34.1 |
| Operating income (EBIT) | 134.7 | 152.9 | 144.9 | -18.2 | -11.9 |
| Net interest | -20.0 | -23.7 | -21.5 | 3.7 | 15.6 |
| Earnings before taxes (EBT) | 114.7 | 129.2 | 123.4 | -14.5 | -11.2 |
| Taxes | -43.5 | -46.1 | -43.0 | 2.6 | 5.6 |
| Earnings after taxes | 71.2 | 83.1 | 80.4 | -11.9 | -14.3 |
| of which attributable to non-controlling shareholders | 0.3 | 0.7 | 0.4 | -0.4 | -57.1 |
| of which attributable to INDUS shareholders | 70.9 | 82.4 | 80.0 | -11.5 | -14.0 |
higher raw material prices and in particular for metals. The cost-of-materials ratio increased 2.0 percentage points to 47.5% (previous year: 45.5%).
Developments in personnel expenses increased slightly disproportionately to sales and climbed 5.6% to EUR 506.6 million. One reason for this was increases resulting from collective wage agreements completed in the previous year. In relation to sales, the personnel expense ratio climbed just 0.4 percentage points to 29.6% (previous year: 29.2%).
In connection with the increase in business volume, other operating expenses also rose by 4.3% to EUR 237.7 million. Freight charges and maintenance expenses for machines increased in particular.
Deducting expense items resulted in operating income before depreciation/amortization (EBITDA) of EUR 218.4 million. As compared to the previous year, EBITDA increased by EUR 3.1 million (1.4%). At EUR 83.7 million, depreciation/amortization was EUR 21.3 million (34.1%) higher than in the previous year. This included scheduled depreciation/amortization of EUR 67.6 million (previous year: EUR 62.4 million). The higher need for depreciation/amortization is a result of the ongoing higher level of investments in fixed assets in past years. In addition to scheduled depreciation/amortization, goodwill impairment, and, to a lesser extent, fixed asset impairment losses totaling EUR 16.1 million were recognized. EUR 9.5 million was recognized in the Automotive Technology segment and EUR 6.6 million in the Metals Technology segment. These were discovered during the annual planning process and the subsequent annual impairment test.
This results in operating income or EBIT of EUR 134.7 million for 2018. This puts EBIT 11.9% or EUR 18.2 million below the previous year's level (EUR 152.9 million). This equates to an EBIT margin of 7.9% against 9.3% in the previous year. Without taking impairment into account, the INDUS Group achieved EUR 150.8 million in income, just EUR 2.1 million down against income in 2017. The EBIT margin before impairment is 8.8%.
Net interest improved by EUR 3.7 million, from EUR -23.7 million to EUR -20.0 million. This is due to lower negative interest effects in the operating area (EUR -2.1 million) as well as lower interest expenses in the area "other interest" (EUR -1.6 million). The EUR 2.1 million decline in operating interest is a result of the markedly lower interest rates on current debt levels. This figure should be viewed with the overall higher volume of debt in mind. The reason for the EUR 1.6 million decline in expense include the scheduled acquisition of minority interests.
Earnings before taxes (EBT) decreased to EUR 114.7 million (previous year: EUR 129.2 million). Tax expenses decreased by EUR 2.6 million to EUR 43.5 million and the tax ratio increased from 35.7% to 37.9% – primarily due to the lack of tax relief resulting from goodwill impairment and loss carryforwards within the Group. Due to its business model, INDUS does not form tax groups.
Earnings after taxes reached EUR 71.2 million (previous year: EUR 83.1 million). This equates to a decline of -14.3% as compared to the previous year. Interests held by non-controlling shareholders amounted to EUR 0.3 million (previous year: EUR 0.7 million). Earnings after taxes of the INDUS shareholders amounted to EUR 70.9 million. This equates to earnings per share of EUR 2.90 as compared to EUR 3.37 in the previous year.
The individual segments' shares of sales and earnings have changed further in their ratios to one another. Contribution to sales grew 21% in the Construction/Infrastructure segment (previous year: 20.1%) and 24.5% in the Metals Technology segment (previous year: 23.5%). This makes the Metals Technology segment the strongest sales segment, overtaking the Automotive Technology segment, which generated 22.9% in the reporting year (previous year: 24.0%). The Engineering segment was able to generate a contribution to sales of 22.6% (previous year: 22.9%). With contributions between 21.0% and 24.5%, the four segments are almost equal. The Medical Engineering/Life Science segment's contribution to sales declined somewhat at 9.0% (previous year: 9.5%).
As in the previous year, the Engineering and Construction/ Infrastructure segments generated outstanding levels of income. The Engineering segment increased the contribution it made to the operating result (EBIT) last year (32.9%) by 3.5 percentage points to 36.4% of the INDUS result. The Construction/Infrastructure segment took advantage of the solid sector economy and increased its share to 34.7% (previous year: 30.4%). The Metals Technology segment was able to increase its contribution to income from 14.9% in 2017 to 19.8%. This is particularly noteworthy in light of the goodwill impairment recognized in the reporting year. For the Medical Engineering/Life Science segment the earnings contribution ratio was, at 12.1% (previous year: 12.8%), slightly lower than for the previous year. In the Automotive Technology segment the share of sales amounted to -3.0% (previous year: 9.1%).
The INDUS Group's sales increases are attributable in almost equal measure to its domestic and international business. In relative terms, the domestic share of sales increased slightly, by 1.7 percentage points, to 51.4% (previous year: 49.7%).
Domestic sales increased by 7.8%, to EUR 878.9 million, as compared to the previous year. International sales increased just 0.8% to EUR 831.9 million.
The eleven portfolio companies in the Construction/Infrastructure segment operate in various areas within the construction industry. Their products and services range from reinforcements for reinforced concrete 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 remains profitable at an above-average level and is positioned well for the future. Strategically speaking, therefore, INDUS is looking to boost this segment through the acquisition of more companies.
INDUS portfolio companies in the Construction/Infrastructure segment were also able to achieve higher sales and income in the 2018 fiscal year amid the ongoing boom in the construction sector. Sales in this segment climbed by 8.6% year-on-year to EUR 358.7 million (previous year: EUR 330.4 million). This includes the addition of an air-conditioning supplier. Adjusted for this addition, (organic) growth in sales stood at 6.9%. Happily, virtually all companies in the segment were able to increase their sales against the previous year once more. All in all, companies in the segment have been working at full capacity for more than a year now due to the boom in this sector. One particularly noticeable restrictive factor on growth has been the shortage of skilled workers. In addition, some portfolio companies are struggling with marked raw materials scarcities and the associated price increases for raw materials. Nevertheless, companies in the segment were able to increase operating income (EBIT) to EUR 49.8 million. This corresponds to a slight increase in income of EUR 0.4 million, or 0.8%. At 13.9% the EBIT margin did not quite match the prior-year figure of 15.0%, but remains at a high level.
Investments in the reporting year were up EUR 12.1 million against the prior-year figure at EUR 25.5 million. Funds particularly flowed into the acquisition of an air-conditioning supplier as well as investments in fixed assets. Investments in fixed assets were slightly higher in the reporting year than in the previous year.
The Automotive Technology segment consists of nine units (previous year: nine). With their solutions, the companies represent the full value chain in the automotive industry. The range of products and services covers everything from design, development, model or prototype construction, pre-series and small series production, test and measurement solutions to solutions for specialized vehicles and series production 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. In light of the difficult conditions series suppliers are currently facing, INDUS is currently considering whether, in individual cases, another owner might be able to offer companies and their employees a better future.
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | ||
|---|---|---|---|---|---|---|
| Revenue with external third parties | 358.7 | 330.4 | 274.5 | 28.3 | 8.6 | |
| EBITDA | 59.9 | 58.2 | 46.7 | 1.7 | 2.9 | |
| Depreciation/amortization | -10.1 | -8.8 | -7.5 | -1.3 | -14.8 | |
| EBIT | 49.8 | 49.4 | 39.2 | 0.4 | 0.8 | |
| EBIT margin in % | 13.9 | 15.0 | 14.3 | -1.1 pp | – | |
| Investments | 25.5 | 13.4 | 35.4 | 12.1 | 90.3 | |
| Employees | 1,839 | 1,714 | 1,466 | 125 | 7.3 |
In the Automotive Technology segment, the 2018 fiscal year was strongly characterized by difficult external conditions. The technological shift to e-mobility along with the emissions scandal further exacerbated the already high pressure on margins. The new test procedure for exhaust emissions (WLTP) and the associated changes meant that series suppliers faced additional challenges.
Sales in the Automotive Technology segment decreased by EUR 3.1 million, or 0.8%, to EUR 391.0 million during the reporting period. The reason: the series suppliers recorded declining sales as a result of contracts ending and decreasing call-off figures. Even the initial consolidation of the portfolio company ELECTRONIC EQUIPMENT acquired in January and the solid business performance of an engineering company were not able to offset the series suppliers' decline in sales.
Companies in the segment generated operating income (EBIT) of EUR 5.2 million before impairment. This represents a severe downturn of EUR 9.5 million in comparison with the previous year. This resulted in an EBIT margin
before impairment of 1.3% (previous year: 3.7%). Segment earnings (EBIT) reflected the full range of the difficulties described above, particularly those faced by series suppliers. An unexpectedly high downturn in income at one series supplier in the second half of the reporting period due to a marked decline in call-off figures represented an additional strain on income. The repositioning project that is underway at one portfolio company is on schedule, however, due to the long-term nature of orders placed in this sector, the impact on income was still noticeable in the past fiscal year.
Due to lower expectations for the future, which manifested during the course of the annual planning process, impairment of EUR 9.5 million was recognized in the fourth quarter. Operating income after impairment amounted to EUR -4.3 million. This corresponds to an EBIT margin of -1.1%.
Investments amounted to EUR 29.5 million (previous year: EUR 30.3 million). In addition to investments in fixed assets, this figure includes the acquisition of ELECTRONIC EQUIPMENT by the INDUS subsidiary AURORA.
| DIFFERENCE 2018 TO 2017 | |||||
|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | |
| Revenue with external third parties | 391.0 | 394.1 | 372.2 | -3.1 | -0.8 |
| EBITDA | 28.6 | 36.5 | 39.9 | -7.9 | -21.6 |
| Depreciation/amortization | -23.4 | -21.8 | -19.6 | -1.6 | -7.3 |
| EBIT before impairment | 5.2 | 14.7 | 20.3 | -9.5 | -64.6 |
| EBIT margin before impairment in % | 1.3 | 3.7 | 5.4 | -2.4 pp | – |
| Goodwill impairment | -9.5 | 0.0 | 0.0 | -9.5 | – |
| EBIT after impairment | -4.3 | 14.7 | 20.3 | -19.0 | < -100 |
| EBIT margin after impairment in % | -1.1 | 3.7 | 5.4 | -4.8 pp | – |
| Investments | 29.5 | 30.3 | 36.9 | -0.8 | -2.6 |
| Employees | 3,524 | 3,557 | 3,454 | -33 | -0.9 |
The Engineering segment remains unchanged and consists of eleven units. The companies in this segment develop complete conveyor systems and robotic gripping systems, produce valve technology, automation components for final vehicle assembly, and equipment for inert gas systems, and design trace heating systems.
In INDUS's view, the impressive technical capabilities and quality of goods "engineered and made in Germany" promise future growth, particularly in the sub-fields of automation, measuring technology and control engineering. INDUS intends to invest more in acquisitions in this area. The segment constitutes one of the mainstays of small and medium-scale industry and has good prospects.
Segment performance: sales climbing, income virtually constant
Segment sales in Engineering increased by EUR 11.9 million, or 3.2%, to EUR 387.0 million. This increase is the result of organic growth in the areas of logistics and trace heating systems as well as new acquisitions in the previous year. M+P INTERNATIONAL and PEISELER were consolidated with their complete annual sales figures for the first time in 2018. Some companies in the segment were working at full capacity due to the robust organic growth.
At EUR 52.2 million, operating income (EBIT) achieved a solid and high level, despite the fact that it was EUR 1.3 million under the previous year's figure. At 13.5% the EBIT margin remained high (previous year: 14.3%). Two portfolio companies in the large-scale plant engineering sector were not able to achieve the extraordinary growth seen over the last years. This was due to the order situation normalizing, partially as a result of a reluctance to invest in the automotive industry, and the associated lower sales and earnings figures. A major contract in the field of inert gas systems also led to a one-off effect that negatively impacted the segment result.
Fortunately, portfolio companies operating in the logistics fields were able to increase sales and income once more. M+P INTERNATIONAL and PEISELER, both acquired in the previous year, were able to make positive contributions to segment income.
Segment investments were significantly lower than in the previous year at EUR 12.0 million; that is because the funds for the acquisition of M+P INTERNATIONAL and PEISELER were included in 2017. Investments in fixed assets rose slightly in comparison with the previous year.
| ENGINEERING KEY FIGURES | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE 2018 TO 2017 | |||||
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | |
| Revenue with external third parties | 387.0 | 375.1 | 305.9 | 11.9 | 3.2 |
| EBITDA | 64.4 | 64.2 | 49.7 | 0.2 | 0.3 |
| Depreciation/amortization | -12.2 | -10.7 | -8.3 | -1.5 | -14.0 |
| EBIT | 52.2 | 53.5 | 41.4 | -1.3 | -2.4 |
| EBIT margin in % | 13.5 | 14.3 | 13.5 | -0.8 pp | – |
| Investments | 12.0 | 43.4 | 9.7 | -31.4 | -72.4 |
| Employees | 2,027 | 1,830 | 1,585 | 197 | 10.8 |
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 optical lenses and full optical devices, produce surgical accessories and rehabilitation technology, and sell hygienic products for both medical applications and household purposes.
The segment represents one of the six growth industries 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 a promising outlook and high margins.
Margins in the Medical Engineering/Life Science segment clearly exceed the target of "10% + X". However, due to the increased regulatory requirements (Medical Devices Directive) and higher salary expenses, INDUS portfolio companies in this segment are faced with increasing cost pressures. Sales in the Medical Engineering/Life Science segment
| MEDICAL ENGINEERING/LIFE SCIENCE KEY FIGURES | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE 2018 TO 2017 | |||||
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | |
| Revenue with external third parties | 154.3 | 155.2 | 147.0 | -0.9 | -0.6 |
| EBITDA | 24.7 | 27.6 | 26.8 | -2.9 | -10.5 |
| Depreciation/amortization | -7.4 | -6.8 | -6.6 | -0.6 | -8.8 |
| EBIT | 17.3 | 20.8 | 20.2 | -3.5 | -16.8 |
| EBIT margin in % | 11.2 | 13.4 | 13.7 | -2.2 pp | – |
| Investments | 8.4 | 7.4 | 6.2 | 1.0 | 13.5 |
Employees 1,687 1,540 1.480 147 9.5
declined slightly against the previous year by 0.6% to EUR 154.3 million (previous year: EUR 155.2 million). At EUR 17.3 million, operating income (EBIT) was below the previous year's level (EUR 20.8 million). Following a slow start, the segment's EBIT margin improved constantly over the course of the 2018 fiscal year, but, at 11.2%, still did not achieve the previous year's figure (13.4%).
The declines in sales and EBIT were primarily due to the product areas non-wovens and surgical kits. Competition is intense in both product areas and they were also impacted by unexpected customer losses in the first half of the year. Compensation is only expected in these areas in the next fiscal year. The segment is also struggling amid sharply rising wage costs in overseas production sites and increasing regulatory requirements arising from the EU Medical Devices Directive (MDD).
Investments were made exclusively in fixed assets in 2018 and, at EUR 8.4 million, were just higher than the previous year's figure.
As in the previous year, this segment comprises nine units and particularly serves 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. Following a phase of strong growth, INDUS will be focusing on optimization shortly.
The Metals Technology segment has recorded yet another increase in sales against the previous year. Sales rose from EUR 385.6 million in 2017 to EUR 420.0 million in the reporting year. This equates to an increase of 8.9% and is primarily attributable to growth in the field of carbide tools.
At EUR 34.9 million, operating income (EBIT) before impairment was notably higher than the previous year's figure EUR 24.2 million, which equates to an EBIT margin before impairment of 8.3%. The EBIT margin experienced a considerable downturn in the second half of the fiscal year. The reason for this was a noticeable increase in materials prices (particularly metals) in the field of carbide tools. The cost increase has not yet been compensated by passing on the costs through an increase in purchase prices. The repositioning process at one Swiss portfolio company again impacted income, but also contributed to the increase in income as a result of the implemented measures paying off.
Impairment of EUR 6.6 million was recognized due to partially lower expectations for the Swiss portfolio company undergoing the repositioning process and another portfolio company. Operating income after impairment amounted to EUR 28.3 million, putting it EUR 4.1 million higher than EBIT in the previous year. The EBIT margin after impairment is 6.7%.
Investments in the reporting year and in the previous year solely related to investments in fixed assets. Investment was up 81.4% against the previous year. This was primarily due to a capacity expansion undertaken at one of the larger portfolio companies.
METALS TECHNOLOGY KEY FIGURES (in EUR million)
| DIFFERENCE 2018 TO 2017 | |||||
|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | |
| Revenue with external third parties | 420.0 | 385.6 | 344.4 | 34.4 | 8.9 |
| EBITDA | 48.5 | 37.7 | 43.1 | 10.8 | 28.6 |
| Depreciation/amortization | -13.6 | -13.5 | -13.2 | -0.1 | -0.7 |
| EBIT before impairment | 34.9 | 24.2 | 29.9 | 10.7 | 44.2 |
| EBIT margin before impairment in % | 8.3 | 6.3 | 8.7 | 2.0 pp | – |
| Impairments of goodwill and property, plant and equipment | -6.6 | 0.0 | 0.0 | -6.6 | – |
| EBIT after impairment | 28.3 | 24.2 | 29.9 | 4.1 | 16.9 |
| EBIT margin after impairment in % | 6.7 | 6.3 | 2.5 | 0.4 pp | – |
| Investments | 26.3 | 14.5 | 14.5 | 11.8 | 81.4 |
| Employees | 1,602 | 1,538 | 1,439 | 64 | 4.2 |
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 German financial institutions as partners. Factors stabilizing its long-term financing needs include broad diversification of the loan volume across many institutes, a balanced redemption structure, and simultaneous use of alternative financing instruments. To contain financing risks, the Group employs interest rate and currency derivatives. These are used exclusively for risk-hedging purposes.
Financial and liquidity management pursues 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 no dependence on banks.
The risk-limiting activities focus primarily on hedging against financial risks that might jeopardize the continued existence of INDUS. The most important financing source is cash flow from current operating activities (operating cash flow). The treasury department carefully monitors the use of funds by the subsidiaries and the investing of cash and cash equivalents.
Earnings and cost optimization specifically means managing net current assets (working capital). This frees up cash and cash equivalents, keeps debt levels low, and optimizes key figures for the balance sheet structure (eg., equity ratio) and return on capital. INDUS supports companies in the management of working capital. However, managing their working capital remains the sole responsibility of 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 2018 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 2018. INDUS uses primarily rent and leasehold agreements as off-balance sheet forms of financing, especially for EDP accessories and company cars. Future operating lease commitments amounted to EUR 84.0 million as of December 31, 2018 (previous year: EUR 72.0 million).
Liabilities to banks amounted to EUR 358.8 million as of the reporting date (previous year: EUR 346.9 million); these are primarily (99%) denominated in euros. The volume of credit held in foreign currencies is low and consists of Swiss francs at EUR 0.6 million (previous year: EUR 0.7 million) and South African rand at EUR 0.8 million (previous year: EUR 0.7 million). Financial liabilities include liabilities amounting to EUR 5.3 million (previous year: EUR 6.7 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 228.3 million (previous year: EUR 181.2 million). INDUS also has unused credit lines totaling EUR 29.8million (previous year: EUR 34.0 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) | ||
|---|---|---|---|
| 2018 | 2017 | 2016 | |
| Operating cash flow | 96.0 | 145.0 | 137.9 |
| Interest | -21.3 | -21.0 | -23.4 |
| Cash flow from operating activities | 74.7 | 124.0 | 114.5 |
| Cash outflow for investments and acquisitions | -103.8 | -113.9 | -108.1 |
| Cash inflow from the disposal of assets | 5.5 | 3.9 | 3.7 |
| Cash flow from investing activities | -98.3 | -110.0 | -104.4 |
| Dividends paid to shareholders | -36.7 | -33.0 | -29.3 |
| Dividends paid to minority shareholders | -0.5 | -0.7 | -0.4 |
| Cash outflow from the repayment of contingent purchase price commitments | -23.0 | -0.8 | 0.0 |
| Cash inflow from raising of loans | 155.8 | 151.0 | 132.3 |
| Cash outflow from the repayment of loans | -98.4 | -120.4 | -117.5 |
| Cash flow from financing activities | -2.8 | -3.9 | -14.9 |
| Net changes in cash and cash equivalents | -26.4 | 10.1 | -4.8 |
| Changes in cash and cash equivalents caused by currency exchange rates | 0.1 | -1.4 | -0.2 |
| Cash and cash equivalents at the beginning of the period | 135.9 | 127.2 | 132.2 |
| Cash and cash equivalents at the end of the period | 109.6 | 135.9 | 127.2 |
Earnings after taxes declined by EUR -11.9 million in 2018 to EUR 71.2 million (previous year: EUR 83.1 million). Depreciation/amortization rose by EUR 21.3 million to EUR 83.7 million due to the impairments recognized (EUR 16.1 million) (previous year: EUR 62.4 million).
Significant cash outflow was recognized in the current committed assets due to the increase in inventories (EUR +69.5 million). This could not be offset through the increase in liabilities. Anticipating higher materials prices, several INDUS portfolio companies have increased their inventory assets, primarily their raw materials inventory. A planned decision to increase unfinished goods and a higher inventory of finished goods and receivables have also led to higher working capital. At EUR 96.0 million operating cash flow therefore declined in comparison with the previous year by EUR -49.0 million (previous year: EUR 145.0 million).
Interest paid (including variable interest on purchase price commitment to minority shareholders) was slightly down on the previous year at EUR -19.3 million against EUR -21.0 million. 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 74.7 million. It declined by EUR 47.3 million due to the increase in working capital (EUR 69.5 million increase in inventories).
Cash flow from investing activities came to EUR -98.3 million as of the end of the year (previous year: EUR -110.0 million); this item includes the acquisitions of an airconditioning supplier and of ELECTRONIC EQUIPMENT. If we eliminate the acquisitions in the amount of EUR -11.5 million (previous year: EUR -32.4 million) and the payment for disposal of miscellaneous equipment in the amount of EUR 5.5 million (previous year: EUR 3.9 million), cash outflow for investment remains at a high level of EUR -92.3 million, representing an increase of EUR 10.8 million in 2018 against the previous year (previous year: EUR -81.5 million).
Cash flow from financing activities increased from EUR -3,9 million to EUR -4,8 million. Within the cash flow from financing activity, cash outflow from the repayment of debt declined by EUR 22.1 million and cash outflow from the repayment of contingent purchase price commitments increased by EUR 24.2 million.
Amidst all of its financing activity, as of the end of 2018 INDUS possessed a suitably high degree of liquidity. As of the reporting date, cash and cash equivalents amounted to EUR 109.6 million (previous year: EUR 135.9 million). A detailed statement of cash flows is part of the consolidated financial statements.
04 CONSOLIDATED FINANCIAL STATEMENTS
DIFFERENCE
| DEC. 31, 2018 | DEC. 31, 2017 | ABSOLUTE | IN % | |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | 968.5 | 953.6 | 14.9 | 1.6 |
| Fixed assets | 955.2 | 942.2 | 13.0 | 1.4 |
| Receivables and other assets | 13.3 | 11.4 | 1.9 | 16.7 |
| Current assets | 751.5 | 699.6 | 51.9 | 7.4 |
| Inventories | 408.7 | 339.2 | 69.5 | 20.5 |
| Receivables and other assets | 233.2 | 224.5 | 8.7 | 3.9 |
| Cash and cash equivalents | 109.6 | 135.9 | -26.3 | -19.4 |
| Total assets | 1,720.0 | 1,653.2 | 66.8 | 4.0 |
| EQUITY AND LIABILITIES | ||||
| Non-current financial instruments | 1,290.0 | 1,234.8 | 55.2 | 4.5 |
| Equity | 709.8 | 673.8 | 36.0 | 5.3 |
| Borrowings | 580.2 | 561.0 | 19.2 | 3.4 |
| of which provisions | 45.4 | 46.3 | -0.9 | -1.9 |
| of which current liabilities and deferred taxes | 534.8 | 514.7 | 20.1 | 3.9 |
| Current financial instruments | 430.0 | 418.4 | 11.6 | 2.8 |
| of which provisions | 73.6 | 72.4 | 1.2 | 1.7 |
| of which liabilities | 356.4 | 346.0 | 10.4 | 3.0 |
| Total assets | 1,720.0 | 1,653.2 | 66.8 | 4.0 |
As compared to the previous reporting date, non-current assets increased just slightly by EUR 14.9 million, or 1.6%, to EUR 968.5 million. Tangible fixed assets increased by EUR 19.0 million due to investments, particularly in the expansion of existing production sites. In contrast, goodwill declined by EUR 10 million due to impairment losses.
As compared to the previous reporting date, current assets increased by EUR 51.9 million, or 7.4%, to EUR 751.5 million. Inventories in particular rose by 20.5%, or EUR 69.5 million due to the ongoing build up of inventories of particular portfolio companies. Receivables on the other hand only increased slightly by EUR 8.7 million (+3.9%). This increase corresponds to the increase in sales. Cash and cash equivalents fell by EUR 26.3 million in connection with the build up of inventories to EUR 109.6 million.
Equity increased by 5.3%, partially due to the annual result, to EUR 709.8 million. The outflow of dividends was therefore overcompensated by current earnings. The equity ratio rose year-on-year from 40.8% to 41.3% as of the reporting date. The equity ratio thus remains above the lower limit of 40%, which was defined as the target.
At EUR 580.2 million, non-current liabilities are slightly higher than in the previous year by about EUR 19.2 million, or 3.4%. This increase is due to the EUR 26.4 million increase in non-current financial liabilities, associated with an expansion of operating activities and the corresponding increase in working capital.
Current liabilities increased by EUR 11.6 million from EUR 418.4 million to EUR 430.0 million. Current financial liabilities increased by EUR 31.2 million to EUR 126.5 million. Other current liabilities saw the opposite effect; they declined due to the repayment of contingent purchase price commitments and the reduction of contract liabilities (previous year: construction contracts with a negative balance) by a total of EUR 23.3 million.
| DIFFERENCE | ||||
|---|---|---|---|---|
| DEC. 31, 2018 | DEC. 31, 2017 | ABSOLUTE | IN % | |
| Inventories | 408.7 | 339.2 | 69.5 | 20.5 |
| Trade receivables | 202.5 | 197.5 | 5.0 | 2.5 |
| Trade payables | -65.7 | -66.2 | 0.5 | 0.8 |
| Advance payments received | -37.3 | -18.6 | -18.7 | < -100 |
| Contract liabilities* | -36.1 | -49.0 | 12.9 | 26.3 |
| Working capital | 472.1 | 402.9 | 69.2 | 17.2 |
* Previous year: construction contracts with a negative balance.
INDUS calculates working capital by adding trade receivables to inventories and deducting trade payables along with received prepayments and contract liabilities (previous year: construction contracts with a negative balance). As of December 31, 2018, working capital stood at EUR 472.1 million. This represents an increase against the previous year's reporting date of 17.2%.
| DIFFERENCE | ||||
|---|---|---|---|---|
| DEC. 31, 2018 | DEC. 31, 2017 | ABSOLUTE | IN % | |
| Non-current financial liabilities | 465.9 | 439.5 | 26.4 | 6.0 |
| Current financial liabilities | 126.5 | 95.3 | 31.2 | 32.7 |
| Cash and cash equivalents | -109.6 | -135.9 | 26.3 | 19.4 |
| Net financial liabilities | 482.8 | 398.9 | 83.9 | 21.0 |
INDUS calculates net financial liabilities as the difference between cash and cash equivalents and current and non-current financial liabilities. As of December 31, 2018, it amounted to EUR 482.8 million, which equates to an increase of 21.0% as compared to the previous year's reporting date. This increase is the result of the increase in working capital and the repayment of contingent purchase price commitments. The ratio of net debt to equity (gearing) is 68% (previous year: 59%). The net debt/EBITDA ratio is 2.2 (previous year: 1.9). The repayment term is therefore within the target range of 2 to 2.5 years.
| INVESTMENTS AND DEPRECIATION/AMORTIZATION | (in EUR million) | ||||
|---|---|---|---|---|---|
| DIFFERENCE 2018 TO 2017 | |||||
| 2018 | 2017 | 2016 | ABSOLUTE | IN % |
| DIFFERENCE 2018 TO 2017 | |
|---|---|
| 2016 ABSOLUTE |
IN % |
| 103.9 -9.0 |
-8.1 |
| 29.9 -20.9 |
-64.5 |
| 4.0 0.0 |
– |
| 10.3 4.3 |
55.8 |
| 59.7 7.6 |
10.7 |
| 3.3 -2.9 |
-40.3 |
| 24.5 6.1 |
29.8 |
| 17.3 1.2 |
6.4 |
| 14.6 3.2 |
12.9 |
| -56.0 -21.3 |
-34.1 |
Investments in the year under review were -8.1% lower than in the previous year and reached EUR 102.4 million. Of this amount, EUR 11.5 million was attributable to company acquisitions (-64.5%), EUR 78.9 million to investments in property, plant and equipment (+10.70%), and EUR 12.0 million to investments in intangible assets (+55.8%). Investments in company acquisitions declined by EUR 20.9 million against the previous year as INDUS did not acquire any direct portfolio companies. Two complentary companies were acquired for the portfolio in the current year.
Investments in intangible assets registered an increase of EUR 4.3 million to EUR 12.0 million. This mainly relates to the introduction of ERP systems.
Investments in property, plant and equipment continued to be the focal point of investments. The funds used by the portfolio companies are intended to improve the portfolio companies' value-added processes and thus 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 H. HEITZ in Hungary (EUR 1.4 million) and the construction of a warehouse for WEINISCH (EUR 1.1 million).
Larger individual investments in technical equipment in 2018 included the expansion of a small parts warehouse at OFA (EUR 1.9 million) and a fine blanking press at SELZER (EUR 1.1 million).
Advance payments significantly increased by EUR 3.2 million, to EUR 28.1 million. These primarily related to a production facility with technical equipment at the SIMON Group (EUR 10.4 million).
Depreciation/amortization rose in particular as a result of the impairment of goodwill and, to a lesser extent, impairment of property, plant and equipment (altogether EUR 16.1 million) by a total of EUR -21.3 million to EUR -83.7 million (previous year: EUR -62.4 million).
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.
| 2018 | 2017 | 2016 | ABSOLUTE | IN % | |
|---|---|---|---|---|---|
| Sales | 5.8 | 5.6 | 5.3 | 0.2 | 3.6 |
| Other operating income | 4.8 | 2.2 | 4.5 | 2.6 | > 100 |
| Personnel expenses | -6.7 | -6.0 | -5.7 | -0.7 | -11.7 |
| Other operating expenses | -9.1 | -12.7 | -7.3 | 3.6 | 28.3 |
| Income from investments | 77.5 | 74.5 | 67.7 | 3.0 | 4.0 |
| Income from long-term loans classified as financial assets | 51.5 | 49.8 | 46.5 | 1.7 | 3.4 |
| Other interest and similar income | 8.5 | 6.6 | 7.4 | 1.9 | 28.8 |
| Depreciation and amortization of intangible assets, fixed assets, and property, plant and equipment |
-0.6 | -0.5 | -0.5 | -0.1 | -20.0 |
| Impairment of financial assets | -27.7 | -12.7 | -12.5 | -15.0 | <-100 |
| Expenses from loss absorption | -6.7 | -5.8 | -9.5 | -0.9 | -15.5 |
| Interest and similar expenses | -10.7 | -11.9 | -12.5 | 1.2 | 10.1 |
| Earnings from operating activities | 86.6 | 89.1 | 83.4 | -2.5 | -2.8 |
| Taxes | -12.1 | -7.3 | -8.4 | -4.8 | -65.8 |
| Net income | 74.5 | 81.8 | 75.0 | -7.3 | -8.9 |
| Profit carried forward | 1.8 | 1.7 | 2.2 | 0.1 | 5.9 |
| Balance sheet profit | 76.3 | 83.5 | 77.2 | -7.2 | -8.6 |
The income of INDUS Holding AG derives primarily from income from portfolio companies and income from longterm loans classified as financial assets.
Revenue comprised services performed for the portfolio companies by the company in its capacity as an asset-managing holding company. At EUR 5.8 million, they were EUR 0.2 million higher than the previous year's figure.
Other operating income increased from EUR 2.2 million to EUR 4.8 million owing to higher income from currency translation (EUR +2.2 million). Personnel expenses rose from EUR 6.0 million in 2017 to EUR 6.7 million in the reporting year. Other operating expenses decreased by EUR 3.6 million to EUR 9.1 million. There was a clear drop in exchange rate losses in the reporting year (EUR -3.1 million).
Income from portfolio companies increased once more. In the previous year this income amounted to EUR 74.5 million. In the reporting year, we were able to appropriate income from the portfolio companies in the amount of EUR 77.5 million. Income from loans of financial assets rose by EUR 1.7 million, reaching EUR 51.5 million. At EUR 8.5 million, interest income was EUR 1.9 million higher than in the previous year.
Depreciation/amortization on property, plant and equipment, and intangible assets are on a par with the previous year at EUR 0.6 million (previous year: EUR 0.5 million). Impairments of financial investments relate to a debt waiver toward a subsidiary amounting to EUR 13.3 million and write-offs on loans to affiliated companies amounting to EUR 14.4 million resulted from impairment testing. The depreciation was mainly in the Automotive Technology and Metals Technology segments. Expenses from loss absorption came to EUR 6.7 million and primarily related to losses in the Metals Technology segment. Interest expense in the amount of EUR 10.7 million was EUR 1.2 million less than the previous year's figure.
Thus on the whole, earnings from ordinary operating activities amounted to EUR 86.6 million. Taxes for the financial year amounted to EUR 12.1 million, EUR 4.8 million higher than in the previous year. Net income amounted to EUR 74.5 million, EUR 7.3 million lower than in the previous year.
| STATEMENT OF FINANCIAL POSITION OF INDUS HOLDING AG | (in EUR million) | |
|---|---|---|
| DEC. 31, 2018 | DEC. 31, 017 | |
| ASSETS | ||
| Intangible assets | 0.1 | 0.1 |
| Property, plant and equipment | 6.0 | 6.0 |
| Financial investments | 1,138.4 | 1,125.4 |
| Fixed assets | 1,144.5 | 1,131.5 |
| Receivables and other assets | 394.0 | 313.0 |
| Cash on hand and bank balances | 12.4 | 6.0 |
| Current assets | 406.4 | 319.0 |
| Prepaid expenses | 0.4 | 0.3 |
| Total assets | 1,551.3 | 1,450.8 |
| EQUITY AND LIABILITIES | ||
| Equity | 893.5 | 855.6 |
| Provisions | 3.1 | 5.3 |
| Liabilities | 609.0 | 546.3 |
| Deferred tax liabilities | 45.7 | 43.6 |
| Total assets | 1,551.3 | 1,450.8 |
The holding company's statement of financial position reflects on the asset side the carrying amounts of the portfolio companies along with long- and short-term loans to the portfolio companies. INDUS Holding AG's total assets increased 6.9% during the fiscal year and amounted to EUR 1,551.3 million as of December 31, 2018. The increase was due to additional financing from increased business volumes at the subsidiaries, which came to EUR 100.5 million. As a result, current assets increased by EUR 87.4 million to EUR 406.4 million. This is due to higher receivables and other assets (EUR +81.0 million). Cash and cash equivalents increased by EUR 6.4 million to EUR 12.4 million.
The equity of INDUS Holding AG increased in the reporting period by EUR 37.9 million to EUR 893.5 million. The equity ratio as of December 31, 2018, amounted to 57.6% and is just below the equity ratio as of December 31, 2017 (59.0%). Liabilities are, at EUR 609.0 million as of December 31, 2018, EUR 62.7 million higher than as of December 31, 2017. This relates to liabilities to banks and liabilities to affiliated companies.
INDUS employed a total of 31 employees, not including the Board of Management, as of December 31, 2018 (previous year: 30 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 based on 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 likewise 100%.
| BOARD OF MANAGEMENT COMPENSATION – GRANTED BENEFITS | (in EUR '000) |
|---|---|
JÜRGEN ABROMEIT CHAIRMAN OF THE BOARD OF MANAGEMENT (2012 UNTIL 06/30/2018; 2008–06/30/2018 BOARD MEMBER) DR. JOHANNES SCHMIDT CHAIRMAN OF THE BOARD OF MANAGEMENT (SINCE 07/01/2018, BOARD MEMBER SINCE 2006) 2017 2018 2018 (MIN.) 2018 (MAX.) 2017 2018 2018 (MIN.) 2018 (MAX.) 2017 2018 2018 (MIN.) 2018 (MAX.) 2017 2018 2018 (MIN.) 2018 (MAX.) Basic salary 625 700 700 700 387 490 490 490 85 340 340 340 340 365 365 365 Ancillary benefits 17 20 20 20 17 19 19 19 7 16 16 16 31 30 30 30 Total 642 720 720 720 404 509 509 509 92 356 356 356 371 395 395 395 One-year variable component of the compensation 270 350 0 372 170 200 0 300 43 170 0 255 170 170 0 255 Multi-year variable component of the compensation 2017 tranche* 140 0 0 0 70 0 0 0 18 0 0 0 70 0 0 0 2018 tranche** 0 140 0 280 0 105 0 210 0 70 0 140 0 70 0 140 Total 410 490 0 652 240 305 0 510 61 240 0 395 240 240 0 395 Benefit expenses 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total compensation 1,052 1,210 720 1,372 644 814 509 1,019 153 596 356 751 611 635 395 790
* Tranche 2017: Stock appreciation rights (Jan. 1, 2017–Dec. 31, 2022).
** Tranche 2018: Stock appreciation rights (Jan. 1, 2018–Dec. 31, 2023).
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. A cap (maximum upper limit) applies at target attainments from 125%.
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% during the blocking period). 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 year 2018, 61,286 SARs were granted (previous year: 42,887). On the date on which they were granted, the total fair value of the SARs was EUR 385 thousand (previous year: EUR 298 thousand). The fair value of previously granted SARs was calculated at a total of EUR 471 thousand on the reporting date (previous year: EUR 1,978 thousand). A provision in this amount was formed in the annual financial statements. The change in fair value before discounting interest is EUR 1,026 thousand in other operating income and EUR 72 thousand in personnel expenses (previous year: EUR 564 thousand in personnel expenses). 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
| RUDOLF WEICHERT | AXEL MEYER BOARD MEMBER (SINCE 2017) BOARD MEMBER (SINCE 2012) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 (MAX.) | 2018 (MIN.) | 2018 | 2017 | 2018 (MAX.) | 2018 (MIN.) | 2018 | 2017 | |||||
| 365 | 365 | 365 | 340 | 340 | 340 | 340 | 85 | |||||
| 30 | 30 | 30 | 31 | 16 | 16 | 16 | 7 | |||||
| 395 | 395 | 395 | 371 | 356 | 356 | 356 | 92 | |||||
| 255 | 0 | 170 | 170 | 255 | 0 | 170 | 43 | |||||
| 0 | 0 | 0 | 70 | 0 | 0 | 0 | 18 | |||||
| 140 | 0 | 70 | 0 | 140 | 0 | 70 | 0 | |||||
| 395 | 0 | 240 | 240 | 395 | 0 | 240 | 61 | |||||
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||
| 790 | 395 | 635 | 611 | 751 | 356 | 596 | 153 |
payment claims into account. For the 2017 and 2018 fiscal years, Board of Management compensation was 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 the provision of a company car. Pension rights were acquired from a former member of the Board of Management through a deferred salary plan; the rights are 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 compensation for the Board of Management can be found in the table "Granted Benefits".
| JÜRGEN ABROMEIT CHAIRMAN OF THE BOARD OF MANAGEMENT (2012 UNTIL 06/30/2018; 2008–06/30/2018 BOARD MEMBER) |
DR. JOHANNES SCHMIDT CHAIRMAN OF THE BOARD OF MANAGEMENT (SINCE 07/01/2018, BOARD MEMBER SINCE 2006) |
AXEL MEYER BOARD MEMBER (SINCE 2017) |
RUDOLF WEICHERT BOARD MEMBER (SINCE 2012) |
|||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | |
| Basic salary | 625 | 700 | 387 | 490 | 85 | 340 | 340 | 365 |
| Ancillary benefits | 17 | 20 | 14 | 19 | 7 | 16 | 31 | 30 |
| Total | 642 | 720 | 401 | 509 | 92 | 356 | 371 | 395 |
| One-year variable remuneration | 398 | 512 | 251 | 282 | 38 | 179 | 251 | 255 |
| Multi-year variable remuneration | ||||||||
| 2013 tranche * | 280 | 0 | 140 | 0 | 0 | 0 | 140 | 0 |
| 2014 tranche** | 0 | 280 | 0 | 140 | 0 | 0 | 0 | 140 |
| Total | 678 | 792 | 391 | 422 | 38 | 179 | 391 | 395 |
| Benefit expenses | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total compensation | 1,320 | 1,512 | 792 | 931 | 130 | 535 | 762 | 790 |
* Tranche 2013: Stock appreciation rights (Jan. 1, 2013–Dec. 31, 2018).
** Tranche 2014: Stock appreciation rights (Jan. 1, 2014–Dec. 31, 2019).
Supervisory Board compensation is governed by Section 16 (1) and (2) of the Articles of Incorporation. At the company's extraordinary Annual Shareholders' Meeting on November 29, 2018, the Articles of Incorporation were revised; this included, for the first time, the introduction of a fixed compensation for membership in Supervisory Board committees (excluding Mediation Committee). 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 same applies for telephone and video conferences. The Chairman receives double the two aforementioned sums, and his deputy receives one-and-a-half times these amounts. In addition to the reimbursement of out-of-pocket expenses, every member of a Supervisory Board committee receives compensation of EUR 5 thousand for work in the past fiscal year. Committee chairmen receive double the aforementioned sum. Supervisory Board members who do not serve for the entire fiscal year receive pro rata compensation. This also applies to pro rata membership in committees. Before November 29, 2018, there was no additional compensation for committee membership. 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 2018 fiscal year was EUR 454 thousand (previous year: EUR 338 thousand). No Supervisory Board member received fees for personally performed advisory services to Group companies (previous year: EUR 0 thousand). Offices that members of the Board of Management and Supervisory Board held in legally stipulated Supervisory Boards or comparable supervisory bodies in domestic and foreign commercial enterprises can be found in the chapter of the same name under "Further Information". See the Notes for related party disclosures.
Supervisory Board members received compensation as follows in the year under review:
| ATTENDANCE BASIC COMPENSATION FEE |
TOTAL | |||||
|---|---|---|---|---|---|---|
| 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | |
| Jürgen Abromeit | 0 | 7 | 0 | 6 | 0 | 13 |
| Dr. Jürgen Allerkamp | 45 | 44 | 23 | 41 | 68 | 85 |
| Dr. Ralf Bartsch | 30 | 27 | 15 | 21 | 45 | 48 |
| Dr. Dorothee Becker | 30 | 30 | 15 | 27 | 45 | 57 |
| Dorothee Diehm | 0 | 3 | 0 | 3 | 0 | 6 |
| Pia Fischinger | 0 | 3 | 0 | 3 | 0 | 6 |
| Prof. Dr. Kammerlander | 15 | 27 | 9 | 21 | 24 | 48 |
| Gerold Klausmann | 0 | 3 | 0 | 3 | 0 | 6 |
| Wolfgang Lemb | 0 | 4 | 0 | 0 | 0 | 4 |
| Isabella Pfaller | 0 | 4 | 0 | 3 | 0 | 7 |
| Sergej Schönhals | 0 | 3 | 0 | 3 | 0 | 6 |
| Hans Joachim Selzer | 15 | 0 | 6 | 0 | 21 | 0 |
| Helmut Späth | 60 | 57 | 30 | 54 | 90 | 111 |
| Uwe Trinogga | 0 | 3 | 0 | 3 | 0 | 6 |
| Carl Martin Welcker | 30 | 30 | 15 | 21 | 45 | 51 |
| Total | 225 | 245 | 113 | 209 | 338 | 454 |
As of December 31, 2018, the capital stock 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 are no shares with privileges conferring control rights. The Board of Management is not aware of any voting rights control in cases where 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 Section 8.1 of the Articles of Incorporation, the Board of Management consists of at least two individuals. Pursuant to Section 8.2 of the Articles of Incorporation, the Supervisory Board may appoint one member of the Board of Management as chairman or spokesman, and another as deputy chairman.
In the event of a material change in the composition of the Supervisory Board (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 of the German Civil Code (BGB), the company will pay out severance to the members of the Board of Management. The severance payment will be based on the total compensation, including all fixed and variable components and noncash 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 Incorporation 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 Section 17 of the Articles of Incorporation, the Supervisory Board is authorized to adopt purely editorial amendments to the Articles of Incorporation and, pursuant to Section 6.4, change wording to reflect the use of authorized capital.
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.
There was a contingent increase in the company's capital stock by up to EUR 11,700,000.04, divided into 4,500,000 new no-par-value bearer shares (Contingent Capital 2018).
The implementation of the capital increase is conditional upon
In accordance with Section 6 (1) of the Articles of Incorporation, the Board of Management is authorized, subject to the Supervisory Board's 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. 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 capital stock, 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 capital stock 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 Annual Shareholders' Meeting on June 3, 2015, also authorized the Board of Management, with the Supervisory Board's approval, to buy back treasury shares up to 10% of the company's capital stock 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 capital stock may be bought back under this authorization, including treasury 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 treasury 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:
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 capital stock at the time of the resolution of the Annual Shareholders' Meeting concerning this authorization or, if less, to 10% of the capital stock 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 treasury shares, with the Supervisory Board's approval, 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. Treasury shares can be recalled also in a simplified process without a capital reduction by adjusting the proportionate share of capital stock 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 dialogue" 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 portfolio companies.
The Board of Management consistently focuses on possibilities for the Group's further strategic development, independently of the portfolio companies. It particularly considers global growth drivers such as digitalization, mobility, infrastructure, health and safety. 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 funds, for example for strategic additions at the company level (sub-subsidiaries). 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 dialogue 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's 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 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 and logistics technology, energy and environmental technology, automation and measurement technology, control engineering and 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 figures 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 therefore sometimes even 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, in addition to 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 inclination 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 financial position and financial performance. Thus, in compliance with industry standards and legal 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 accountingrelated 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 security. 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 consolidated accounting and management control departments 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 IT 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 consolidated accounting. 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 and consolidated accounting departments of INDUS Holding AG ensure, 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 2019 COMPARED WITH PREVIOUS YEAR |
|---|---|---|
| Business environment and sector risks | significant | slightly increased |
| Corporate strategy risks | significant | unchanged |
| Performance risks | significant | slightly increased |
| Personnel risks | low | unchanged |
| EDP risks | low | slightly decreased |
| Financial risks | low | unchanged |
| Legal risks | significant | unchanged |
| Other risks | low | unchanged |
Extent of the potential financial impact on consolidated income 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. Currently 51.4% of total sales are generated domestically (previous year: 50%). The Group's business is thus still strongly affected by the state of the German economy. This regional diversification of operating activities disperses business risk for INDUS. Further internationalization will gradually de-prioritize the domestic market.
Corporate strategy risks arise mainly from incorrect assessment of acquired portfolio companies' respective future business results and market growth. The company's longterm 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; a 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 as a whole. 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 antivirus programs and firewall soft- and hardware, access and entry control measures, and other preventative protection measures such as raising employee awareness and training. Measures to prevent, discover and handle cyberattacks 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 eight (previous year: 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 protection is in place at individual subsidiary level. 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 hedged via interest rate swaps. Due to the interest rate hedges, a change in interest rates would not impact financial position during the term. The nominal volume of interest rate hedges totaled EUR 270.1 million as of December 31, 2018 (previous year: EUR 290.5 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 12.4 million as of December 31, 2018 (previous year: EUR 13.4 million); the majority was held by 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, anti-trust, 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 75.3 million were carried on the balance sheet in 2018 (previous year: EUR 74.8 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 INDUS's non-financial report, INDUS reports on risks linked to the Group's operating activities, business relationships, products and services, and that 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 418.6 million in goodwill (previous year: EUR 428.6 million). According to IAS 36, this must be subjected to an impairment test at least once a year. If the recoverable amount is less than the carrying amount then goodwill is subject to impairment. During the reporting year, impairment losses were recorded, primarily on goodwill, in the amount of EUR 16.1 million (previous year: EUR 0 million).
In fiscal 2018, INDUS reported the acquisition of two strategic additions at sub-subsidiary level and the takeover of activities of a retail company, thereby pursuing one significant focal point of its long-term corporate strategy, namely growing through acquisitions. For 2019, INDUS aims to grow further through acquisitions; emphasis will be on measurement technology and control engineering and the fields of automation, energy and the environment, and health and safety. The Board of Management sees great growth opportunities for 2019 in possible acquisitions at both the portfolio level and the level of the portfolio companies (sub-subsidiaries).
Approximately EUR 140 million are earmarked for planned investments (in property, plant and equipment, 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 2019 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, particularly the upcoming Brexit. It is the opinion of the Board of Management that the risks in 2018 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.
Despite modest hopes for growth, the economic outlook remains positive. The market environments 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 therefore assume 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 in past years.
In 2019, the economy will expand at a slower pace. According to its forecast published at the end of 2018, the Kiel Institute for the World Economy (IfW) expects growth to decline by 0.3 percentage points to 3.4% in 2019. One of the reasons for this is that capacity utilization in advanced economies will barely increase. In addition, production in emerging economies will only expand at a moderate pace in light of the increasingly unfavorable economic conditions and difficult financial environment. The deterioration in the trade environment will likely also have a detrimental effect on the economy.
The upturn in the advanced economies is also likely to slow down due to the steady tightening of expansionary monetary policies, declining stimulation from fiscal policies and only moderate increase in demand from developing and emerging countries. Following 2.4% last year, growth of 2.1% is forecast for this year.
China's high growth rate will decrease once more. In the other emerging countries, too, expansion will decline due to the deterioration in economic conditions, although it will fundamentally remain strong. India will continue to grow at a slower pace. Following election years characterized by uncertainty in Brazil and Mexico, growth will pick up again in the two large Latin American countries in the coming year. The situation in Venezuela remains tense in light of the current political circumstances there. The Turkish economy is declining markedly due to the currency crisis, likely resulting in growth of just 0.4%. Russia should be able to increase its low growth rate slightly.
Risks may particularly arise from trade conflicts heating up further: the spiral of reciprocal market access and ownership tariff disputes between the United States and China seems to have come to an end for now, but considerable uncertainties remain about the trading conditions. There is further potential for conflict between the United States and the European Union, which, through the field of Automotive Technology, is resulting in indirect trade balance questions. In Europe, Italy's debt sustainability, France's reform delay and the possibility of a chaotic Brexit may all lead to the economy performing worse than expected.
| CHANGE IN GROSS DOMESTIC PRODUCT (GDP) (in %) |
||||||
|---|---|---|---|---|---|---|
| 2018 (PRELIMINARY) |
2019 (FORECAST) |
2020 (FORECAST) |
||||
| Economic regions | ||||||
| Global economy | 3.7 | 3.4 | 3.4 | |||
| Euro area | 1.9 | 1.7 | 1.5 | |||
| Selected countries | ||||||
| USA | 2.9 | 2.5 | 1.9 | |||
| China | 6.6 | 6.1 | 5.8 | |||
| India | 7.7 | 7.5 | 7.0 | |||
| Japan | 0.8 | 1.0 | 0.8 | |||
| Germany | 1.5 | 1.8 | 1.8 |
Source: IfW, values for Germany adjusted for calendar and seasonal effects.
IfW economists anticipate GDP growth of 1.8% for Germany in 2019. Amid the general cooling down of the global economy, the German government is more cautious in its expectations: it expects growth of 1.0% in its annual economic report. This shows that the level of economic and political uncertainty remains very high.
The end of temporary negative impacts on production in Germany, particularly in the field of automotive manufacturing, will generally benefit growth. In addition, a reduction in contributions and the extension of benefits will increase incomes in households and boost private consumer spending further. In the construction sector, bottlenecks in capacity utilization will block stronger expansion and push up construction prices further. Corporate investment will be on a par with the previous year due to the uncertainties constantly cropping up on international markets.
Following a dip in 2018, exports are expected to recover in the current year and climb to 3.6% (2018: 2.0%). The lively domestic economy will boost imports, with imports expected to climb by 5.2% (2018: 3.3%). Due to the most recent drop in oil prices, import prices are likely to face more pressure than export prices, resulting in terms of trade improving slightly in 2019.
On the labor market, the increase in employment continues and the scarcity of labor supply will lead to higher wages. The unemployment rate will drop from an annual average of 5.2% in the previous year to presumably 4.8% this year.
The price rises seen in the previous year will continue: The Deutsche Bundesbank believes the inflation rate (core) minus the volatile energy and food components of 1.2% last year will rise to 1.8% by 2020. In 2019 it expects a severely stalled price increase of 1.4% for overall inflation (2018: 1.9%), before hitting 1.8% again in 2020. The reason for the brief lower rate of inflation is the expected sharp brake in energy price increases.
Although the ECB Council terminated the asset purchase program toward the end of the year, it reserves the right to reinvest income from mature bonds following completion of the net purchases at maturity for a longer time if necessary – and in any case for as long as necessary. The aim remains to maintain favorable liquidity conditions and the option to enact comprehensive fiscal policy adjustments. As far as the base rate is concerned, the ECB Governing Council plans to keep it at its currently very low rate at least until the end of summer 2019.
The financing situation will thus remain beneficial in the coming year, too, which will stimulate both exports and investment activity. Both private and public consumption will grow faster. The good labor market situation remains the driving force for positive consumer sentiment in the private sector.
German industrial production will continue to grow in 2019, albeit with less momentum. Incoming orders did not climb as markedly in 2018 as in the previous year. The companies' order books seem to be well filled, however, because according to information from the Federal Statistical Office of Germany, the mathematical range of order backlogs remained virtually unchanged between January and September 2018. Production should therefore be secure until well into 2019 according to estimates from BDI Research. Nevertheless, the mood at the end of the year shows that the industry as a whole is becoming more cautious about the future: The ifo business climate index fell for the fourth consecutive time in December. The last month even saw a clear decline in the manufacturing sector due to the first negative expectation since May 2016, but remained on a high level.
Companies in the German construction sector have high hopes for the current year. Hauptverband der Deutschen Bauindustrie (HDI) and Zentralverband der Deutschen Bauindustrie (ZDB) anticipate 6% nominal growth in sales to EUR 128 billion in the main construction sector for 2019. The ongoing upturn is being carried relatively equally by the three segments residential construction, commercial construction and public construction: Sales of EUR 47.0 billion (+5.5%) are expected in residential construction. This means
a 20,000 unit increase in newly built residential units against the previous year, taking the figure to 320,000; this is still below the demand figure of 350,000. Sales of EUR 45.6 billion (+6%) are expected in commercial construction. And public spending on construction is expected to amount to EUR 35.3 billion (+6%). In connection with this growth, the employment figure is expected to increase by almost 2%, whereby the supply of skilled construction workers is becoming increasingly scarce. The Federal Council's act to speed up traffic planning and approval processes, expected to come into force in 2019, will accelerate growth. Planning and implementing traffic projects will in future involve less red tape with this act.
The international vehicle market is facing a period of transformation, and is increasingly focusing on e-mobility and digitalization. German automotive manufacturers' intention to be a part of this development can be seen in their current development activities. They will invest EUR 18 billion in networked and autonomous driving over the next three years. German manufacturers and suppliers have taken the top international spot in registering patents. In addition to the technological changes, the global car market is facing headwinds caused by the trade conflict between the United States and China. In light of these developments, the German trade association Verband der Automobilindustrie (VDA) anticipates only slight growth of 1% to 85.9 million new cars for the global market in 2019. Figures for Europe and the United States will be on a par with the previous year, while China will achieve slight growth following the modest decline in 2018. Germany is expected to just hold the high sales level of 3.4 million new cars registered. German manufacturers' international automotive production will hit the 17 million mark in 2019 (+0.5 million cars). Following the decline in 2018, cars produced for the domestic market will grow 2% and exceed 5.1 million units. The number of cars produced for export is expected to climb 5% to 11.7 million units.
Despite the fact that the general conditions for the German Medical Engineering/Life Science market should be more open to innovation and more market-oriented due to the ever shorter development cycles according to companies in this field, the outlook remains positive: The trade association Spectaris expects 4% plus in sales for German companies in 2019. This means around 1,300 companies with more than 20 employees each will generate annual sales figures of approx. EUR 32 billion. Around two thirds are for export. The emerging countries remain the main selling markets, next to Europe and the United States. The number of people employed in this sector is expected to rise by 4%. The growth factors are the digitalization issues of networking and big data, telemedicine and 3D printing, computer-assisted intervention and robotics. One main threat to growth is the trend toward protectionism coming from the United States ("America first"). The market research institute Evaluate Med-Tech expects marked growth on the global market in the coming years, too: from USD 405 billion in 2017, market volume is forecast to grow to approx. USD 595 billion in 2024. We can assume that highly innovative, well positioned and internationally competitive German medical engineering will profit at least proportionately from this development.
All signs point to the German engineering sector performing well again in 2019, although the pace of growth is expected to drop off somewhat. The trade association Verband Deutscher Maschinen- und Anlagenbau e.V. (VDMA) predicts that German mechanical engineering companies will achieve production growth of 2% against the previous year. With the high export rate of almost 80%, the sector will feel the slight slowdown in the global economy. Simultaneously, the trade association expects the effects from ongoing trade disputes, the threat of a hard Brexit, the sanctions against Russia and the other obvious obstacles to growth in the mechanical engineering sector to become more noticeable. The sector is also observing the important export market of China carefully. The country is currently dealing with a slowdown in its domestic market, rising labor and production costs and punitive tariffs imposed by the American government. On the plus side, on average the order books cover a period of 8.6 months.
The outlook for the metals and electronics industry remains positive. The sector is therefore looking forward to further production growth in 2019 – albeit at a slower pace. For the current full year companies expect a slight drop in growth of 1.5% by a year-on-year comparison. According to representatives from this sector the basic economic data is still positive; however, there are also considerable risks resulting from Brexit, the trade conflict between the United States and China, and uncertainties regarding the stability of the EU. The current structural change in the automotive industry, too, poses short- to medium-term uncertainties for the metals and electronics industry. For example, e-mobility is forecast to wipe out 200,000 workplaces in the suppliers market. This will be offset by 30,000 to 40,000 workplaces for the supply of new components – if they are manufactured in Germany. This is of little consequence for the current labor market, however, as the lack of skilled workers will continue to restrict growth in 2019. At the moment, there are almost three vacancies for each qualified metal craftsman.
In light of the constant increase in economic challenges, the INDUS Board of Management formulated the new strategy program PARKOUR in the past fiscal year. The strategy program continues to focus on the basic INDUS objectives – growth, appreciation in value and a balanced portfolio structure – and on the tried-and-tested measures such as making capital for forward-looking company projects available, supporting the portfolio companies through networks and knowledge, and pushing ahead with the acquisition of suitable companies at Group level.
A new focal point in PARKOUR is on increasing entrepreneurial fitness: the individual portfolio companies and the Group as a whole should aim to develop faster and improve themselves in terms of operations. PARKOUR has three specific aspects: the targeted strengthening of the portfolio structure, driving innovations and improving performance through operational excellence at the portfolio companies.
When it comes to growth acquisitions to complement the portfolio, INDUS particularly looks to companies in the five technology-heavy growth industries: to ensure the right mix in the future, the Group intends to focus acquisition activities on automation, measuring technology and control engineering, construction and safety technology, medical engineering and life science, technology for infrastructure and logistics, and energy and environmental technology.
At the same time, INDUS intends to investigate on a caseby-case basis whether another owner may be able to offer certain companies and their employees better development opportunities in the long term. However, the fundamental corporate strategy "buy, hold & develop" remains unchanged.
To improve innovation ability within the existing portfolio, INDUS also supports the acquisition of new companies at second level (sub-subsidiaries). This applies in particular to innovative companies in the future fields Industry 4.0/ Digitalization, innovative structural engineering, public and private safety, medical technology for an aging society, intelligent infrastructure for logistics and green tech.
INDUS will push ahead with the already successfully established strategy for supporting innovation ability in the portfolio companies and expand it further. In addition to product innovations, INDUS will in future provide portfolio companies with support for new services, business processes and business models. The financial funds made available through the development bank model will be doubled. In the coming years an average of 3% of consolidated EBIT will be earmarked for funding innovation.
INDUS believes that innovations often come about as a result of exchange with others, and thus the existing network will be promoted internally and externally through cooperation with external partners and within the Group. Another goal is to purposefully pass know-how to the existing portfolio through the acquisition of innovative new companies.
03 COMBINED MANAGEMENT REPORT — Forecast Report 105
INDUS will concentrate on boosting performance at the portfolio companies by expanding operational excellence. The holding company will assist the portfolio companies in improving their value-adding core processes from product development to order processing. Specifically this means strategic marketing, sales and production initiatives will be added to existing innovation support in the field of development/construction. The program to boost operational excellence includes comprehensive education and training offers in lean management for knowledge transfer. INDUS also initiates and assists the portfolio companies on site with corresponding optimization projects.
Based on the solid performance in 2018, the INDUS Board of Management continues to expect a generally positive performance. Low expectations of the economy also signal weaker growth for the portfolio companies, however. With growth in sales to EUR 1.72 billion–EUR 1.77 billion, EBIT should increase to EUR 156 million–EUR 162 million. These target figures do not take into account the new acquisitions that are sought at the first and second levels.
An EBIT margin of between 9% and 10% is anticipated for the coming year, again under the target margin. One particular reason for this will be the repositioning projects still being resolved in the Automotive Technology segment. But in terms of profitability it should be pointed out that achieving an EBIT margin of over 10% for the full portfolio remains the objective for the medium term.
This year the focus on adding another portfolio company at INDUS level will be stepped up. In a macroeconomic environment that is becoming calmer, the Board of Management expects sellers to be more grounded when it comes to prices, making two first-level acquisitions and two to four secondlevel acquisitions a realistic prospect.
Rising raw material and energy prices along with higher wages will inhibit the existing portfolio's ability to continue along its growth trend. The increasing shortage of skilled workers represents another bottleneck: finding qualified personnel will remain a risk factor in the foreseeable future. For the other items on the consolidated statement of income, the Board of Management expects only changes on the usual scale.
The company's ongoing positive liquidity situation provides a good foundation for pushing forward with the growth strategy. The investment budget for the coming year is a record amount of EUR 89 million (excluding acquisitions). A total of EUR 50 million has been budgeted for acquisitions, which may however be increased if necessary. Since the launch of the "Innovation" initiative this area will now receive continuous funding of up to 3% of consolidated EBIT each year.
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. The INDUS Group's equity ratio is not to fall below 40%. As part of the planned revolving financing, INDUS will take up debt in 2019. 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 range.
| ACTUAL 2018 | 2019 PLAN | |
|---|---|---|
| GROUP | ||
| Acquisitions | 2 complementary additions at sub-subsidiary level |
2 growth acquisitions |
| Sales | EUR 1.71 billion | EUR 1.72–1.77 billion |
| EBIT | EUR 134.7 million | EUR 156-162 million |
| Investments in property, plant and equipment and intangible assets | EUR 90.9 million | EUR 89 million |
| Equity ratio in % | 41.3% | >40% |
| Net debt/EBITDA | 2.2 years | Between 2.0 and 2.5 years |
| SEGMENTS | ||
| Construction/Infrastructure | ||
| Sales | EUR 358.7 million | slight increase |
| EBIT | EUR 49.8 million | proportional increase |
| EBIT margin (in %) | 13.9% | 13-15% |
| Automotive Technology | ||
| Sales | EUR 391.0 million | slight increase |
| EBIT | EUR -4.3 million (before impairment EUR 5.2 million) |
perceptible increase |
| EBIT margin (in %) | -1.1% (before impairment +1.3%) | 3-5% |
| Engineering | ||
| Sales | EUR 387.0 million | no change |
| EBIT | EUR 52.2 million | no change |
| EBIT margin (in %) | 13.5% | 12-14% |
| Medical Engineering/Life Science | ||
| Sales | EUR 154.3 million | slight increase |
| EBIT | EUR 17.3 million | proportional increase |
| EBIT margin (in %) | 11.2% | 11-13% |
| Metals Technology | ||
| Sales | EUR 420.0 million | slight increase |
| EBIT | EUR 28.3 million (before impairment EUR 34.9 million) |
proportional increase |
| EBIT margin (in %) | 6.7% (before impairment 8.3%) | 8-10% |
The overall economic conditions for the Construction/Infrastructure segment remain very good. Companies are working at full capacity across the board. However, this does restrict their opportunities for further growth, and the lack of skilled workers continues to be felt in the segment. The step-up in effectiveness of the public investment program in fiber glass and conventional infrastructure, street and residential construction is having a positive impact on business performance. Overall, the Construction/Infrastructure segment will be a reliable pillar of the INDUS portfolio once more in 2019. A slight increase in sales and income is anticipated, with the EBIT margin remaining between 13% and 15%.
Once more, the environment will remain a challenging one for the Automotive Technology segment in 2019. While the companies in the field of development and commercial vehicles can continue to look forward to profitable growth, series supplier repositioning will continue to be a demanding task. The Board of Management expects that repositioning targets will only be reached from 2020. In addition, the automotive industry is in upheaval. However, this also creates additional growth potential – particularly in e-mobility. Altogether, the Board of Management anticipates a slight increase in sales and a perceptible increase in EBIT with an adjusted EBIT margin of 3% to 5% for this segment.
The outlook for 2019 for the Engineering segment remains extremely positive. The companies in this segment started the year with well-filled order books – demand from parcel distribution centers remains high and one portfolio company's business was able to recover rapidly following a short downturn. A lack of skilled workers is also becoming more noticeable in this segment, too. Sales and income for this segment are expected to remain on the same high level. The target remains an EBIT margin between 12% and 14%.
The sector environment remains a positive one for the Medical Engineering/Life Science segment, albeit with slight signs of downturns. Medical technology for an aging society remains a future field for INDUS with room for boosting acquisitions. However, the segment is also struggling under regulations and rising competitive pressure. This is reflected in the slightly lower expectation for margins, even though they start at a high level. INDUS has set proportional earnings increase as a target with a slight increase in sales in this segment. The range for the EBIT margin is now between 11% and 13%.
The outlook also remains cautiously optimistic for companies in the Metals Technology segment. In an environment of general growth in the market, the price of raw materials and salary expenses will remain a limiting factor. The rising costs cannot be passed on to customers to the extent necessary. To achieve the income targets anyway, the portfolio companies are concentrating on implementing measures to increase productivity. Overall, based on a slight increase in sales, an EBIT margin of between 8% and 10% is still forecast for this segment.
| 01 | 02 | 03 | |
|---|---|---|---|
| COMPANY AND SHAREHOLDERS |
SUSTAINABILITY AT INDUS |
COMBINED MANAGEMENT REPORT |
04 |
05 FURTHER INFORMATION
| in EUR '000 | NOTES | 2018 | 2017 |
|---|---|---|---|
| SALES | [6] | 1,710,788 | 1,640,640 |
| Other operating income | [7] | 20,566 | 16,536 |
| Own work capitalized | [8] | 7,856 | 5,131 |
| Changes in inventories | [9] | 35,116 | 5,204 |
| Cost of materials | [10] | -811,929 | -745,894 |
| Personnel expenses | [11] | -506,637 | -479,679 |
| Depreciation/amortization | [12] | -83,657 | -62,438 |
| Other operating expenses | [13] | -237,677 | -228,019 |
| Income from shares accounted for using the equity method | 67 | 1,081 | |
| Financial income | [14] | 192 | 303 |
| OPERATING INCOME (EBIT) | 134,685 | 152,865 | |
| Interest income | 285 | 231 | |
| Interest expense | -20,264 | -23,905 | |
| INTEREST INCOME | [15] | -19,979 | -23,674 |
| EARNINGS BEFORE TAXES | 114,706 | 129,191 | |
| Taxes | [16] | -43,521 | -46,117 |
| EARNINGS AFTER TAXES | 71,185 | 83,074 | |
| of which allocable to non-controlling shareholders | 331 | 737 | |
| of which allocable to INDUS shareholders | 70,854 | 82,337 | |
| Earnings per share, basic, in EUR | [17] | 2.90 | 3.37 |
| Earnings per share, diluted, in EUR | 2.90 | 3.37 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| EARNINGS AFTER TAXES | 71,185 | 83,074 |
| Actuarial gains/losses | 481 | -13,258 |
| Deferred taxes | -69 | 2,839 |
| Items not reclassified to profit or loss | 412 | -10,419 |
| Currency translation adjustment | 2,584 | -9,233 |
| Change in the market values of derivative financial instruments (cash flow hedge) | -728 | -943 |
| Deferred taxes | 47 | 241 |
| Items to be reclassified to profit or loss | 1,903 | -9,935 |
| OTHER COMPREHENSIVE INCOME | 2,315 | -20,354 |
| TOTAL COMPREHENSIVE INCOME | 73,500 | 62,720 |
| of which allocable to non-controlling shareholders | 331 | 737 |
| of which allocable to INDUS shareholders | 73,169 | 61,983 |
| in EUR '000 | NOTES | DEC. 31, 2018 | DEC. 31, 2017 |
|---|---|---|---|
| ASSETS | |||
| Goodwill | [18] | 418,590 | 428,590 |
| Other intangible assets | [19] | 90,830 | 86,454 |
| Property, plant and equipment | [19] | 418,227 | 397,008 |
| Investment property | [19] | 2,953 | 5,220 |
| Financial assets | [20] | 13,684 | 13,995 |
| Shares accounted for using the equity method | [21] | 10,970 | 10,903 |
| Other non-current assets | [22] | 3,126 | 2,594 |
| Deferred taxes | [23] | 10,127 | 8,862 |
| Non-current assets | 968,507 | 953,626 | |
| Inventories | [24] | 408,693 | 339,154 |
| Receivables | [25] | 202,523 | 197,528 |
| Other current assets | [22] | 22,993 | 18,247 |
| Current income taxes | [23] | 7,655 | 8,750 |
| Cash and cash equivalents | 109,647 | 135,881 | |
| Current assets | 751,511 | 699,560 | |
| TOTAL ASSETS | 1,720,018 | 1,653,186 | |
| EQUITY AND LIABILITIES | |||
| Subscribed capital | 63,571 | 63,571 | |
| Capital reserves | 239,833 | 239,833 | |
| Other reserves | 403,719 | 367,509 | |
| Equity held by INDUS shareholders | 707,123 | 670,913 | |
| Non-controlling interests in the equity | 2,702 | 2,900 | |
| Equity | [26] | 709,825 | 673,813 |
| Pension provisions | [27] | 43,702 | 43,969 |
| Other non-current provisions | [28] | 1,688 | 2,377 |
| Non-current financial liabilities | [29] | 465,886 | 439,545 |
| Other non-current liabilities | [30] | 27,731 | 29,174 |
| Deferred taxes | [23] | 41,172 | 45,956 |
| Non-current liabilities | 580,179 | 561,021 | |
| Other current provisions | [28] | 73,576 | 72,384 |
| Current financial liabilities | [29] | 126,520 | 95,301 |
| Trade payables | 65,659 | 66,162 | |
| Other current liabilities | [30] | 150,825 | 174,081 |
| Current income taxes Current liabilities |
[23] | 13,434 430,014 |
10,424 418,352 |
| TOTAL ASSETS | 1,720,018 | 1,653,186 | |
| in EUR '000 | SUBSCRIBED CAPITAL |
CAPITAL RESERVE |
RETAINED EARNINGS |
OTHER RESERVES |
EQUITY HELD BY INDUS SHAREHOLDERS |
SHARES HELD BY NON CONTROLLING SHAREHOLDERS |
GROUP EQUITY |
|---|---|---|---|---|---|---|---|
| BALANCE DEC. 31, 2016 | 63,571 | 239,833 | 341,561 | -3,027 | 641,938 | 2,630 | 644,568 |
| Earnings after taxes | 82,337 | 82,337 | 737 | 83,074 | |||
| Other comprehensive income | -20,354 | -20,354 | -20,354 | ||||
| Total comprehensive income | 82,337 | -20,354 | 61,983 | 737 | 62,720 | ||
| Dividend payment | -33,008 | -33,008 | -664 | -33,672 | |||
| Change in scope of consolidation | 197 | 197 | |||||
| BALANCE DEC. 31, 2017 | 63,571 | 239,833 | 390,890 | -23,381 | 670,913 | 2,900 | 673,813 |
| BALANCE DEC. 31, 2017 | 63,571 | 239,833 | 390,890 | -23,381 | 670,913 | 2,900 | 673,813 |
| IFRS 15 adjustments | -283 | -283 | -283 | ||||
| BALANCE JAN. 1, 2018 | 63,571 | 239,833 | 390,607 | -23,381 | 670,630 | 2,900 | 673,530 |
| Earnings after taxes | 70,854 | 70,854 | 331 | 71,185 | |||
| Other comprehensive income | 2,315 | 2,315 | 2,315 | ||||
| Total comprehensive income | 70,854 | 2,315 | 73,169 | 331 | 73,500 | ||
| Dividend payment | -36,676 | -36,676 | -529 | -37,205 | |||
| BALANCE DEC. 31, 2018 | 63,571 | 239,833 | 424,785 | -21,066 | 707,123 | 2,702 | 709,825 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Earnings after taxes | 71,185 | 83,074 |
| Depreciation/appreciation of non-current assets (excluding deferred taxes) | 83,657 | 62,438 |
| Gains (+)/losses (-) from the disposal of assets | 10 | -762 |
| Taxes | 43,521 | 46,117 |
| Net interest | 19,979 | 23,674 |
| Income from companies accounted for using the equity method | -67 | -1,081 |
| Other non-cash transactions | -597 | 197 |
| Changes in provisions | -892 | 3,566 |
| Increase (+)/decrease (-) in inventories, receivables and other assets | -74,552 | -41,185 |
| Increase (+)/decrease (-) in trade payables and other equity and liabilities | 970 | 18,081 |
| Income taxes received/paid | -47,396 | -49,907 |
| Dividends received | 192 | 730 |
| Operating cash flow | 96,010 | 144,942 |
| Interest paid | -21,642 | -21,211 |
| Interest received | 286 | 231 |
| Cash flow from operating activities | 74,654 | 123,962 |
| Cash outflow from investments in | ||
| intangible assets | -11,993 | -7,721 |
| property, plant and equipment | -78,892 | -71,290 |
| financial investments | -1,367 | -2,451 |
| shares in fully consolidated companies | -11,516 | -32,414 |
| Cash inflow from the disposal of other assets | 5,451 | 3,920 |
| Cash flow from investing activities | -98,317 | -109,956 |
| Dividends paid to shareholders | -36,676 | -33,008 |
| Cash outflows from non-controlling shareholders | -529 | -664 |
| Cash outflow from the repayment of contingent purchase price commitments | -23,014 | -820 |
| Cash inflow from raising of loans | 155,824 | 151,006 |
| Cash outflow from the repayment of loans | -98,311 | -120,412 |
| Cash flow from financing activities | -2,706 | -3,898 |
| Net changes in cash and cash equivalents | -26,369 | 10,108 |
| Changes in cash and cash equivalents caused by currency exchange rates | 135 | -1,407 |
| Cash and cash equivalents at the beginning of the period | 135,881 | 127,180 |
| Cash and cash equivalents at the end of the period | 109,647 | 135,881 |
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, 2018, to December 31, 2018, 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 annual 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 the 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 21, 2019. The Supervisory Board approved the consolidated financial statements at its meeting on March 22, 2019.
All standards whose application was mandatory as of December 31, 2018, 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:
The cumulative method was chosen for the transfer period. IAS 18 and IAS 11 requirements were applied for the prioryear comparison period. Sales recognition based on time frame will have a particular impact on INDUS. INDUS realizes sales both at certain points in time and over a period of time. A few contracts that were accounted for in 2017 as contract manufacturing in accordance with IAS 11 did not fulfill the criteria of time-frame sales recognition in accordance with IFRS 15. This resulted in an equity adjustment of EUR -283 thousand. As of January 31, 2018, inventories increased by EUR 3,904 thousand and prepayments received by EUR 3,561 thousand. Contract receivables decreased by EUR 948 and contract liabilities by EUR 204 thousand.
The reclassifications and measurement adjustments have resulted in changes to the information disclosed in the Notes. As of January 1, 2018, no other changes occurred at INDUS as a result of further application requirements.
— 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.
INDUS will apply the standard from January 1, 2019. The modified retrospective method will be applied for adjustments. The new standard will have a material effect on the financial position of INDUS. Total assets will rise in line with 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, 2018, operating lease commitments amounting to EUR 84.3 million are reported in the Notes. Use rights in the amount of EUR 81.5 million and financial liabilities in the amount of EUR 81.5 million were newly recognized as of January 1, 2019. This has no material effect on operating income (EBIT). Due to new leasing regulations, income before tax will be burdened by approximately EUR 1.8 million. In the statement of cash flows, cash flow from financing activities will deteriorate by approximately EUR 18.4 million, while cash flow from operating activities will improve by EUR 18.4 million.
Application facilitation for IFRS 16 has been used.
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.
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 attributable to minority 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. Interim results are eliminated from inventories and fixed 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 and carried at fair value 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, 2018 | DEC. 31, 2017 | 2018 | 2017 | |
| United Arab Emirates | AED | 4.217 | 4.408 | 4.325 | 4.137 |
| Brazil | BRL | 4.444 | 3.976 | 4.309 | 3.605 |
| Canada | CAD | 1.561 | 1.511 | 1.530 | 1.464 |
| Switzerland | CHF | 1.127 | 1.169 | 1.155 | 1.111 |
| China | CNY | 7.875 | 7.805 | 7.807 | 7.626 |
| Czech Republic | CZK | 25.724 | 25.540 | 25.643 | 26.327 |
| Denmark | DKK | 7.467 | 7.447 | 7.453 | 7.439 |
| UK | GBP | 0.895 | 0.886 | 0.885 | 0.876 |
| Hungary | HUF | 320.980 | 310.760 | 318.824 | 309.268 |
| South Korea | KRW | 1,277.930 | 1,280.860 | 1,298.252 | 1,273.211 |
| Morocco | MAD | 10.971 | 11.224 | 11.050 | 10.921 |
| Mexico | MXN | 22.492 | 23.604 | 22.716 | 21.335 |
| Poland | PLN | 4.301 | 4.176 | 4.260 | 4.256 |
| Romania | RON | 4.664 | 4.666 | 4.654 | 4.569 |
| Serbia | RSD | 118.455 | 118.300 | 117.880 | 120.965 |
| Singapore | SGD | 1.559 | 1.606 | 1.593 | 1.558 |
| Turkey | TRY | 6.059 | 4.555 | 5.700 | 4.121 |
| Taiwan | TWD | 35.109 | 35.608 | 35.567 | 34.359 |
| USA | USD | 1.145 | 1.200 | 1.181 | 1.130 |
| South Africa | ZAR | 16.460 | 14.848 | 15.613 | 15.035 |
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 does not undergo amortization due 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: 42) cash generating units. No individual goodwill amount is significant within the meaning of IAS 36.134.
Intangible assets purchased for a fee are measured at acquisition cost and – where applicable – amortized on a straight line basis over their economic life of two to fifteen years. 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 including depreciation and, when necessary, impairment. 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 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 material opportunities and risks, lease contracts are classified as operating leases or finance leases, resulting in finance leases being accounted as assets.
Inventories are recognized at cost or 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.
Financial instruments are contracts that are financial assets at one company and simultaneously financial liabilities or an equity instrument at another. The subsequent valuation of assets must occur in the categories "trading and derivatives," "hold" and "hold and sell" in accordance with the business model. Financial liabilities must be recognized in the two categories "trading and derivatives" or "at-cost financial liabilities".
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.
Associated companies listed under financial assets 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 valuation, the carrying amount is adjusted by the proportional changes in the associated company's equity.
Receivables and other assets are recognized at amortized costs; for current receivables this is generally the nominal value. 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 the settlement amount.
Impairments are recognized for anticipated credit losses on financial assets measured at amortized cost. The simplified method for calculating impairments is used to determine impairments on trade receivables. The full term of the financial instrument is used to determine the anticipated credit losses. As the historical basis is applied to defaults, it is assumed that the default risk of a financial asset has not risen significantly once it is more than 30 days overdue.
Derivative financial instruments are used by 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 hedging instrument is effective, documented and continuously monitored. The existence of an economic relationship between hedge and hedged item is based on reference interest rates, terms, interest adjustment and due dates, and nominal and actual amounts. In assessing effectiveness, the critical terms match method is used. Hedging relationships are usually 100% effective.
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 valuation of the hedging instruments described above, only market-related valuation methods 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 force for measuring interest-rate swaps.
Call/put options from the acquisition of companies as a contingent purchase price commitment are recognized at fair value.
Market-related observable input factors (level 2) and internal data (level 3) were used to measure call/put options at fair value. 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 force 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 in various forms.
The defined contribution plan costs 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, taking into consideration any deferred taxes, through the change in consolidated equity and recorded on the statement of income and in pension provisions.
Other provisions are calculated for current legal or actual obligations toward third parties resulting from an event in the past that will likely lead to an outflow of resources and the amount of which can be reliably estimated. 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 toward third parties or existing obligations that are not likely to lead to an outflow of resources or the amount of which cannot be reliably estimated. Disclosures must be made in the Notes regarding existing contingent liabilities.
Deferred taxes are determined for all temporary differences between the amount according to the IFRS balance sheet and the corresponding fiscal value according to 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. Taking into consideration the average trade tax assessment multiplier of 395% and a solidarity surcharge of 5.5%, the income tax rate for domestic companies comes to 29.6% (previous year: 29.6%). Foreign tax rates range between 16% and 35% (previous year: between 16% and 39%).
As regards income realization from customer contracts, revenue is recognized in accordance with the 5-stage model described in IFRS 15 either over a period of time or at a certain point in time. The INDUS product portfolio is highly diversified. Revenue is generated from the sale of goods, order production, and, to a lesser extent, from services provided. Revenue is allocable to the following areas: reinforcement of reinforced concrete, construction materials, network and cable laying, air conditioning and heating technology, accessories for private housing construction (Construction/ Infrastructure segment), model or prototype construction for the automotive industry, pre-series and small series production, series production of components for large automotive manufacturers, testing and measurement solutions, solutions for specialized vehicles (Automotive Technology segment), complete conveyor systems, robotic gripping systems, valve technology, automation components for vehicle assembly, inert gas system equipment, and electric heat tracing systems (Engineering segment), orthotic devices, surgical stockings, optical lenses and full optical devices, surgical accessories, rehabilitation technology and hygienic products for medical applications and household use (Medical Engineering/Life Science segment), supplying rail technology, carbide tools for road construction and mining, manufacture of housings for laboratory technology, blasting agents for the steel industry, bolt welding technology for structural connecting elements used in bridge construction (Metals Technology segment). For numerous contracts from the Construction/Infrastructure and Engineering segments, and for individual contracts in the Automotive Technology segment, income is realized over a period of time.
If the prerequisites for revenue recognition over time are met, the percentage of completion must be ascertained. Due to the reliability of the calculations, the cost to cost method is applied. Revenue is thus recognized based on the percentage of completion until the goods are transferred to the customer or until the service has been performed. Anticipated losses are recognized directly as expenses. If the prerequisites for recognition over time are not met, income realization takes place at a point in time. This is typically the point in time at which goods are transferred or the point in time when the customer accepts the contract liablities.
The revenue recognized is the equivalent value that is expected for the transfer of goods or the performance of services. However, it must be probable that the revenue will not be subject to material correction. The general prerequisite is that the amount of revenue can be reliably determined and there is sufficient probability that INDUS will receive an economic benefit. Contracts with customers generally contain payment terms that are standard for the industry. Advance payments are agreed for order production contracts. Material financing components are not agreed in customer contracts. Warranty agreements that are standard for the industry were recognized as provisions for product warranties in the amount of EUR 12,039 thousand (previous year: EUR 12,191 thousand).
Stock appreciation rights granted as part of the long-term incentive program are classified as "share-based payment with cash settlement". Provisions are formed for these and measured at the fair value of the commitments.
In compliance with the provisions of IAS 7, the statement of cash flows is divided into cash flow from operating activities, investment activities and financing activities. Interest and dividends received are assigned to cash flows from operating activities. The figure for funds corresponds to the balance sheet item cash and cash equivalents and includes bank balances and cash on hand. Cash flow from operating activities is 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 the consolidated financial statements is influenced by assumptions and estimates that have an impact on the recognized value of assets, liabilities and contingent liabilities, and on income and expenses. When estimates are made regarding the future, actual values may differ from the estimates. If the original basis for the estimates changes, the statement of the items in question 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 result from balance sheet items where expected future payments are discounted. These payments are dependent on future events about which 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 2019 INDUS does 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 financial 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 INVESTMENTS OF LESS THAN 100% |
|
|---|---|---|---|---|
| Dec. 31, 2018 | ||||
| Construction/ Infrastructure |
26 | 9 | 35 | 2 |
| Automotive Technology |
33 | 20 | 53 | 10 |
| Engineering | 28 | 23 | 51 | 22 |
| Medical Engineering/ Life Science |
7 | 10 | 17 | 5 |
| Metals Technology | 16 | 9 | 25 | 3 |
| Other | 8 | 0 | 8 | 0 |
| Total | 118 | 71 | 189 | 42 |
| 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 | 9 |
| Metals Technology | 16 | 9 | 25 | 3 |
| Other | 9 | 0 | 9 | 1 |
Significant operating subsidiaries are provided in the Notes under [43]. The complete listing of investments of the INDUS Holding AG in accordance with Section 313 HGB [Handelsgesetzbuch: German Commercial Code], which forms part of the Notes, is published with the consolidated financial statements in the German Federal Gazette.
The carrying amount of interests attributable to non-controlling shareholders is EUR 2,702 thousand (previous year: EUR 2,900 thousand). None of the non-controlling interests are significant individually.
Insofar as minority shareholders have a right to tender at the time of the initial consolidation that INDUS cannot withdraw from, and combination with a call/put option exists for INDUS, economic ownership resides with INDUS and the affected shares are fully consolidated and recognized at fair value as a contingent purchase price commitment. As of the reporting date, purchase price commitments from minority interests with a right to tender of EUR 41,789 thousand (previous year: EUR 64,275 thousand) are recognized. Purchase price models exist for all material cases that allow an objective measurement of the shares taking into consideration the company-specific risk structure, which guarantees an exchange of non-controlling interests at fair value. INDUS may generally exercise its rights at contractually agreed exercising periods.
As of December 31, 2018, the scope of consolidation includes 35 limited liability companies (GmbH) as general partners that form a single company with the corresponding LLCs (December 31, 2017: 35 limited liability companies (GmbH) as general partners).
Additions to the scope of consolidation result from the acquisition or establishment of companies or the takeover of operating activities at portfolio companies not yet consolidated.
Disposals from the scope of consolidation are the result of portfolio company mergers.
At the beginning of 2018, the INDUS portfolio company AURORA acquired ELECTRONIC EQUIPMENT B.V., in Weert, Netherlands. ELECTRONIC EQUIPMENT will be allocated to the Automotive Technology segment.
Effective July 1, 2018, one INDUS portfolio company acquired a renowned supplier of high-quality air conditioning units. The company will be allocated to the Construction/ Infrastructure segment.
The fair value of the total consideration given for other acquisitions amounted to EUR 12,211 thousand on the acquisition date. The purchase prices were settled in cash.
Goodwill of EUR 4,155 thousand, determined in the course of the purchase price allocation, is not tax-deductible. The goodwill represents inseparable values such as the knowhow 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 ACQUISITIONS | (in EUR '000) | ||
|---|---|---|---|
| CARRYING AMOUNT AT TIME OF ACQUISITION |
ASSETS ADDED DUE TO INITIAL CONSOLIDATION |
ADDITIONS TO CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
|
| Goodwill | 0 | 4,155 | 4,155 |
| Other intangible assets | 0 | 6,425 | 6,425 |
| Property, plant and equipment | 238 | 0 | 238 |
| Inventories | 3,049 | 963 | 4,012 |
| Receivables | 1,860 | 0 | 1,860 |
| Other assets* | 578 | 0 | 578 |
| Cash and cash equivalents | 695 | 0 | 695 |
| Total assets | 6,420 | 11,543 | 17,963 |
| Other provisions | 374 | 0 | 374 |
| Trade payables | 2,157 | 0 | 2,157 |
| Other equity and liabilities** | 1,086 | 2,135 | 3,221 |
| Total liabilities | 3,617 | 2,135 | 5,752 |
* Other assets: Other non-current assets, Other current assets, Deferred taxes, Current income taxes.
** Other equity and liabilities: Other non-current liabilities, Other current liabilities, Deferred taxes, Current income taxes.
The initial consolidation of the other acquisitions took place between January and July 2018. The other acquisitions contributed sales amounting to EUR 8,199 thousand to the INDUS result for the period from January 1, 2018, to December 31, 2018, and operating income (EBIT) of EUR 382 thousand. If other new acquisitions had been consolidated from January 1, 2018, revenue would have amounted to EUR 13,074 thousand and operating income (EBIT) to EUR 481 thousand.
Expenses affecting net income from the initial consolidation of other acquisitions reduced operating income by EUR 1,494 thousand. The incidental acquisition costs were recorded in the statement of income.
Sales include EUR 204,392 thousand in sales using the period-based method (previous year: sales from production orders: EUR 227,660 thousand). Also included is EUR 12,535 thousand in revenue from services (previous year: EUR 14,407 thousand). A breakdown of revenue by reportable segments can be found under segment reporting [32].
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Other own work capitalized | 5,051 | 1,920 |
| Own work capitalized in accordance with IAS 38 |
2,805 | 3,211 |
| Total | 7,856 | 5,131 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Income from the release of | ||
| provisions | 7,537 | 4,170 |
| Release of valuation allowances | 2,868 | 2,662 |
| Transfer to earnings/release of deferrals carried as liabilities |
1,376 | 875 |
| Insurance compensation | 714 | 1,627 |
| Income from rental and lease agreements |
352 | 632 |
| Income from currency translation | 1,872 | 259 |
| Income from asset disposals | 828 | 1,630 |
| Other operating income | 5,019 | 4,681 |
| Total | 20,566 | 16,536 |
Income from currency translation of EUR 1,872 thousand (previous year: EUR 259 thousand) is offset by expenses amounting to EUR -1,590 thousand (previous year: EUR -5,486 thousand). The figure from exchange rate differences recognized in income therefore amounts to EUR 281 thousand (previous year: EUR -5,227 thousand).
Research and development expenses of EUR 17,328 thousand were recognized for the period (previous year: EUR 16,397 thousand).
[8] OWN WORK CAPITALIZED
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Work in process | 44,580 | -3,256 |
| Finished goods | -9,464 | 8,460 |
| Total | 35,116 | 5,204 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Raw materials, consumables and supplies, and purchased |
||
| merchandise | -673,193 | -606,215 |
| Purchased services | -138,736 | -139,679 |
| Total | -811,929 | -745,894 |
| in EUR '000 | 2018 | 2017 | ||
|---|---|---|---|---|
| Wages and salaries | -427,450 | -404,501 | ||
| Social security | -74,834 | -70,643 | ||
| Pensions | -4,353 | -4,535 | ||
| Total | -506,637 | -479,679 |
Personnel expenses do not include the interest component from the transfer to pension provisions. This is recognized in net interest at EUR 974 thousand (previous year: EUR -643 thousand).
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Depreciation/amortization | -67,541 | -62,438 |
| Impairment | -16,116 | 0 |
| Total | -83,657 | -62,438 |
Impairments were necessary in the Automotive Technology and Metals Technology segments due to their lower earnings power. This consisted of goodwill impairments amounting to EUR 15,715 thousand (previous year: EUR 0 thousand). The impairment values were determined from the value in use of cash generating units.
Impairment of property, plant and equipment amounting to EUR 401 thousand was also recognized (previous year: EUR 0 thousand).
| in EUR '000 | 2018 | 2017 | ||
|---|---|---|---|---|
| Selling expenses | -93,321 | -90,454 | ||
| Operating expenses | -81,068 | -76,109 | ||
| Administrative expenses | -53,520 | -50,970 | ||
| Other expenses | -9,768 | -10,486 | ||
| Total | -237,677 | -228,019 |
[14] FINANCIAL INCOME
| in EUR '000 | 2018 | 2017 | in EUR '000 | 2018 | 2017 |
|---|---|---|---|---|---|
| Shipping, packaging and provisions | -46,065 | -45,255 | Cost of currency translation | -1,590 | -5,486 |
| Vehicle, travel and entertainment expenses |
-23,822 | -21,933 | Disposal of fixed assets | -837 | -868 |
| Marketing and trade fairs | -13,186 | -12,747 | Transfer to provisions | 0 | -503 |
| Receivables and guarantees | -7,352 | -8,000 | Other | -7,341 | -3,629 |
| Other selling expenses | -2,896 | -2,519 | Total | -9,768 | -10,486 |
| Total | -93,321 | -90,454 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Machinery and plant: Rent and maintenance |
-28,569 | -27,400 |
| Land and buildings: Leases and occupancy costs |
-24,200 | -23,336 |
| Energy, supplies, tools | -16,216 | -15,796 |
| Other operating expenses | -12,083 | -9,577 |
| Total | -81,068 | -76,109 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Income from financial assets | 476 | 317 |
| Impairment of financial assets | -284 | -14 |
Total 192 303
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| IT, office, and communication | ||
| services | -16,288 | -15,789 |
| Consulting and fees | -19,674 | -18,935 |
| Insurance | -4,812 | -4,662 |
| Human resources administration and continuing education |
-6,855 | -6,888 |
| Other administrative costs | -5,891 | -4,696 |
| Total | -53,520 | -50,970 |
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Interest and similar income | 285 | 231 |
| Interest and similar expenses | -13,850 | -15,902 |
| Interest from operating activities | -13,565 | -15,671 |
| Other: Market value of interest rate swaps |
11 | 9 |
| Other: Minority interests | -6,425 | -8,012 |
| Other interest | -6,414 | -8,003 |
| Total | -19,979 | -23,674 |
The item "Other: Minority interests" includes effects on income from the subsequent valuation of the contingent purchase price commitments (call/put options) of EUR 530 thousand (previous year: EUR 151 thousand) and earnings after taxes that external entities are entitled to from shares in limited partnerships and stock corporations with call/put options. For reasons of consistency, these are shown under net interest.
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Non-recurring taxes | 707 | 194 |
| Current taxes | -52,207 | -48,985 |
| Deferred taxes | 7,979 | 2,674 |
| Total | -43,521 | -46,117 |
Non-recurring taxes were primarily due to changes resulting from external tax audits.
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 depreciation/amortization. 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 income after trade tax is 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".
| 2018 | 2017 | |
|---|---|---|
| Earnings before income taxes | 114,706 | 129,191 |
| Expected tax expenses 29.6% (previous year: 29.6%) |
33,953 | 38,241 |
| RECONCILIATION | ||
| Non-recurring taxes | -707 | -194 |
| Measurement of associated companies according to the equity method |
-20 | -320 |
| Amortization of goodwill – corporations |
1,307 | 0 |
| Structural effects of | ||
| divergent local tax rates | 554 | 180 |
| divergent national tax rates | -637 | -1,073 |
| Corporate acquisition transaction costs |
170 | 155 |
| Capitalization or valuation allowance of deferred tax loss carryforwards |
906 | 1,395 |
| Actual use of tax loss carryforward | -985 | -743 |
| No offsetting of income for autonomous subsidiaries |
4,609 | 3,454 |
| Income attributable to other shareholders |
1,902 | 2,372 |
| Effects of the interest barrier on INDUS Holding AG |
285 | 542 |
| Other non-deductible expenses or tax-free income |
2,184 | 2,108 |
| Actual tax expenses | 43,521 | 46,117 |
| as a percentage of earnings | 37,9 | 35,7 |
At a corporate income tax rate of 15% (previous year: 15%), and after taking into consideration the average trade tax assessment multiplier of 395% (previous year: 395%) and an unchanged solidarity surcharge of 5.5%, the income tax rate for domestic companies comes to 29.6% (previous year: 29.6%).
Earnings came to EUR 2.90 per share (previous year: EUR 3.37 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 | 2018 | 2017 |
|---|---|---|
| Income attributable to INDUS shareholders |
70,854 | 82,337 |
| Weighted average shares outstanding (in thousands) |
24,451 | 24,451 |
| Earnings per share (in EUR) | 2.90 | 3.37 |
Underlying income is determined using the income attributable to INDUS shareholders. Shares may be diluted in future if contingent or subscribed capital is used.
Individual goodwill, summarized at segment level, is as follows:
| CARRYING AMOUNT JAN. 1, 2018 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | IMPAIRMENT | CURRENCY DIFFERENCE |
CARRYING AMOUNT DEC. 31, 2018 |
|
|---|---|---|---|---|---|---|---|
| Construction/Infrastructure | 111,660 | 3,510 | 0 | 0 | 0 | 268 | 115,438 |
| Automotive Technology | 75,322 | 645 | 0 | -36 | -9,500 | -26 | 66,405 |
| Engineering | 142,523 | 0 | 0 | 0 | 0 | -42 | 142,481 |
| Medical Engineering/Life Science | 69,639 | 0 | 0 | 0 | 0 | 0 | 69,639 |
| Metals Technology | 29,446 | 0 | 0 | 0 | -6,215 | 1,396 | 24,627 |
| Total goodwill | 428,590 | 4,155 | 0 | -36 | -15,715 | 1,596 | 418,590 |
| 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 |
Impairment testing on goodwill is performed for cash generating units (usually the portfolio companies including their subsidiaries).
The impairment test 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. In accordance with the detailed planning periods of usually three years, future cash flows are extrapolated with a global growth rate of 1.0% (previous year: 1.0%). The payments determined in this manner are discounted using capital cost rates. These are based on risk-free interest rates of 1.00% (previous year: 1.25%), a market risk premium of 7.00% (previous year: 6.75%) and segment-specific beta coefficients derived by a peer group and borrowing rates. The following segment-specific pre-tax cost of capital rates were applied: Construction/Infrastructure 6.8% (previous year: 5.8%) Automotive Technology 9.3% (previous year: 9.3%) Engineering 7.9% (previous year: 7.3%) Medical Engineering/Life Science 6.9% (previous year: 6.8%) and Metals Technology 8.5% (previous year: 7.8%).
In the 2018 fiscal year, goodwill impairments were recognized in the amount of EUR 15,715 thousand. The impairment losses relate to the Automotive Technology segment, EUR 9,500 thousand and the Metals Technology segment, EUR 6,215 thousand. There were no impairment losses on goodwill in the previous year.
An increase in the cost of capital before tax by 0.5 percentage points would lead to additional goodwill impairments in the amount of EUR 10,730 (previous year: EUR 2,360) and in the amount of EUR 736 thousand (previous year: EUR 0 thousand) for property, plant and equipment.
| PURCHASE/MANUFACTURING COSTS IN 2018 | (in EUR '000) | ||||||
|---|---|---|---|---|---|---|---|
| OPENING BALANCE JAN. 1, 2018 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | TRANSFERS | CURRENCY DIFFERENCE |
CLOSING BALANCE DEC. 31, 2018 |
|
| Goodwill | 468,622 | 4,155 | 0 | -36 | 0 | 209 | 472,950 |
| Capitalized development costs | 34,848 | 0 | 4,671 | -53 | 0 | 81 | 39,547 |
| Property rights, concessions and other intangible assets |
190,549 | 6,426 | 7,321 | -291 | 1,151 | 99 | 205,255 |
| Total other intangible assets | 225,397 | 6,426 | 11,992 | -344 | 1,151 | 180 | 244,802 |
| Land and buildings | 300,129 | 18 | 4,320 | -285 | 6,788 | 1,441 | 312,411 |
| Technical equipment and machinery | 427,347 | 0 | 22,749 | -5,821 | 4,819 | -200 | 448,894 |
| Other equipment, factory and office equipment | 171,779 | 220 | 19,879 | -3,761 | 2,276 | 287 | 190,680 |
| Advance payments and facilities under construction |
18,699 | 0 | 28,113 | -525 | -15,034 | 20 | 31,273 |
| Total property, plant and equipment | 917,954 | 238 | 75,061 | -10,392 | -1,151 | 1,548 | 983,258 |
| Investment property | 6,973 | 0 | 0 | -3,300 | 0 | 0 | 3,673 |
OPENING BALANCE JAN. 1, 2018 CHANGES IN SCOPE OF CONSOLIDATION ADDITIONS DISPOSALS AND TRANSFERS IMPAIRMENT LOSS REVERSAL CURRENCY DIFFERENCE CLOSING BALANCE DEC. 31, 2018 Goodwill 40,032 0 15,715 0 0 -1,387 54,360 Capitalized development costs 22,224 0 3,381 -53 0 47 25,599 Property rights, concessions and other intangible assets 116,719 0 11,209 419 0 26 128,373 Total other intangible assets 138,943 0 14,590 366 0 73 153,972 Land and buildings 92,811 0 9,328 288 0 356 102,783 Technical equipment and machinery 316,664 0 27,007 -6,360 0 -162 337,149 Other equipment, factory and office equipment 111,464 0 16,831 -3,368 0 165 125,092 Advance payments and facilities under construction 7 0 0 0 0 0 7 Total property, plant and equipment 520,946 0 53,166 -9,440 0 359 565,031 Investment property 1,753 0 186 -1,219 0 0 720
| PURCHASE/MANUFACTURING COSTS IN 2017 | (in EUR '000) | ||||||
|---|---|---|---|---|---|---|---|
| OPENING BALANCE JAN. 1, 2017 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS | TRANSFERS | CURRENCY DIFFERENCE |
CLOSING BALANCE DEC. 31, 2018 |
|
| 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 |
| Technical equipment 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 facilities under construction | 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/AMORTIZATION IN 2017 | (in EUR '000) | ||||||
| OPENING BALANCE JAN. 1, 2017 |
CHANGES IN SCOPE OF CONSOLIDATION |
ADDITIONS | DISPOSALS AND TRANSFERS |
IMPAIRMENT LOSS REVERSAL |
CURRENCY DIFFERENCE |
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 |
| Technical equipment 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 facilities under construction | 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
Intangible assets have definable useful lives. Change in scope of consolidation impacts additions in accordance with IFRS 3. The residual carrying amount of capitalized finance leases amounts to EUR 11,660 thousand on land and buildings (previous year: EUR 11,508 thousand) and EUR 2,061 thousand (previous year: EUR 2,100 thousand) on technical equipment and machinery.
As of the reporting date, the residual carrying amounts of intangible assets, property, plant and equipment, and investment properties are:
| RESIDUAL CARRYING AMOUNTS OF FIXED ASSETS | (in EUR '000) | |
|---|---|---|
| DEC. 31, 2018 | DEC. 31, 2017 | |
| Goodwill | 418,590 | 428,590 |
| Capitalized development costs | 13,948 | 12,624 |
| Property rights, concessions and other intangible assets |
76,882 | 73,830 |
| Total other intangible assets | 90,830 | 86,454 |
| Land and buildings | 209,628 | 207,318 |
| Technical equipment and machinery |
111,745 | 110,683 |
| Other equipment, factory and office equipment |
65,588 | 60,315 |
| Advance payments and facilities under construction |
31,266 | 18,692 |
| Property, plant and equipment | 418,227 | 397,008 |
| Investment property | 2,953 | 5,220 |
| in EUR '000 | DEC. 31, 2018 | DEC. 31, 2017 |
|---|---|---|
| Other investments | 2,612 | 2,592 |
| Other loans | 11,072 | 11,403 |
| Total | 13,684 | 13,995 |
The loans relate to loans originated by the company at amortized costs. The loans are partially settled without interest, largely with interest rates suitable for their duration and long-term fixed interest rates. There were no defaults in either fiscal year.
As of December 31, 2018, the carrying amounts of shares accounted for using the equity method totaled EUR 10,970 thousand (previous year: EUR 10,903 thousand).
The table below presents additional data on investments measured using the equity method:
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Purchase price of associated companies |
8,408 | 8,408 |
| Appropriated income in the period | 24 | 1,038 |
| Key figures of the associated companies: |
||
| Assets | 45,329 | 45,091 |
| Liabilities | 27,728 | 27,734 |
| Capital | 17,601 | 17,357 |
| Revenue | 32,598 | 30,498 |
| Earnings | 204 | 2,141 |
| in EUR '000 | DEC. 31, 2018 | DEC. 31, 2017 |
|---|---|---|
| Accrual of payments not relating | ||
| to the period under review | 9,265 | 6,048 |
| Other tax refund claims | 5,116 | 4,199 |
| Long-term receivables | 0 | 107 |
| Reinsurance premiums | 716 | 1,233 |
| Loans and other receivables | 873 | 596 |
| Positive swap market value | 404 | 99 |
| Other assets | 9,745 | 8,559 |
| Total | 26,119 | 20,841 |
| of which current | 22,993 | 18,247 |
| of which non-current | 3,126 | 2,594 |
The origin of the deferred tax assets and liabilities is broken down by statement of financial position item as follows:
| 2018 (in EUR '000) | ASSETS | LIABILITIES | BALANCE |
|---|---|---|---|
| Goodwill of limited partnerships | 4,527 | -25,113 | -20,586 |
| Intangible assets | 441 | -21,820 | -21,379 |
| Property, plant and equipment | 1,740 | -5,673 | -3,933 |
| Receivables and inventories | 753 | -3,373 | -2,620 |
| Other current assets | 47 | -119 | -72 |
| Long-term provisions | 9,492 | 0 | 9,492 |
| Current liabilities | 3,160 | -374 | 2,786 |
| Capitalization of loss carryforwards | 5,267 | 0 | 5,267 |
| Netting-out of accounts | -15,300 | 15,300 | 0 |
| Deferred taxes | 10,127 | -41,172 | -31,045 |
| 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 |
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:
| STATEMENT OF JAN. 1, 2018 INCOME |
OTHER DEC. 31, 2018 | |||
|---|---|---|---|---|
| Trade tax | 3,855 | -344 | 0 | 3,511 |
| Corporate income tax | 653 | 73 | 0 | 726 |
| Foreign tax | 1,229 | -199 | 0 | 1,030 |
| Capitalization of loss carryforwards | 5,737 | -470 | 0 | 5,267 |
| Other deferred taxes | -42,831 | 8,449 | -1,930 | -36,312 |
| Deferred taxes | -37,094 | 7,979 | -1,930 | -31,045 |
| JAN. 1, 2017 | STATEMENT OF INCOME |
OTHER | DEC. 31, 2017 | |
|---|---|---|---|---|
| Trade tax | 3,141 | 714 | 0 | 3,855 |
| Corporate income 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 |
The other changes in deferred taxes are composed as follows:
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Provisions for mark-to-market | ||
| evaluation of cash flow hedges | 47 | 241 |
| Currency translation reserve | 108 | 275 |
| Pension provisions (actuarial gains/losses) |
-69 | 2,839 |
| Change in scope of consolidation | -2,135 | -7,786 |
| IFRS 15 adjustments | 119 | 0 |
| Total | -1,930 | -4,431 |
Recognized deferred taxes are based on tax loss carryforwards of EUR 34,340 thousand (previous year: EUR 35,417 thousand).
Other tax loss carryforwards amounting to a total of EUR 205,175 thousand (previous year: EUR 179,192 thousand), where the probability of realization in the next five years is unlikely, were not capitalized. These are largely trade tax loss carryforwards, resulting from the special tax aspects of the INDUS Group, as described under [16]. Future potential realization possibilities are therefore determined by the trade tax rate that is applicable at the time. The largest individual item is the holding company's trade tax loss carryforward. Utilization of the tax loss carryforwards is not subject to any time restrictions.
Due to the low probability of realization, deferred tax assets of EUR 0 thousand were not recognized (previous year: EUR 24 thousand). Deferred tax assets of EUR 2,137 thousand (previous year: EUR 840 thousand) were offset against the corresponding deferred tax liabilities at companies with current tax losses.
| in EUR '000 | DEC. 31, 2018 | DEC. 31, 2017 |
|---|---|---|
| Raw materials, consumables and supplies |
149,227 | 125,146 |
| Unfinished goods | 113,263 | 88,205 |
| Finished goods and goods for resale |
127,785 | 109,340 |
| Advance payments | 18,418 | 16,463 |
| Total | 408,693 | 339,154 |
The carrying amounts for inventories include depreciation of EUR 18,779 thousand (previous year: EUR 17,606 thousand).
| in EUR '000 | DEC. 31, 2018 | DEC. 31, 2017 |
|---|---|---|
| Receivables from customers | 189,909 | 180,138 |
| Contract receivables* | 9,956 | 15,693 |
| Receivables from associated companies |
2,658 | 1,697 |
| Total | 202,523 | 197,528 |
* Previous year: Receivables from construction contracts.
In the current reporting year, EUR 0 thousand of receivables from customers with a payment target over one year have been recognized (previous year: EUR 108 thousand).
Receivables include contract receivables with revenue recognized according to the over time method. The previous year's figures relate to receivables from construction contracts. The following table contains further information about contract receivables:
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Costs incurred including prorated income | 95,934 | 107,971 |
| Advance payments received | 122,059 | 141,279 |
| Contract receivables* | 9,956 | 15,693 |
| Contract liabilities** | 36,081 | 49,001 |
* Previous year: Construction contracts with a positive balance. ** Previous year: Construction contracts with a negative balance.
Contract liabilities relate to contracts with revenue recognition over time exhibiting an offset surplus of received prepayments. These are shown under other liabilities in the statement of financial position. Of the contract liabilities recognized in the amount of EUR 49,001 thousand in the previous year, EUR 40,330 thousand were recognized as revenue in the reporting year.
As of December 31, 2018, there are contract liabilities with allocated transaction prices of EUR 180,794 thousand (previous year: EUR 192,033 thousand). The are scheduled to be realized as revenue within the next 1 to 34 months.
The receivables include impairment losses of EUR 6,483 thousand (previous year: EUR 5,999 thousand). The development is depicted below:
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Valuation allowances as of January 1 | 5,999 | 7,011 |
| Currency translation | 25 | -52 |
| Change in scope of consolidation | 4 | 53 |
| Additions | 3,150 | 2,431 |
| Utilization | -680 | -597 |
| Reversals | -2,015 | -2,847 |
| Valuation allowances as of December 31 | 6,483 | 5,999 |
Receivables in the amount of EUR 473 thousand (previous year: EUR 1,046 thousand) were derecognized through profit and loss in the fiscal year.
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, Hanover, Munich and Stuttgart.
In accordance with Section 6 (1) of the Articles of Incorporation, 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. 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 capital stock 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.
At the Annual Shareholders' Meeting on May 24, 2018, 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 shares (contingent capital 2018).
The implementation of the contingent capital increase is conditional upon
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.
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 41.3% (previous year: 40.8%).
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. Minority interests in limited partnerships and limited liability companies, for which the economic ownership of the corresponding minority interests had already been transferred under reciprocal option agreements at the acquisition date, 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 balance sheet profit:
Payment of a dividend of EUR 1.50 per no-par value share (previous year: EUR 1.50 per no-par value share). At 24,450,509 shares (previous year: 24,450,509 shares) this equates to a payment of EUR 36,675,763.50 (previous year: EUR 36,675,763.50). The full text of the proposed appropriation of distributable profit is published separately. The proposed dividend was not recognized in the balance sheets and there are no tax consequences.
| DEVELOPMENT OF OTHER RESERVES | (in EUR '000) | ||||
|---|---|---|---|---|---|
| JAN. 1, 2017 | OTHER INCOME 2017 |
DEC. 31, 2017 | OTHER INCOME 2017 |
DEC. 31, 2018 | |
| Currency translation reserve | 7,917 | -9,233 | -1,316 | 2,584 | 1,268 |
| Pension provisions (actuarial gains/losses) | -11,494 | -13,258 | -24,752 | 481 | -24,271 |
| Deferred taxes for pensions | 3,403 | 2,839 | 6,242 | -69 | 6,173 |
| Reserve for cash flow hedges | -3,385 | -943 | -4,328 | -728 | -5,056 |
| Deferred taxes for cash flow hedges | 532 | 241 | 773 | 47 | 820 |
| Total other reserves | -3,027 | -20,354 | -23,381 | 2,315 | -21,066 |
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 interest-bearing total capital, consisting of interest-bearing debt capital and equity, is constantly optimized to the same end. Interest-bearing debt capital comprises pension provisions and financial liabilities, less cash and cash equivalents, and amounts to EUR 526,461 thousand (previous year: EUR 442,934 thousand). Taking equity in the statement of financial position into account, total capital comes to EUR 1,236,286 thousand (previous year: EUR 1,116,747 thousand). Relative to total interest-bearing capital employed, the equity ratio is 57.4% (previous year: 60.3%).
The EUR 119,539 thousand increase in total capital (previous year: EUR 66,608 thousand) was due to a EUR 36,012 thousand increase in equity (previous year: EUR 29,245 thousand) and a EUR 83,527 thousand increase in interest-bearing debt capital (previous year: EUR 37,363 thousand increase). The reinvested capital enhances INDUS's 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 lendors have extraordinary 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) | ||
|---|---|---|---|
| 2018 | 2017 | CHANGE | |
| Current service cost | 2,535 | 418 | 2,117 |
| Interest cost | 974 | 643 | 331 |
| Income from plan assets | -325 | -56 | -269 |
| Past service costs | -556 | 0 | -556 |
| Administrative expenses – foundation | 139 | 0 | 139 |
| Cost of defined benefit obligation | 2,767 | 1,005 | 1,762 |
| + Defined contribution plan cost | 3,595 | 3,771 | -176 |
| = Cost of pension commitments for the period | 6,362 | 4,776 | 1,586 |
| 2018 | 2017 | CHANGE | |
|---|---|---|---|
| Present value of benefit obligations financed by provisions | 43,702 | 43,969 | -267 |
| Present value of funded benefit obligations | 41,185 | 38,221 | 2,964 |
| Defined benefit obligation: Accumulated benefit obligations | 84,887 | 82,190 | 2,697 |
| Market value of plan assets | -41,185 | -38,221 | -2,964 |
| Net obligation = provisions | 43,702 | 43,969 | -267 |
| Actuarial gains/losses | -24,271 | -24,752 | 481 |
| Opening balance: Balance sheet value as of January 1 | 43,969 | 29,020 | 14,949 |
| Pension obligation expenses | 2,767 | 1,005 | 1,762 |
| Pension payments | -2,949 | -1,189 | -1,760 |
| Actuarial gains/losses realized in equity | -481 | 13,258 | -13,739 |
| Exchange rate change | 396 | 0 | 396 |
| Change of scope in consolidation/netting-out | 0 | 1,875 | -1,875 |
| Closing balance: Balance sheet value as of December 31 | 43,702 | 43,969 | -267 |
| Underlying assumptions in percent: | |||
| Discount factor | |||
| Germany | 1.80 | 1.80 | |
| Switzerland | 0.90 | 0.75 | |
| Salary trend | |||
| Germany | 2.50 | 2.50 | |
| Switzerland | 0.90 | 0.75 | |
| Pension trend | |||
| Germany | 1.75 | 1.75 | |
| Switzerland | 0.00 | 0.00 | |
| Expected income from plan assets | |||
| Germany | 1.80 | 1.80 | |
| Switzerland | 0.90 | 0.75 | |
Interest expense is included in the net interest item. The expected income from plan assets largely corresponds to the actual income.
The defined benefit plans are impacted by actuarial risks, such as longevity risk and interest rate risk. An increase or decrease in the discount factor of 0.5 percentage points would reduce net obligation by EUR 2,936 thousand (previous year: EUR 4,703 thousand) or increase net obligation by EUR 3,319 thousand (previous year: EUR 5,325 thousand).
In connection with retirement benefits, payments amounting to EUR 3,340 thousand are expected in 2019 (in 2017 for 2018: EUR 3,078 thousand).
Plan assets primarily consist of reinsurance policies. Changes in plan assets are as follows:
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Assets as of January 1 | 38,221 | 2,864 |
| Expected return on plan assets | 325 | 56 |
| Ongoing contributions by the companies | 2,994 | 101 |
| Pensions paid | -2,080 | -148 |
| Change of scope in consolidation | 0 | 0 |
| Netting-out/other | 377 | 35,348 |
| Exchange rate change | 1,348 | 0 |
| Assets as of December 31 | 41,185 | 38,221 |
The statement of financial position also contains reimbursement claims of EUR 716 thousand (previous year: EUR 1,233 thousand).
Other provisions include interest in the amount of EUR 67 thousand (previous year: EUR 84 thousand).
| OPENING BALANCE JAN. 1, 2018 |
CHANGE IN SCOPE OF CONSOLI DATION |
UTILIZED | RELEASED | ADDITIONS/ NEWLY CREATED |
CURRENCY DIFFERENCE |
CLOSING BALANCE DEC. 31, 2018 |
|
|---|---|---|---|---|---|---|---|
| Sales and purchasing obligations | 33,622 | 195 | 27,756 | 3,150 | 33,182 | 53 | 36,146 |
| Personnel expenses | 26,543 | 0 | 22,651 | 2,893 | 24,391 | 72 | 25,462 |
| Other provisions | 14,596 | 179 | 9,387 | 1,526 | 9,776 | 18 | 13,656 |
| Total | 74,761 | 374 | 59,794 | 7,569 | 67,349 | 143 | 75,264 |
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.
JAN. 1, 2018 CARRYING AMOUNT FOR REPORTING PERIOD CASH-EFFECTIVE NON-CASH DEC. 31, 2018 CARRYING AMOUNT FOR REPORTING PERIOD CHANGE IN SCOPE OF CONSOLIDATION EXCHANGE RATE CHANGE CHANGE IN FAIR VALUE Liabilities to banks 346,989 11,901 0 -61 0 358,829 Finance leases 6,664 -1,482 0 141 0 5,323 Promissory note loans 181,193 47,061 0 0 0 228,254 Total financial liabilities 534,846 57,480 0 80 0 592,406 JAN. 1, 2017 CARRYING AMOUNT FOR REPORTING PERIOD CASH-EFFECTIVE NON-CASH 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 (in EUR '000)
MORE THAN 5 YEARS
| Liabilities to banks | ||||
|---|---|---|---|---|
| in the Group's currency EUR | 357,503 | 78,885 | 241,627 | 36,991 |
| in Swiss francs | 572 | 338 | 234 | 0 |
| in other currencies | 754 | 0 | 754 | 0 |
| Finance leases | 5,323 | 4,215 | 1,108 | 0 |
| Promissory note loans | 228,254 | 43,082 | 137,543 | 47,629 |
| Total financial liabilities | 592,406 | 126,520 | 381,266 | 84,620 |
| Derivatives/interest-rate swaps – nominal values | 270,071 | 35,504 | 162,619 | 71,948 |
DEC. 31, 2017 CARRYING AMOUNT FOR REPORTING
CARRYING AMOUNT FOR REPORTING
PERIOD REPAYMENT OBLIGATION
1 YEAR 1 TO 5 YEARS
| 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 |
| in EUR '000 | DEC. 31, 2018 | CURRENT | NON-CURRENT | DEC. 31, 2017 | CURRENT | NON-CURRENT |
|---|---|---|---|---|---|---|
| Accounts payable to outside shareholders | 59,552 | 35,066 | 24,486 | 85,843 | 60,746 | 25,097 |
| Accounts payable for personnel | 19,383 | 19,383 | 0 | 19,062 | 19,062 | 0 |
| Derivative financial instruments | 5,065 | 5,065 | 0 | 4,346 | 4,346 | 0 |
| Advance payments received | 37,297 | 36,701 | 596 | 18,568 | 17,658 | 910 |
| Contract liabilities* | 36,081 | 36,081 | 0 | 49,001 | 49,001 | 0 |
| Accrual of non-recurrent payments | 10,881 | 10,881 | 0 | 11,829 | 11,771 | 58 |
| Accrual of payments not relating to the period under review | 1,804 | 1,615 | 189 | 1,167 | 814 | 353 |
| Investment subsidies | 1,978 | 0 | 1,978 | 2,261 | 0 | 2,261 |
| Customer credit notes | 3,584 | 3,584 | 0 | 6,331 | 6,331 | 0 |
| Sundry other liabilities | 2,931 | 2,449 | 482 | 4,847 | 4,352 | 495 |
| Total | 178,556 | 150,825 | 27,731 | 203,255 | 174,081 | 29,174 |
* Previous year: Construction contracts with a negative balance.
At EUR 41,789 thousand (previous year: EUR 64,275 thousand), liabilities to outside shareholders include contingent purchase price commitments carried at fair value insofar as minority shareholders are able to tender their shares to INDUS by terminating the Articles of Incorporation or on the basis of option agreements. During the fiscal year, there were no new purchase price commitments, EUR 530 thousand were recognized in expenses and EUR 23,014 thousand was deducted mainly due to payouts to minority shareholders. Purchase price commitments fluctuated in line with the percentage change in the operating income (EBIT), partially kept in check by upper and lower limits.
The purchase prices paid for the new acquisition of investments were as follows:
| in EUR '000 | 2018 | 2017 |
|---|---|---|
| Cash-effective attributable to the acquisition | ||
| of portfolio companies: | -12,211 | -38,697 |
| subject to assumed financial liabilities | 695 | 6,283 |
| Net purchase price | -11,516 | -32,414 |
Cash and cash equivalents include limited-authorization accounts amounting to EUR 655 thousand (previous year: EUR 155 thousand). Investing and financing transactions of EUR 1,821 thousand (previous year: EUR 5,650 thousand) that did not lead to changes in cash and cash equivalents are not included in the statement of cash flows.
| CONSTRUCTION/ INFRASTRUC TURE |
AUTOMOTIVE TECHNOLOGY |
ENGINEERING | MEDICAL ENGINEERING/ LIFE SCIENCE |
METALS TECHNOLOGY |
TOTAL SEGMENTS |
RECON CILIATION |
CONSOLI DATED FINANCIAL STATEMENTS |
|
|---|---|---|---|---|---|---|---|---|
| 2018 | ||||||||
| Revenue with external third parties |
||||||||
| From contracts with customers |
302,328 | 373,690 | 245,914 | 152,573 | 419,593 | 1,494,098 | -237 | 1,493,861 |
| In accordance with the over time method |
56,323 | 7,868 | 140,201 | 0 | 0 | 204,392 | 0 | 204,392 |
| From service contracts | 56 | 9,477 | 847 | 1,749 | 406 | 12,535 | 0 | 12,535 |
| Revenue with external third parties |
358,707 | 391,035 | 386,962 | 154,322 | 419,999 | 1,711,025 | -237 | 1,710,788 |
| Revenue with Group companies |
33,234 | 80,637 | 70,189 | 19,196 | 55,562 | 258,818 | -258,818 | 0 |
| Sales | 391,941 | 471,672 | 457,151 | 173,518 | 475,561 | 1,969,843 | -259,055 | 1,710,788 |
| Segment earnings (EBIT) | 49,851 | -4,290 | 52,214 | 17,345 | 28,329 | 143,449 | -8,764 | 134,685 |
| Income from measurement according to the equity |
||||||||
| method | -78 | -36 | 181 | 0 | 0 | 67 | 0 | 67 |
| Depreciation/amortization | -10,080 | -32,922 | -12,225 | -7,417 | -20,208 | -82,852 | -805 | -83,657 |
| of which amortization | -10,080 | -23,422 | -12,225 | -7,417 | -13,592 | -66,736 | -805 | -67,541 |
| of which impairment | 0 | -9,500 | 0 | 0 | -6,616 | -16,116 | 0 | -16,116 |
| Segment EBITDA | 59,931 | 28,632 | 64,439 | 24,762 | 48,537 | 226,301 | -7,959 | 218,342 |
| Investments | 25,531 | 29,476 | 11,979 | 8,425 | 26,337 | 101,748 | 653 | 102,401 |
| of which company acquisitions |
9,890 | 1,626 | 0 | 0 | 0 | 11,516 | 0 | 11,516 |
| of which acc. to the equity method |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Dec. 31, 2018 | ||||||||
| Shares accounted for using the equity method |
4,006 | 4,640 | 2,324 | 0 | 0 | 10,970 | 0 | 10,970 |
| Goodwill | 115,438 | 66,405 | 142,481 | 69,639 | 24,627 | 418,590 | 0 | 418,590 |
CONSTRUCTION/ INFRASTRUC-TURE AUTOMOTIVE TECHNOLOGY ENGINEERING MEDICAL ENGINEERING/ LIFE SCIENCE METALS TECHNOLOGY TOTAL SEGMENTS RECON-CILIATION CONSOLI-DATED FINANCIAL STATEMENTS 2017 Revenue with external third parties 330,368 394,106 375,117 155,179 385,617 1,640,387 253 1,640,640 Revenue with Group companies 33,238 75,669 62,117 16,693 53,055 240,772 -240,772 0 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 Income from measurement according to the equity method 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 acquisitions 0 0 32,414 0 0 32,414 0 32,414 of which acc. to the equity method 0 0 0 0 0 0 0 0 Dec. 31, 2017 Shares accounted for using 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
| RECONCILIATION | (in EUR '000) | |
|---|---|---|
| 2018 | 2017 | |
| Segment earnings (EBIT) | 143,449 | 162,620 |
| Areas not allocated inc. holding company | -7,976 | -9,913 |
| Consolidations | -788 | 158 |
| Net interest | -19,979 | -23,674 |
| Earnings before taxes | 114,706 | 129,191 |
The classification of segments corresponds without change to the current state of internal reporting. The companies are assigned to the segments based on their selling markets if the large majority of their range is sold in a particular 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-operating units not allocated to any segment, and consolidations. See the explanation provided in the management report regarding the products and services that generate segment sales.
The key control variable for the segments is operating income (EBIT) as defined in the consolidated financial statements. The information pertaining to the segments has been ascertained in compliance with the reporting and valuation methods that were applied in the preparation of the consolidated financial statements. The transfer prices between the segments are based on arm's-length prices.
The breakdown of sales by region relates to our selling markets. Owing to the diversity of our foreign activities, a further breakdown by country would not be meaningful since no country other than Germany accounts for 10% of Group sales.
Non-current assets, less deferred taxes and financial instruments, are based on the registered offices of the companies concerned. Further differentiation would not be useful since the majority of companies are based 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 |
|---|---|---|---|---|
| 2018 | ||||
| Revenue with external third parties | 1,710,788 | 878,860 | 383,558 | 448,370 |
| Dec. 31, 2018 | ||||
| Non-current assets, less deferred taxes and financial instruments | 941,570 | 801,157 | 51,185 | 89,228 |
| 2017 | ||||
| Revenue 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 |
| FINANCIAL INSTRUMENTS | (in EUR '000) | |
|---|---|---|
| BALANCE SHEET VALUE |
NOT WITHIN THE SCOPE OF IFRS 9 |
IFRS 9 FINANCIAL INSTRUMENTS |
OF WHICH MEASURED AT FAIR VALUE |
OF WHICH MEASURED AT AMORTIZED COST |
|
|---|---|---|---|---|---|
| DEC. 31, 2018 | |||||
| Financial investment | 13,684 | 0 | 13,684 | 2,612 | 11,072 |
| Cash and cash equivalents | 109,647 | 0 | 109,647 | 0 | 109,647 |
| Receivables | 202,523 | 9,956 | 192,567 | 0 | 192,567 |
| Other assets | 26,119 | 14,380 | 11,739 | 404 | 11,335 |
| Financial Instruments: Assets | 351,973 | 24,336 | 327,637 | 3,016 | 324,621 |
| Financial liabilities | 592,406 | 0 | 592,406 | 0 | 592,406 |
| Trade payables | 65,659 | 0 | 65,659 | 0 | 65,659 |
| Other liabilities | 178,556 | 90,449 | 88,107 | 46,854 | 41,253 |
| Financial Instruments: Equity and Liabilities | 836,621 | 90,449 | 746,172 | 46,854 | 699,318 |
| BALANCE SHEET VALUE |
NOT WITHIN THE SCOPE OF IAS 39 |
IAS 39 FINANCIAL INSTRUMENTS |
OF WHICH MEASURED AT FAIR VALUE |
OF WHICH MEASURED AT AMORTIZED COST |
|
|---|---|---|---|---|---|
| DEC. 31, 2017 | |||||
| Financial investment | 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 |
The fair value of financial liabilities is EUR 596,963 thousand (previous year: 533,319 thousand). The fair value of all other financial instruments measured at amortized costs corresponds to the amortized costs, or deviates immaterially.
| CARRYING AMOUNT | NET GAINS/LOSSES | ||||
|---|---|---|---|---|---|
| BUSINESS MODEL IN ACC. WITH IFRS 9 |
IAS 39 CATEGORY | DEC. 31, 2018 | DEC. 31, 2017 | 2018 | 2017 |
| Financial assets measured at fair value through profit and loss |
Measured at fair value through profit and loss |
404 | 99 | 305 | -761 |
| Financial assets measured at cost | Loans and receivables | 324,621 | 339,616 | -323 | -3,930 |
| Financial assets recognized at fair value directly in equity |
Financial instruments available for sale |
2,612 | 2,591 | 211 | 75 |
| Financial Instruments: Assets | 327,637 | 342,306 | 193 | -4,616 | |
| Financial liabilities measured at fair value through profit and loss |
Measured at fair value through profit and loss |
46,854 | 68,622 | -2 | -13 |
| Financial liabilities measured at cost |
Financial liabilities measured at residual carrying amount |
699,318 | 650,018 | 71 | -1,394 |
| Financial Instruments: Equity and Liabilities |
746,172 | 718,640 | 69 | -1,407 |
Total interest income and expenses for financial instruments not measured at fair value through profit and loss amount to EUR -12,957 thousand (previous year: EUR -14,963 thousand).
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 and cash equivalents to enable the firm to take action at any time (2018: EUR 109,647 thousand, previous year: EUR 135,881 thousand). It also has unused credit lines totaling EUR 29,782 thousand (previous year: EUR 34,028 thousand).
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 OUTFLOW | (in EUR '000) | |||||
|---|---|---|---|---|---|---|
| DEC. 31, 2018 | DEC. 31, 2017 | |||||
| 1 YEAR | 1 TO 5 YEARS | MORE THAN 5 YEARS |
1 YEAR | 1 TO 5 YEARS | MORE THAN 5 YEARS |
|
| Interest rate derivatives | 1,551 | 6,027 | 1,176 | 1,468 | 6,462 | 2,159 |
| Total derivative financial instruments | 1,551 | 6,027 | 1,176 | 1,468 | 6,462 | 2,159 |
| Financial liabilities | 136,620 | 403,528 | 87,121 | 104,424 | 368,484 | 98,252 |
| Trade payables | 65,659 | 0 | 0 | 66,162 | 0 | 0 |
| Other liabilities | 150,825 | 25,753 | 1,978 | 174,081 | 26,913 | 2,261 |
| Total financial instruments | 353,104 | 429,281 | 89,099 | 344,667 | 395,397 | 100,513 |
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. Based on total trade accounts receivable, there are seven customers (previous year: 8) with a share of more than 1% each. This equates to a share of about 24% of open items as recognized in the consolidated financial statements (previous year: 25%). The ten largest customers accounted for approximately 26% of Group sales (previous year: approximately 28%).
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.
DEFAULT RISK ON RECEIVABLES
* without contract receivables (sales recognition in accordance with the over time method).
The following table contains information on the estimated default risk and expected credit losses on trade receivables:
| LOSS RATE (WEIGHTED AVERAGE) |
GROSS CARRYING AMOUNT |
IMPAIRMENT | IMPAIRED CREDIT RATING |
|
|---|---|---|---|---|
| Not overdue | 0.25% | 149,538 | 378 | No |
| Between 1 and <3 months overdue | 1.05% | 37,813 | 397 | No |
| Between 3 and <6 months overdue | 4.76% | 3,491 | 166 | No |
| Between 6 and <9 months overdue | 9.04% | 1,814 | 164 | No |
| Between 9 and <12 months overdue | 15.20% | 1,237 | 188 | No |
| >12 months overdue | 50.10% | 2,517 | 1,261 | Yes |
The anticipated default risk is determined on the basis of historical data, particularly historical default rates.
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. This means employing 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 value can impact the depiction of the financial position and financial performance, depending on the valuation category of the underlying financial instruments. The following table shows interest rate sensitivity with a parallel shift in the yield curve of 100 base points (BP):
| MARKET PRICE RISK SENSITIVITY ANALYSIS | |||
|---|---|---|---|
| DEC. 31, 2017 | |||
| +100 BP | -100 BP | +100 BP | -100 BP |
| 2,606 | -2,744 | 850 | -883 |
| 2,605 | -2,743 | 847 | -880 |
| 1 | -1 | 3 | -3 |
| 13,907 | -14,593 | 15,379 | -16,221 |
| 16,513 | -17,337 | 16,229 | -17,104 |
| DEC. 31, 2018 | (in EUR '000) |
Because interest rate risks are virtually completely hedged against, economically speaking, changes in interest rates would be offset in variable interest-bearing debt and derivative financial instruments. There would therefore be no material impact on future cash flows.
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 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 conversation would not materially change.
As of the reporting date, currency hedging accounted for a nominal volume of EUR 12,351 thousand (previous year: EUR 13,448 thousand). Most of this exchange rate hedging consisted of transactions in US dollars, Chinese renminbi and British pounds (previous year: US dollars, Chinese renminbi and British pounds). Hedging contracts have a market value of EUR 235 thousand (previous year: EUR -1,150 thousand).
Interest rate hedging accounts for a nominal volume of EUR 270,071 thousand (previous year: EUR 290,544 thousand). The market values amounted to EUR -4,904 thousand (previous year: EUR 3,682 thousand). Interest rate hedges relate to loan transactions already recognized of EUR 120,071 thousand (previous year: EUR 65,544 thousand) and future highly probable loan transactions subject to interest rate risks of EUR 150,000 thousand (previous year: EUR 225,000 thousand). Further details on terms and maturities are included in the report on financial liabilities.
The following hedging instruments are part of hedge accounting:
| HEDGE ACCOUNTING IN ACC. WITH IFRS 9 | ||
|---|---|---|
| HEDGE ACCOUNTING IN ACC. WITH IFRS 9 | (in EUR '000) | |||
|---|---|---|---|---|
| NOMINAL AMOUNTS |
CARRYING AMOUNT OF HEDGING INSTRUMENTS |
BALANCE SHEET ITEM |
CHANGES IN HEDGING INSTRUMENT VALUES RECOGNIZED IN OTHER INCOME |
|
| Cash flow hedges | ||||
| Interest rate hedges | 269,876 | -4,895 | other current liabilities |
-1,231 |
| Exchange rate hedges | 2,022 | -161 | other current liabilities |
503 |
| Total | -5,056 | -728 |
| RECONCILIATION OF PROVISIONS FOR CASH FLOW HEDGES | (in EUR '000) | |
|---|---|---|
| PROVISION FOR CASH FLOW HEDGES |
DEFERRED TAXES FOR CASH FLOW HEDGES |
|
| Balance Jan. 1, 2018 | -4,328 | 773 |
| Change in fair value | ||
| Interest rate hedges | -1,231 | 196 |
| Exchange rate hedges | 503 | -149 |
| Balance Dec. 31, 2018 | -5,056 | 820 |
The average interest rate for interest rate hedges is 1.00% (previous year: 1.78%). The exchange rate hedges are exclusively in USD. The average exchange rate for the exchange rate hedges is EUR 1 = USD 1.1915 USD (previous year: EUR 1 = USD 1.1044).
Collateral furnished for financial liabilities is presented in the following table:
| PLEDGED ASSETS | (in EUR '000) | |
|---|---|---|
| 2018 | 2017 | |
| Land charges | 14,599 | 18,965 |
| Securities collateral | 1,158 | 1,444 |
| Other collateral | 76 | 76 |
| Total collateral | 15,833 | 20,485 |
Obligations from guarantees exist in the amount of EUR 5,886 thousand (previous year: EUR 6,859 thousand). 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:
| 2018 | 2017 | |
|---|---|---|
| Up to 1 year | 18,387 | 15,532 |
| Between 1 and 5 years | 48,531 | 35,191 |
| More than 5 years | 17,057 | 21,256 |
| Total | 83,975 | 71,979 |
Operating lease payments in the current year amounted to EUR 17,562 thousand (previous year: EUR 16,113 thousand).
Obligations arising from purchase commitments for fixed assets came to EUR 19,871 thousand (previous year: EUR 12,714 thousand), of which EUR 18,149 thousand (previous year: EUR 12,700 thousand) was for property, plant and equipment, and EUR 1,722 thousand (previous year: EUR 14 thousand) was for intangible assets.
Real estate lease agreements are completed with rent adjustment clauses that are based on the development of the price index. The agreements generally contain an option to purchase.
The following overview contains payments due in future from finance leases:
| UP TO 1 YEAR |
BETWEEN 1 AND 5 YEARS |
MORE THAN 5 YEARS |
TOTAL |
|---|---|---|---|
| 4,397 | 1,216 | 0 | 5,613 |
| 181 | 108 | 0 | 289 |
| 4,216 | 1,108 | 0 | 5,324 |
| 2,192 | 4,948 | 0 | 7,140 |
| 211 | 265 | 0 | 476 |
| 1,981 | 4,683 | 0 | 6,664 |
There are generally advantageous purchase options in place for the assets, which are partially exercised according to our current understanding. The purchase prices are fixed; there are no price adjustment clauses. The interest rates underlying the agreements remain between 2.6% and 6.9%. There are neither contingent lease payments nor lease payments from sub-lease relationships.
In line with the structure of the INDUS Group, members of management in key positions include the Supervisory Board (6 members between January 1 and November 29, 2018; 12 members between November 29 and December 31, 2018; previous year: 6 members), the INDUS Holding AG Board of Management (2018: January 1–June 30, 2018: 4 members; from July 1, 2018, 3 members; previous year: January 1–September 30, 2017: 3 members; from October 1, 2017: 4 members) and the managing directors of the operating units (2018: 124 people; previous year: 125 people).
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 PAYMENTS |
OF WHICH PENSIONS |
|
| 2018 | |||||
| INDUS Holding AG | |||||
| Supervisory Board | 454 | 454 | 0 | 0 | 0 |
| Board of Management** | 3,255 | 2,870 | 385 | 0 | 0 |
| Subsidiaries | |||||
| Managing directors | 21,736 | 21,522 | 0 | 180 | 34 |
| Family members | 113 | 113 | 0 | 0 | 0 |
| Total | 25,558 | 24,959 | 385 | 180 | 34 |
| 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 |
* 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 extraordinary Annual Shareholders' Meeting of INDUS Holding AG in November 2018. This is stipulated in Section 16 (1) and (2) of the Articles of Incorporation. In addition to reimbursement of out-of-pocket expenses incurred in performing their duties in the fiscal year ended, all Supervisory Board members receive fixed compensation of EUR 30 thousand along with an attendance fee of EUR 3 thousand per meeting. The Chairman receives double the two aforementioned sums, and his deputy receives oneand-a-half times these amounts. In addition to reimbursement of out-of-pocket expenses incurred in performing their duties in the fiscal year ended, all members who sat on a Supervisory Board committee received compensation of EUR 5,000. The Chairmen of the committees received double the above compensation. There are no stock option plans or similar securities-based incentive systems in place for Supervisory Board members. The Supervisory Board met six times in 2018 and also held three telephone conferences (previous year: five meetings).
The long-term incentive plan has been in place since 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 financial year 2018, 61,286 SARs were granted (previous year: 42,887). On the date on which they were granted, the total fair value of the SARs was EUR 385 thousand (previous year: EUR 298 thousand). The amount of SARs granted up to December 31, 2018, amounted to 221,614 (previous year: 225,964). The fair value of previously granted, not yet exercised SARs totaled EUR 471 thousand as of the reporting date (previous year: EUR 1,978 thousand). A provision in this amount was formed in the annual financial statements. The change in fair value before discounting amounts to EUR 1,026 thousand included in other operating and EUR 72 thousand includedi n personnel expenses (previous year: EUR 564 thousand in personnel expenses). The time value calculation is based on an optionprice 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 (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 components of the compensation 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 2018 and the 2017 fiscal year, the compensation paid to the members of the Board of Management of INDUS Holding AG comprised basic salary (including taxable benefits in kind), performance-based variable compensation (short-term incentive program), and a share-based component of the compensation (long-term incentive program).
Board of Management members received a total of EUR 3,582 thousand (previous year: EUR 2,750 thousand). For financial year 2018, this amounts to a total of EUR 3,255 (previous year: EUR 2.460). EUR 1,980 thousand of this was fixed compensation (previous year: EUR 1,506 thousand) and EUR 890 thousand was short-term variable compensation (previous year: EUR 653 thousand) and EUR 385 thousand was for SARs (previous year: EUR 298 thousand). The previous year amounts to EUR 327 thousand (previous year: EUR 290 thousand) See the compensation section of the management report for individual Board of Management compensation.
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.
| SALES AND OTHER OPERATING INCOME |
GOODS PURCHASES |
OTHER PURCHASES |
OPEN ITEMS | LOANS GRANTED |
|
|---|---|---|---|---|---|
| 2018 | |||||
| Related companies | 2,541 | 13 | 100 | 1,361 | 7,384 |
| Family members of BoM members and shareholders | 6 | 0 | 95 | 0 | 0 |
| Non-controlling shareholders | 3,129 | 0 | 1,382 | 0 | 0 |
| Managing directors of portfolio companies | 3,121 | 0 | 514 | 237 | 0 |
| Total related party transactions | 8,797 | 13 | 2,091 | 1,598 | 7,384 |
| 2017 | |||||
| Related companies | 2,674 | 4 | 622 | 1,692 | 7,840 |
| Family members of BoM members and shareholders | 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 |
| 2018 | 2017 | |
|---|---|---|
| Employees per region | ||
| Germany | 7,789 | 7,487 |
| Europe (EU & Switzerland) | 1,499 | 1,411 |
| Rest of world | 1,426 | 1,312 |
| Total | 10,714 | 10,210 |
| Employees per segment | ||
| Construction/Infrastructure | 1,839 | 1,714 |
| Automotive Technology | 3,524 | 3,557 |
| Engineering | 2,027 | 1,830 |
| Medical Engineering/Life Science | 1,687 | 1,540 |
| Metals Technology | 1,602 | 1,538 |
| Other | 35 | 31 |
| Total | 10,714 | 10,210 |
External auditor Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft's fee for auditing the consolidated financial statements amounted to EUR 355 thousand (previous year: EUR 238 thousand), of which EUR 46 thousand (previous year: EUR 13 thousand) was for previous years, EUR 65 thousand (previous year: EUR 5 thousand) for other confirmation and valuation services, of which EUR 35 thousand for previous years (previous year: EUR 0 thousand), EUR 11 (previous year: EUR 0 thousand) for accountancy services and EUR 0 thousand (previous year: EUR 6 thousand) for other services. "Confirmation services" refer to auditing services for the non-financial statement of INDUS Group and a covernance confirmation. Accountancy services essentially refers to the tax appraisal of a question regarding stock corporation law.
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 2018 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, 2018.
No events of material significance occurred after the end of the 2018 fiscal year.
Bergisch Gladbach, Germany, March 21, 2019
INDUS Holding AG
The Board of Management
Dr. Johannes Schmidt Dr. Jörn Großmann
Axel Meyer Rudolf Weichert
INDUS Annual Report 2018
| 01 | 02 | 03 |
|---|---|---|
| COMPANY AND SHAREHOLDERS |
SUSTAINABILITY AT INDUS |
COMBINED MANAGEMENT REPORT |
05
04 CONSOLIDATED FINANCIAL STATEMENTS
| P. 164 | RESPONSIBILITY STATEMENT |
|---|---|
| P. 165 | DIVIDEND PROPOSAL |
| P. 166 | REPORT OF THE INDEPENDENT GROUP AUDITORS |
| P. 172 | FURTHER INFORMATION ON THE BOARD MEMBERS |
| P. 174 | INVESTMENTS OF THE INDUS HOLDING AG |
| P. 176 | KEY FIGURES |
| P. 178 | OVERVIEW PORTFOLIO COMPANIES |
| P. 185 | CONTACT FINANCIAL CALENDAR IMPRINT |
We hereby certify, to the best of our knowledge, that in accordance with the applicable accounting principles as of December 31, 2018, 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 2018 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, 2019
The Board of Management
Dr. Johannes Schmidt Dr. Jörn Großmann Axel Meyer Rudolf Weichert
The following proposal will be submitted to the Annual Shareholders' Meeting regarding the appropriation of the balance sheet profit for the 2018 fiscal year to the amount of EUR 76,345,600.07:
| Payment of a dividend of EUR 1.50 per no-par-value share (24,450,509) on the capital stock of EUR 63,571,323.62 | 36,675,763.50 |
|---|---|
| Transfer to other retained earnings | 38,000,000.00 |
| Profit carried forward | 1,669,836.57 |
| Balance sheet profit | 76,345,600.07 |
Bergisch Gladbach, March 21, 2019
The Board of Management
Dr. Johannes Schmidt Dr. Jörn Großmann Axel Meyer Rudolf Weichert
To INDUS Holding AG, Bergisch Gladbach, Germany
We have audited the consolidated financial statements of INDUS Holding Aktiengesellschaft, Bergisch Gladbach, Germany, and its subsidiaries (the Group) – consisting of the consolidated statement of financial position as of December 31, 2018, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in net equity and the consolidated statement of cash flows for the fiscal year from January 1, 2018, to December 31, 2018, along with the notes to the consolidated financial statements, 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, 2018, to December 31, 2018. In accordance with German legal requirements, we have not audited the content of the INDUS Group's separate nonfinancial 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 "Nonfinancial Key Performance Indicators" and "Corporate Governance" sections of the combined management report.
In our opinion, on the basis of the knowledge obtained in the audit,
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 as "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 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, 2018, to December 31, 2018. 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:
The consolidated financial statements include the balance sheet item "Goodwill". As of the reporting date, goodwill in the amount of EUR 418.6 million was recognized. This goodwill is allocable to 42 cash-generating units.
As a result of the annual impairment test, impairment losses of EUR 16.1 million were recorded in relation to three cash-generating units.
Company information relating to goodwill is contained in section 18 of the Notes.
Cash-generating units that have goodwill allocated to them are subject to impairment testing as required or at least once a year. The recoverable amount of a cash-generating unit, which must be compared with the carrying amount, including goodwill, of the cash-generating unit, is the higher of the two values from the fair value less costs of disposal or value in use. The value in use is generally used to determine the recoverable amount. The present value of future cash flows forms the underlying basis for this, as there are usually no market values available for cash-generating units.
During impairment testing, the value in use is determined using an evaluation method based on discounted cash flow, which in turn is based on expectations regarding the future development of the individual operating activities and the estimates concerning the resulting future cash flows. Discounting is based on the weighted capital costs of the individual reporting segments. The results of impairment tests are subject to the influence of estimated values and therefore considerable uncertainty. In light of this and due to the complexity of the evaluation, this matter was in our view of particular importance in the context of the audit.
b) Audit approach and conclusions
As part of our audit we assessed the plans upon which the impairment testing of material goodwill deemed at risk is based by means of analysis of the planning assumptions 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, we have assessed the planning accuracy by comparing planning for the previous year against the actual values achieved.
We focused in particular on that material goodwill for which there was an indication of impairment or for which the recoverable amounts 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 discounting interest rates 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 are arrived at professionally, are within an acceptable range in our opinion and are in line with our expectations overall.
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
The legal representatives are responsible for preparing the consolidated financial statements that comply, in all material respects, with IFRS 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, in compliance with these requirements, give a 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 in compliance 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, is 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 Generally Accepted Standards for Financial Statement Audits of the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (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:
requirements of German commercial law in accordance with Section 315e (1) HGB.
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 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 the external auditor for the separate and consolidated financial statements at the Annual Shareholders' Meeting on May 24, 2018. We were engaged by the Supervisory Board on Monday, August 06, 2018. 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 external 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, 2019
Ebner Stolz GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
Nikolaus Krenzel Marcus Lauten
Wirtschaftsprüfer Wirtschaftsprüfer
(SINCE NOVEMBER 29, 2018) Businessman CHAIRMAN (SINCE NOVEMBER 29, 2018)
(SINCE NOVEMBER 29, 2018)1 Managing Director IG Metall, Frankfurt am Main DEPUTY CHAIRMAN (SINCE NOVEMBER 29, 2018)
Fully qualified lawyer, CEO of Investitionsbank Berlin, Berlin DEPUTY CHAIRMAN (UNTIL NOVEMBER 29, 2018)
Fully qualified lawyer, Spokesman for the Management of the Brüder Schlau, Porta Westfalica group of companies
Graduate economist, Spokesperson for the Management of the Gebrüder Becker, Wuppertal group of companies
First Authorized Representative of IG Metall – Freudenstadt office, Freudenstadt
Deputy Chairperson of the Karl Simon GmbH & Co. KG works council, Aichhalden
(SINCE JANUARY 30, 2019)1 Lawyer (commercial law), M. Braun Inertgas-Systeme GmbH, Garching
Graduate physicist, professor for family enterprises at WHU – Otto Beisheim School of Management, Vallendar
(SINCE NOVEMBER 29, 2018)1
Head of Finance/Management Control department at Karl Simon GmbH & Co. KG, Aichhalden
Graduate mathematician, member of the supervisory board of Versicherungskammer Bayern, Munich
1) Employee representative to the Supervisory Board
2) This mandate is with a group company of Investitionsbank Berlin.
3) These mandates are with group companies of Versicherungskammer Bayern.
Shift Manager at S.M.A Metalltechnik GmbH & Co. KG, Backnang
CHAIRMAN (UNTIL NOVEMBER 29, 2018)
Businessman (Business graduate)
Head of Quality Planning at Selzer Fertigungstechnik GmbH & Co. KG, Driedorf
Engineer (Graduate engineer), Managing Director of Alfred H. Schütte GmbH & Co. KG, Cologne
Further mandates in advisory bodies: — Richard Bergner Holding GmbH & Co. KG (since 2018)
(UNTIL JUNE 30, 2018) CHAIRMAN OF THE BOARD OF MANAGEMENT (UNTIL JUNE 30, 2018)
(SINCE JANUARY 1, 2019) Dr. rer. nat., MBA
AXEL MEYER Dipl.-Wirtschafts-Ing., LL.M.
Business graduate
— Börsenrat Börse Düsseldorf (from January 1, 2017)
| BY SEGMENTS | CAPITAL (IN EUR MILLION) | INDUS STAKE (IN %) |
|---|---|---|
| Construction/Infrastructure | ||
| ANCOTECH AG, Dielsdorf/Switzerland* | 4.10** | 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* | 1.74 | 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* | 1.82 | 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* | 5.35 | 100 |
| BILSTEIN & SIEKERMANN GmbH + Co. KG, Hillesheim* | 3.11 | 100 |
| IPETRONIK GmbH & Co. KG, Baden-Baden* | 2.64 | 100 |
| KIEBACK GmbH & Co. KG, Osnabrück* | 0.54 | 100 |
| Konrad SCHÄFER GmbH, Osnabrück* | 1.70 | 100 |
| SELZER Fertigungstechnik GmbH & Co. KG, Driedorf* | 9.45 | 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* | 13.77 | 100 |
| Engineering | ||
| ASS Maschinenbau GmbH, Overath* | 0.57 | 100 |
| M. BRAUN Inertgas-Systeme GmbH, Garching b. Munich* | 1.94 | 100 |
| BUDDE Fördertechnik GmbH, Bielefeld* | 0.39 | 75 |
| ELTHERM GmbH, Burbach* | 1.25 | 100 |
| GSR Ventiltechnik GmbH & Co. KG, Vlotho* | 0.57 | 100 |
| HORNGROUP Holding GmbH & Co. KG, Flensburg* | 8.27 | 100 |
| IEF-Werner GmbH, Furtwangen im Schwarzwald | 1.28 | 100 |
| MBN – Maschinenbaubetriebe Neugersdorf GmbH, Ebersbach-Neugersdorf* | 0.74 | 75 |
M+P International Mess-und Rechnertechnik GmbH, Hannover* 1.23 77 PEISELER GmbH & Co. KG, Remscheid* 1.04 80 TSN Turmbau Steffens & Nölle GmbH, Berlin 0.50 100
| BY SEGMENTS | CAPITAL (IN EUR MILLION) | 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 | 100 |
| ROLKO Kohlgrüber GmbH, Borgholzhausen* | 0.65 | 100 |
| 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 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|---|---|---|
| Statement of Income | ||||||||
| Sales | 1,097,125 | 1,105,271 | 1,186,785 | 1,255,723 | 1,388,857 | 1,444,270 | 1,640,640 | 1,710,788 |
| of which domestic | 592,907 | 569,488 | 611,191 | 655,198 | 708,993 | 735,486 | 815,497 | 878,860 |
| of which abroad | 504,218 | 535,783 | 55,594 | 600,525 | 679,864 | 708,784 | 825,143 | 831,928 |
| Personnel expenses Personnel expenses ratio |
292,129 | 306,240 | 322,628 | 349,010 | 392,012 | 430,230 | 479,679 | 506,637 |
| (personnel expenses as % of sales) |
26.6 | 27.7 | 27.2 | 27.8 | 28.2 | 29.8 | 29.2 | 29.6 |
| Cost of materials | 544,840 | 523,555 | 562,789 | 598,204 | 651,562 | 648,685 | 745,894 | 811,929 |
| Cost of materials ratio (cost of materials as % of sales) |
49.7 | 47.4 | 47.4 | 47.6 | 46.9 | 44.9 | 45.5 | 47.5 |
| EBITDA | 159,972 | 151,778 | 162,270 | 175,156 | 186,408 | 200,910 | 215,303 | 218,342 |
| Depreciation/amortization | 46,759 | 45,818 | 43,685 | 47,970 | 50,103 | 55,976 | 62,438 | 83,657 |
| Operating income (EBIT) | 113,213 | 105,960 | 118,585 | 127,186 | 136,305 | 144,934 | 152,865 | 134,685 |
| EBIT margin (EBIT as % of sales) |
10.3 | 9.6 | 10.0 | 10.1 | 9.8 | 10.0 | 9.3 | 7.9 |
| Interest | 22,961 | 21,093 | 19,889 | 26,481 | 27,010 | 21,556 | 23,674 | 19,979 |
| EBT | 90,253 | 84,867 | 98,696 | 100,705 | 109,295 | 123,378 | 129,191 | 114,706 |
| Group net income for the year (earnings after taxes) |
55,635 | 52,481 | 63,974 | 63,314 | 68,287 | 80,418 | 83,074 | 71,185 |
| Earnings per share, basic as per IFRS (in EUR) |
2.75 | 2.47 | 3.02 | 2.74 | 2.78 | 3.27 | 3.37 | 2.90 |
| Statement of Financial Position |
||||||||
| Assets | ||||||||
| Intangible assets | 313,877 | 310,706 | 360,493 | 412,268 | 453,630 | 483,008 | 515,044 | 509,420 |
| Property, plant and equipment |
245,453 | 253,917 | 271,833 | 306,818 | 334,846 | 369,331 | 397,008 | 418,227 |
| Inventories | 222,778 | 219,058 | 236,056 | 265,690 | 281,612 | 308,697 | 339,154 | 408,693 |
| Receivables | 108,422 | 137,054 | 156,218 | 162,091 | 160,744 | 177,626 | 197,528 | 202,523 |
| Other assets | 26,530 | 41,333 | 40,383 | 45,029 | 56,752 | 55,762 | 68,571 | 71,508 |
| Cash and cash equivalents | 123,107 | 98,710 | 115,921 | 116,491 | 132,195 | 127,180 | 135,881 | 109,647 |
| Equity and liabilities | ||||||||
| Equity | 382,095 | 414,138 | 515,330 | 549,872 | 595,430 | 644,568 | 673,813 | 709,825 |
| Provisions | 65,552 | 68,229 | 74,566 | 80,750 | 92,235 | 96,815 | 118,730 | 118,966 |
| Financial liabilities | 434,283 | 440,497 | 423,529 | 462,315 | 488,550 | 503,731 | 534,846 | 592,406 |
| Other equity and liabilities | 158,237 | 137,914 | 167,479 | 215,450 | 243,563 | 276,490 | 325,797 | 298,821 |
| Total assets | 1,040,167 | 1,060,778 | 1,180,904 | 1,308,387 | 1,419,778 | 1,521,604 | 1,653,186 | 1,720,018 |
| ٠ | |
|---|---|
| -- |
| in EUR '000 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|---|---|---|
| Group equity ratio (equity/total assets) as % |
36.7 | 39.0 | 43.6 | 42.0 | 41.9 | 42.4 | 40.8 | 41.3 |
| Non-current financial liabilities |
322,604 | 331,146 | 304,769 | 367,935 | 367,935 | 389,757 | 439,545 | 465,886 |
| Current financial liabilities | 111,679 | 109,351 | 118,760 | 94,381 | 111,616 | 113,974 | 95,301 | 126,520 |
| Net debt (non-current and current financial liabilities - cash and cash equivalents) |
311,176 | 341,787 | 307,608 | 345,824 | 356,356 | 376,551 | 398,965 | 482,759 |
| Net debt/EBITDA | 1.9 | 2.3 | 1.9 | 2.0 | 1.9 | 1.9 | 1.9 | 2.2 |
| Trade payables Advance prepayments |
46,056 | 37,313 | 45,543 | 47,942 | 46,749 | 55,409 | 66,162 | 65,659 |
| received and contract liabilities* |
16,694 | 16,016 | 21,983 | 30,263 | 39,860 | 58,409 | 67,569 | 73,378 |
| Working capital (inventories + trade receivables - trade payables - advance payments - contract liabilities*) |
268,450 | 302,783 | 324,748 | 349,576 | 355,746 | 372,505 | 402,951 | 472,180 |
| Gearing (net debt/equity) | 0.8 | 0.8 | 0.6 | 0.6 | 0.6 | 0.6 | 0.6 | 0.7 |
| Equity ratio (earnings after taxes/equity) in % |
14.6 | 12.7 | 12.4 | 11.5 | 11.5 | 12.5 | 12.3 | 10.0 |
| Investments | 58,259 | 53,926 | 100,895 | 97,156 | 107,380 | 103,884 | 111,425 | 102,401 |
| Statement of Cash Flows | ||||||||
| Operating cash flow | 130,158 | 68,428 | 117,411 | 104,385 | 157,341 | 137,945 | 144,942 | 96,010 |
| Cash flows from operating activities |
106,238 | 45,919 | 97,522 | 86,961 | 130,942 | 114,564 | 123,962 | 74,654 |
| Cash flow from investing activities |
-56,929 | -53,525 | -99,625 | -95,234 | -112,768 | -104,454 | -109,956 | 98,317 |
| Cash flow from financing activities |
-23,349 | -16,523 | 19,977 | 8,195 | -3,149 | -14,938 | -3,898 | -2,706 |
| Cash flow per share (in EUR) | 5.17 | 2.07 | 4.35 | 3.56 | 5.36 | 4.69 | 5.07 | 3.05 |
| Other Performance Indicators |
||||||||
| XETRA year-end price (in EUR) | 18.86 | 20.26 | 29.20 | 38.11 | 44.51 | 51.64 | 59.50 | 39.00 |
| Average number of shares | 20,543,819 | 22,227,737 | 22,410,431 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 |
| Number of shares at year end | 22,227,737 | 22,227,737 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 | 24,450,509 |
| Market capitalization | 419,215 | 450,334 | 713,955 | 931,809 | 1,088,292 | 1,262,624 | 1,454,805 | 953,570 |
| Total dividend (in EUR million)** |
22,228 | 22,228 | 26,896 | 29,341 | 29,341 | 33,008 | 36,676 | 36,676 |
| Dividend per share (in EUR)** | 1.00 | 1.00 | 1.10 | 1.20 | 1.20 | 1.35 | 1.50 | 1.50 |
| Number of portfolio companies |
39 | 38 | 40 | 42 | 44 | 44 | 45 | 45 |
* Previous year: construction contracts with a negative balance.
** Total dividend amount and dividend per share for the fiscal year; dividend proposal for the 2018 fiscal year – subject to approval at Annual Shareholders' Meeting on May 29, 2019.
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
| 25 | ||
|---|---|---|
| 45 6 |
29 5 24 1516 36 8 7 22 35 |
31 |
| 3040 2 3 21 43 13 |
INDUS HOLDING AG 23 17 10 32 34 12 |
27 20 11 |
| 38 26 |
19 14 4 41 9 42 28 44 18 |
|
| 37 39 |
1 33 |
|
| AUTOMOTIVE TECHNOLOGY |
ENGINEERING | MEDICAL ENGINEERING/ LIFE SCIENCE |
ANCOTECH
| TECHNOLOGY |
|---|
| 12 AURORA |
| 13 BILSTEIN & SIEKERMANN |
METALS TECHNOLOGY BACHER BETEK HAKAMA KÖSTER MEWESTA PLANETROLL RÜBSAMEN SIMON VULKAN INOX
IMECO MIKROP OFA RAGUSE ROLKO
Serbia
Morocco
EUR 358.7 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.
Special reinforcements and tanker transport systems Sales 2018: EUR 40.4 million www.ancotech.com
Concrete construction solutions Sales 2018: EUR 18.4 million www.betomax.de
Sealants made from silicone and acrylic Sales 2018: EUR 40.4 million www.fsbf.com
Edge and wrapping veneer for the furniture and construction industries Sales 2018: EUR 27.8 million www.h-heitz.de
Innovative sealing systems for cables and pipes Sales 2018: EUR 75.8 million www.hauff-technik.de
Section construction for expansion joints Sales 2018: EUR 14.5 million www.migua.de
Individual front door panels Sales 2018: EUR 26.4 million www.obuk.de
Efficient heating technology Sales 2018: EUR 50.5 million www.remko.de
Energy-efficient ventilation and air-conditioning technology Sales 2018: EUR 13.5 million www.klima-schuster.de
Modern pipeline and cable duct construction Sales 2018: EUR 45.3 million www.weigandbau.de
High-quality powder coating of metals Sales 2018: EUR 5.7 million www.weinisch.de
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 pre-series and small series 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.
Heating and air-conditioning systems for commercial vehicles Sales 2018: EUR 59.8 million www.aurora-eos.com
Cold extrusion parts, turned parts and locking screws Sales 2018: EUR 18.4 million www.bsh-vs.com
Measurement systems and services for automotive development Sales 2018: EUR 49.6 million www.ipetronik.com
Prototype parts and small series for the automotive industry Sales 2018: EUR 10.6 million www.k-s-group.eu/kieback
Model and mold construction for the automotive and aviation industries Sales 2018: EUR 20.6 million www.k-s-group.eu/schaefer
Precision metal technology for the series production of automobiles Sales 2018: EUR 87.3 million www.selzer-automotive.de
Tire studs and carbide tools Sales 2018: EUR 23.2 million www.sitek.de
Products for automotive air-conditioning and servo technology Sales 2018: EUR 66.0 million www.sma-metalltechnik.de
Precision plastics Sales 2018: EUR 55.5 million www.wiesauplast.de
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 2018: EUR 22.8 million www.ass-automation.com
Specialist in logistics and materials flows Sales 2018: EUR 71.0 million www.budde-foerdertechnik.de
Specialist in electrical heat tracing systems Sales 2018: EUR 44.0 million www.eltherm.com
Innovative valve technology for demanding industrial applications Sales 2018: EUR 23.7 million www.ventiltechnik.de
Refueling technology and workshop solutions worldwide Sales 2018: EUR 31.9 million www.tecalemit.de
Automation components and systems Sales 2018: EUR 26.7 million www.ief-werner.de
Sophisticated solutions for special machinery and plant technology Sales 2018: EUR 47.3 million www.mbn-gmbh.de
Inert gas glove box systems for industry and research Sales 2018: EUR 66.7 million www.mbraun.de
Measurement and test systems for vibration control and analysis Sales 2018: EUR 12.8 million www.mpihome.com
High-precision indexing devices and rotary tilt tables for machine tools Sales 2018: EUR 28.2 million www.peiseler.de
International construction of towers Sales 2018: EUR 11.9 million www.turmbau.de
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 surgical stockings and bandages, 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 2018: EUR 26.1 million www.imeco.de
Miniaturized precision optics Sales 2018: EUR 15.0 million www.mikrop.ch
Compression hosiery and bandages Sales 2018: EUR 74.6 million www.ofa.de
Indication-specific production of surgical drapes Sales 2018: EUR 13.1 million www.raguse.de
Rehabilitation equipment Sales 2018: EUR 25.5 million www.rolko.de
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 diagnostics, blasting agents for the steel industry, and bolt welding technology for bridges and other applications.
Components made from steel and aluminum Sales 2018: EUR 20.8 million www.bacherag.ch
Carbide-tipped wear parts Sales 2018: EUR 222.0 million www.betek.de
High-performance sheet metals Sales 2018: EUR 21.4 million wwwhakama.ch
Cold working parts and stud welding technology Sales 2018: EUR 16.2 million www.koeco.net
GMBH & CO. KG, MÜNSINGEN Hydraulic control blocks and
systems Sales 2018: EUR 7.3 million www.mewesta.de
Stirring technology and power transmission technology Sales 2018: EUR 5.8 million www.planetroll.de
Metal processing and forming technology Sales 2018: EUR 57.5 million www.helmut-ruebsamen.de
Components and assemblies made from metal and plastic Sales 2018: EUR 41.7 million www.simongruppe.de
Granules for surface treatment Sales 2018: EUR 27.3 million www.vulkan-inox.de
Nina Wolf Senior Manager Corporate Communication 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, 2019 | Publication annual report and annual earnings 2018 |
| March 28, 2019 | Analysts' conference on financial year 2018, Frankfurt/Main |
| May 14, 2019 | Interim report Q1 2019 |
| May 29, 2019 | Annual Shareholders' Meeting 2019, Cologne |
| August 13, 2019 | Interim report Q2/H1 2019 |
| November 14, 2019 | Interim report Q3 2019 |
Dr.-Ing. Johannes Schmidt
March 27, 2019
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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