ANNUAL REPORT 2017

Notes to the Consolidated Financial Statements

as at December 31, 2017

BUSINESS PERFORMANCE

Feintool International Holding AG, Industriering 8, 3250 Lyss, is a public limited company under Swiss law with headquarters in Lyss, Switzerland ("Company"). The consolidated financial statements for the period from January 1 to December 31, 2017, include the Company and its subsidiaries ("Feintool"). Feintool is the world's leading technology group specializing in the development of fineblanking systems and the production of ready-to-install fineblanking and forming components, notably for the automobile industry. The Group maintains close partnerships with its customers across the entire fineblanking and forming process – from component design, tool design and system construction through to large-scale series parts production. In addition to fineblanking, the Feintool Group also deploys other key processes such as precision forming and orbital technology, and is the world’s only supplier of all-round solutions for the cost-effective manufacture of complex precision components.

With locations in Europe, Japan, China and the US, the Feintool Group is represented in the world's major automotive markets. Headquartered in Lyss, Switzerland, the Group has a headcount of 2 485. At its various locations, Feintool provides training for 81 young people mainly as polymechanics, constructing engineers and commercial traders.

GENERAL INFORMATION

The consolidated financial statements for the financial year are based on the financial statements of the Group companies as at December 31, 2017, which were prepared in accordance with consistent accounting policies.

The consolidated financial statements are prepared in accordance with Swiss law and the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting principles of the SIX Swiss Exchange Listing Regulations have also been observed. In the management's opinion, the consolidated financial statements give a true and fair view of the Group's financial position, results of operations and cash flows.

The consolidated financial statements are prepared on a going-concern basis under the historical cost convention, with the exception of derivative financial instruments (measured at fair value) and net liability or assets from defined benefit plans (measured at present value of defined benefit obligations less fair value of plan assets).

The consolidated financial statements are prepared in Swiss francs (CHF), with amounts rounded to the nearest thousand (1 000). They are available in German and English. The German version is authoritative.

FINANCIAL COVENANTS

On June 13, 2017, Feintool signed a CHF 90 million syndicated loan agreement in cash loans with six banks with an option of increase about CHF 60 million. The contract is setted for a period of five years (up to June 2022) and has an option for renewal of one year. The syndicated loan defines a number of covenants, the principal one being:

  • Equity ratio > 30 %
  • Net Senior Debt / EBITDA < 3.0 x

As of December 31, 2017, CHF 8.2 million of the syndicated loan had been used.

On July 15, 2016, a promissory note was issued in the amount of EUR 65 million. The issuer, with a guarantee from Feintool International Holding AG, is Feintool Holding GmbH based in Germany. The loan is divided into three tranches with different maturities.

  • EUR 25 million, term of 5 years, fixed interest rate of 0.90 %;
  • EUR 25 million, term of 7 years, fixed interest rate of 1.10 %;
  • EUR 15 million, term of 10 years, fixed interest rate of 1.66 %.

Standard covenants are defined in the loan agreement. The only material covenant to be complied with is:

  • Equity ratio > 25 %

Credit agreements concluded on a bilateral basis with various banks also contain standard covenants. If the Group or individual companies were unable to meet these covenants, the banks would have the right to terminate the loans at short notice.

As at December 31, 2017, all covenants had been met. Feintool has CHF 81.8 million (previous year CHF 25.0 million) in unused, confirmed creditlines at the bank.

KEY ESTIMATES

The consolidated financial statements contain assumptions and estimated amounts which affect the amounts reported. Should these estimates and assumptions prove incorrect or incomplete, this may substantially affect the amounts reported and therefore Feintool's financial position, results of operations and cash flows.

Property, plant and equipment

Items of property, plant and equipment are carried at cost less accumulated depreciation. Feintool regularly reviews whether the depreciation period chosen at the time matches the actual useful life, or capacity utilization rate, of the item of property, plant and equipment. If significant differences between the depreciation period and useful life are identified, the depreciation period is adjusted accordingly. If the expected cash flows on the item of property, plant and equipment no longer cover future depreciation, impairment losses are recognized.

Intangible assets/goodwill

The fair value of intangible assets is estimated at the date of acquisition. The residual value (difference between the purchase price and fair value of net assets acquired) represents goodwill. Most intangible assets acquired have a finite life and are therefore amortized. Goodwill has an indefinite life and is not amortized, but is instead tested annually for impairment. The allocation to intangible assets and goodwill on the acquisition date therefore has an effect on amortization in subsequent periods.

When testing goodwill for impairment, various estimates are made which require medium and long-term (terminal value) estimates. This relates to both internally projected data (cash flow, growth rates, etc.) and external parameters (discount rate). Should these estimates prove incorrect, significant changes in value might result. Further information is given in Note 18.2.

Current tax receivables and deferred tax assets

Feintool is liable to taxation in various jurisdictions. Provisions for income taxes incurred worldwide are based on estimates. For many transactions and calculations in its ordinary business, the tax charge is uncertain. If actual tax charges differ from the estimated charges, the corresponding adjustment is recognized in the financial year in which the definitive assessment is made. Management considers the corresponding estimates to be realistic and the corresponding provisions to be appropriate. Deferred tax assets are formed from temporary differences, and from tax loss carryforwards, but only if realization is deemed probable. The recoverable amount of capitalized tax assets recognized for loss carryforwards is therefore based on future forecasts for the relevant taxable entity over a period of several years. Should these future forecasts prove incorrect, significant changes in value might result. Further information is given in Notes 10 and 11.

Research & development

On its balance sheet, Feintool carries purchased as well as its own research and development work if the following conditions are met cumulatively:

  • Technical feasibility of completion of the intangible asset, so that it will be available for sale directly or indirectly
  • Intention to complete and sell the asset directly or indirectly
  • Ability to sell the asset directly or indirectly,
  • Evidence of the future benefit to the products of the intangible asset,
  • Availability of adequate financial, technical and other resources for conclusion of the development,
  • Reliable measurability of the production costs.

All the above points are based on assumptions. Should these assumptions prove incorrect or incomplete, this may substantially affect valuation of the corresponding intangible asset. Further information is given in Note 18.1.

Provisions

Provisions are recognized if (a) a present obligation to a third party has arisen as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (c) the amount of the obligation can be reliably estimated. Provisions are recognized for a number of possible events and are explained in detail in Note 23. By definition, however, they involve a higher degree of estimation than other items in the balance sheet, since the estimated obligations may result in a higher or lower outflow of funds depending on the outcome of the situation.

Employee benefit plans

Feintool operates defined benefit plans for its employees in three countries. Their accounting status is in part based on long-term actuarial assumptions, which may differ from reality. Reassessments arising from changes in assumptions regarding life expectancy, developments in the capital market and changes in discount rates can amount to considerable sums. These are recognized directly in equity (other comprehensive income). Calculation of the respective underlying percentages involves estimated amounts that may substantially affect the financial position and results of operations. Further information is given in Note 26.

The Board of Directors and management believe the basis of planning and the assumptions to be realistic.

SIGNIFICANT CHANGES IN ACCOUNTING POLICIES

With the exception of newly issued or revised Standards and Interpretations that became effective in the financial year, Feintool essentially applies the same accounting policies as those applied in the previous year. On January 1, 2017, Feintool adopted the following new Standards and Interpretations:

  • Amendments to IAS 7 – Disclosure Initiative
  • Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses
  • Annual Improvements IFRS – 2014 to 2016 Cycle, IFRS 12

Feintool is either unaffected by these changes, or the changes have no effect or no material effect on its financial position, results of operations or cash flows.

NEW ACCOUNTING REQUIREMENTS

At the end of the reporting period, various new IFRS requirements had been issued but were not yet effective. Feintool decided against early adoption of the following standards, revised standards and interpretations. Feintool plans to adopt the changes from the financial years beginning on or after the date indicated:

  • Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions (January 1, 2018)
  • Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (January 1, 2018)
  • IFRS 9 – Financial Instruments (January 1, 2018)
  • Amendments to IAS 40 – Transfers of Investment Property (January 1, 2018)
  • IFRIC 22 – Foreign Currency Transactions and Advance Consideration (January 1, 2018)
  • Annual Improvements IFRS – 2014 to 2016 Cycle, IFRS 1, IAS 28 (January 1, 2018)
  • Amendments to IFRS 9 – Prepayment Features with
  • Negative Compensation (January 1, 2019)
  • Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures (January 1, 2019)
  • IFRIC 23 – Uncertainty over Income Tax Treatments (January 1, 2019)
  • Annual Improvements IFRS – 2015 to 2017 Cycle, IFRS 3, IFRS 11, IAS 12, IAS 23 (January 1, 2019)
  • IFRS 17 – Insurance Contracts (Januar 1, 2021)

Feintool is assessing the impacts of the revised standards and interpretations. Based on its initial findings, Feintool does not foresee any significant impacts on its financial position, results of operations or cash flows.

  • IFRS 15 – Revenue from Contracts with Customers (January 1, 2018)

The effects of this standard were analyzed extensively. Today, Feintool assumes that the new Standard will only have an insignificant impact on the Group’s financial position, results of operations and cash flows. Individual – relatively rarely occurring – business transactions may cause an increase in the volatility of business results, however. There were no such business transactions in the year under review as well as in the financial year 2016.

  • IFRS 16 – Leases (January 1, 2019)

Feintool anticipates that this new standard will have profound effects on the Group’s financial position, results of operations and cash flows. In particular, the new standard will lead to an increase in non-current liabilities and to a roughly similar recognition of lease assets and liabilities. The new rule is currently being analyzed and preparations made for its implementation. At this point in time, around 2 % higher total assets, 4 to 6 % higher EBITDA, and 0.5 to 1 % higher EBIT are expected. On average, there will be no impact on the consolidated net income. Regardless of the age structure of the rental and operating lease agreements, there may be minor shifts.

BASIS OF CONSOLIDATION

The consolidated financial statements in principle encompass the annual financial statements of Feintool International Holding AG, Lyss (Switzerland), in addition to the financial statements of all Group companies in which Feintool International Holding AG directly or indirectly owns more than 50 % of the voting rights or that it controls in any other way. A list of all investments is provided on page 87.

On October 12, 2017, Columbo GmbH, Amberg, merged with Vireo GmbH, Jena.

On May 10, 2017, the company Feintool Intellectual Property AG, Lyss which was placed in liquidation on March 21, 2016, has been removed from the commercial register.

On April 13, 2017, Feintool International Holding AG, Lyss, acquired 100 % of the shares of Schuler (Tianjin) Metal Forming Technology Center Co., Ltd. in Tianjin (China). The name of the company was then changed to Feintool Automotive System Parts (Tianjin) Co., Ltd.

On October 12, 2016, Feintool International Holding AG, Lyss founded the subsidiary Feintool System Parts Most s.r.o. in the Czech Republic. It is part of the Feintool System Parts segment and its purpose is the production and sale of fineblanked and formed parts.

Retroactive as of January 1, 2016, HL Immobilien AG, Lyss, merged with Feintool System Parts Lyss AG.

METHOD OF CONSOLIDATION

All companies that Feintool controls are included in the consolidated financial statements according to the full consolidation method. Assets and liabilities as well as income and expenses are therefore included in full in the consolidated financial statements. Minority interests in equity and income are disclosed separately in the consolidated balance sheet and the statement of comprehensive income. Intercompany liabilities, credits, expenses and income are offset. Unrealized temporary gains on inventories or assets are eliminated on consolidation.

ACQUISITIONS AND GOODWILL

Newly acquired companies are consolidated using the acquisition method. The balance sheet and income statement are consolidated at the date on which control is obtained. The difference between the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiring party, on the one hand, and the purchase price, on the other, is recognized as goodwill. Acquisition costs are charged immediately to the statement of comprehensive income. After initial measurement, goodwill is reported at cost less any impairments. Goodwill is tested for impairment annually by calculating the recoverable amount (higher of fair value minus disposal costs and value in use) of the relevant cash generating units or group of cash generating units. Where the recoverable amount is less than the carrying amount, an impairment is recognized in the statement of comprehensive income.

Decisions are often made on the level of the business units. Sales are centralized within the business units; orders are distributed across them on the basis of the specific skills of individual plants (machinery, employee experience). This optimizes cash flows for the business units, although the cash flows of the individual production locations change randomly. Feintool has is deciding about impairments on the level of the business units.

When a Group company is sold or control over a Group company is lost, the difference between the selling price and the net assets sold, including goodwill and cumulative foreign exchange gains, is recognized in the statement of comprehensive income under either "Other operating income" or "Other operating expenses". The company is deconsolidated on the date on which control over it is lost.

CURRENCY TRANSLATION

The functional currency of the consolidated entities is the currency of their local economic environment. Transactions in foreign currencies are translated at the respective daily rate. Monetary assets and liabilities in foreign currency are converted into the functional currency at the rate of exchange prevailing on the balance sheet date. In principle, the exchange translation differences are reported in net financial income/finance costs. Non-monetary assets and liabilities at historical cost are translated at the exchange rate applicable at the time of the transaction.

On consolidation, the balance sheet amounts of foreign subsidiaries are translated at closing rates, equity at historical rates and the amounts in the statements of comprehensive income and cash flows at average rates for the year. Exchange differences arising from translation differences in balance sheets and income statements are directly recognized in other comprehensive income and reported under shareholders' equity. When a Group company is sold or liquidated, or when control over the company is lost, the cumulative translation differences are reclassified to net income as part of the gain or loss on disposal.

Foreign currency gains on certain equity-type loans that form part of the net investment in a company are recognized in the statement of comprehensive income (other comprehensive income), provided settlement of these loans is neither planned nor likely to occur in the near future.

The Feintool Group used the following exchange rates in financial years:

2017 2016
Closing rate Average rate Closing rate Average rate
Eurozone EUR 1 1.1702 1.1162 1.0739 1.0905
USA USD 1 0.9757 0.9813 1.0188 0.9882
Czech Republic CZK 100 4.5827 4.2536 3.9743 4.0328
China CNY 100 14.9669 14.5691 14.6226 14.7479
Japan JPY 100 0.8668 0.8757 0.8703 0.8928

FINANCIAL ASSETS AND LIABILITIES

Feintool distinguishes between the following categories of financial assets and financial liabilities:

  • Financial assets or financial liabilities at fair value through profit or loss: These are financial instruments acquired with a view to active management. All derivatives are classified under this heading. These assets are stated at fair value, and all fluctuations in their value are presented in financial result. The fair values of the derivative financial instruments are calculated by the banks.
  • Loans and receivables: These primarily comprise trade receivables and loans granted to third parties. They are measured at their nominal amount, or stated at amortized cost using the effective interest method.
  • Financial assets available for sale: Financial instruments in this category are stated as assets at fair value, with fluctuations in value – whilst taking account of any deferred taxes – being recognized in other comprehensive income. They are only reclassified to net income on disposal of the financial instrument or in the event of impairment.

Financial assets are initially measured at cost, including transaction costs, with the exception of financial assets at fair value through profit or loss, which are capitalized excluding transaction costs. All purchases and sales of financial assets are recognized on the trade date.

Financial liabilities mainly include debt and trade payables, which are measured at amortized cost. Financial liabilities designated at fair value through profit or loss (derivatives) are stated at fair value. Non-current financial liabilities are measured using the effective interest method. In addition to the actual interest payments, interest expenses therefore also include the amounts of annual interest cost and pro rata transaction costs.

Financial assets are de-recognized when Feintool cedes control, i.e. when the related rights are sold or expire. Financial liabilities are de-recognized when repaid.

Currently, Feintool does not apply hedge accounting.

BALANCE SHEET

Cash and cash equivalents

Cash and cash equivalents comprise cash holdings, balances on postal and bank accounts as well as fixed-term deposits with a maturity not exceeding 90 days.

Trade receivables/other receivables

This item contains accounts receivable from ordinary business activities. Bad debt provisions on trade receivables are calculated and recognized based on the actual risk of loss. This includes specific valuation allowances for receivables at risk and a global valuation allowance for the estimated credit risk. Other receivables are stated at their nominal amount less writedowns.

Inventories

Raw materials and purchased goods are stated at weighted average cost. Finished and semi-finished goods are stated at cost of conversion including manufacturing overheads, but at no more than their net realizable values. Inventories with low turnover and obsolete items are written down.

Net assets of construction contracts/work in progress

This item includes all construction contracts and work in progress less prepayments received and necessary allowances for identifiable risks. Construction contracts are accounted for using the percentage of completion (POC) method, provided the following conditions are met:

  • The contract value is greater than CHF 500 000 or the equivalent in foreign currency.
  • Revenues from the contract can be reliably calculated.
  • It is likely that the economic benefit linked to the construction contract will accrue to the company.
  • Contract costs and the stage of completion of the construction contract can be reliably measured.

If these conditions are not met, the income is recognized when the risks and rewards are transferred. If it is expected that the costs from a construction contract will exceed the contractually agreed income, the expected overall loss from the order is charged immediately and in full to the statement of comprehensive income.

The stage of completion of construction contracts is obtained from the ratio between the contract costs incurred and the total cost of the contract (cost-to-cost method), or based pro rata on the time spent (effort-expended method), provided the project can be assumed to proceed on a straight-line basis.

Work in progress is stated at the cost of conversion.

Property, plant and equipment

Items of property, plant and equipment are carried at cost less accumulated depreciation. Cost includes any costs attributable to bringing the asset to the condition necessary for it to operate in the intended manner. Borrowing costs are a component of cost if they are directly attributable to the asset. Subsequent maintenance costs are recognized in the carrying amount if the operational life is extended as a result or production capacity can be increased. Non-value-enhancing maintenance work and repairs are recognized in the income statement. Components of property, plant and equipment with different useful lives are recognized individually and depreciated separately. Depreciation is recognized on a straight-line basis over the estimated useful life. As a rule, land is not written down. Impairments (see separate section) are recognized when the carrying amount no longer appears to be recoverable. Such impairments are presented separately.

As a rule, the following depreciation periods are applied:

Buildings: 20 to 40 years

Plant and equipment: 5 to 15 years

Vehicles: 3 to 5 years

IT hardware: 2 to 5 years

Capitalized costs that are closely linked to leased premises are depreciated over a maximum of the contractually agreed lease term.

Government contributions (funding received) for assets (mostly property, plant and equipment) are deducted from the cost of acquisition or manufacture of the asset in question. As the funding usually comes with certain conditions attached that, if not complied with, would result in the funding having to be repaid, the funding received is also declared as a contingent liability.

Intangible assets

Intangible assets primarily include goodwill, in acquisitions purchased customer relations, patents, software, land-use-rights and certain development costs. The latter are only capitalized if the technical feasibility of completing an asset that is ready for market can be demonstrated, the costs can be measured reliably and the costs appear to be feasible based on the marketplace. Intangible assets are capitalized at cost and amortized over their estimated useful life on a straight-line basis. Any impairments are recognized when the carrying amount no longer appears to be recoverable. Such impairments are presented separately.

Intangible assets (with the exception of goodwill) have a finite life and are amortized as follows:

Patents, brands: max. 10 years

Capitalized development costs: 3 to 5 years, max. 10 years

Software: 2 to 5 years

In acqu. purchased customer relations: max. 10 years

Impairment

The recoverable amount of assets (property, plant and equipment, intangible assets) is reviewed when events or changes in circumstances indicate that the assets may be overvalued. In addition, the recoverable amount of goodwill is reviewed at least annually. If the carrying amount exceeds the recoverable amount (higher of fair value less disposal costs and value in use), it is immediately written down to the net realizable value. When calculating value in use, future cash flows are discounted using a pre-tax discount rate. This discount rate reflects current market assessments and risks specific to the assets in question.

Leases (finance leases)

Finance lease arrangements where the risks and rewards of ownership are transferred to the buyer are recognized in the same way as normal purchases of property, plant and equipment or intangible assets. The asset and the corresponding lease liability are stated at the lower of fair value and the net present value of the lease payments owed. The leased asset is depreciated over its useful life or the shorter term of the lease if there is no reasonable certainty that the lessee will obtain ownership of the leased asset at the end of the lease. Operating leases are not recognized in the balance sheet but are disclosed in the Notes. Lease payments are recognized in the statement of comprehensive income, with any extraordinary elements (e.g. incentives at the beginning of the lease term) taken into account accordingly.

Financial assets

Financial assets include loans granted to third parties and rental deposits. Depending on their nature (see "Financial assets and liabilities"), financial assets are stated at fair value or measured at amortized cost using the effective interest method. Gains and losses on these financial assets are recognized in financial result.

Current liabilities

Current liabilities are those with a remaining term to maturity of less than one year. The current portion of non-current liabilities is also included.

Accrued expenses and deferred income

Expenditures incurred in the period at the end of the reporting year, for which no receipts are yet available, are recognized under accrued expenses and deferred income. On the other hand, revenues received in advance in the period at the end of the reporting year for which no work has yet been performed are also recognized here. In the Feintool Fineblanking Tech-nology segment in particular, it is often the case that clients are billed for fineblanking presses without all supplier invoices having been received as yet or all contractually agreed work on the press having been performed.

Provisions

Provisions are recognized if (a) a present obligation to a third party has arisen as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (c) the amount of the obligation can be reliably estimated. No provisions are recognized for future operating losses. Provisions are recognized for restructuring efforts when the Group company has a constructive obligation to implement restructuring as a result of communicating the plan to the individuals affected by it, and provided the costs can be reliably determined on the basis of a detailed plan. Reversals of provisions no longer required are recognized when the item for which the provision was originally recognized no longer exists or it is no longer probable that this item will occur.

Deferred taxes

Deferred taxes are accounted for using the balance sheet liability method. Under this method, the tax implications of temporary differences between carrying amounts in the consolidated financial statements and the tax base are recognized as a non-current liability or asset. They are generally calculated on the basis of actual or expected local rates of tax. Deferred tax liabilities are calculated for all taxable temporary differences. Deferred tax assets, including those for tax loss carryforwards and expected tax credits, are only recognized if it is probable that profits will be available for realizing the loss carryforwards and tax credits.

Changes in deferred taxes are recognized in the income statement except for deferred taxes on amounts recognized directly in other comprehensive income, which are also recognized in other comprehensive income.

Share-based payments

Shares are issued to Group management as part of their bonus at a contractually predefined amount. Individual members of the Board of Directors receive a contractually predefined number of shares as a bonus.

Employee benefit plans

The Group operates various employee benefit plans, which differ depending on the circumstances of the individual com-pany. The benefit plans are financed through contributions made by the employer and/or the employee to state pension systems, separate legal entities (trusts, insurance companies) or through the accumulation of corresponding provisions in the balance sheet of the company itself.

In the case of defined contribution plans, the accrued expenses correspond to the agreed contributions by the Group companies. In the case of defined benefit plans, the costs are calculated by independent experts in the form of an actuarial report using the projected unit credit method. The calculations are updated periodically. Benefit plans operated by external providers are funded plans, while the agreed commitments of the Group companies themselves are unfunded plans. The liability carried consists of the defined benefit obligation as defined by the actuary, less any assets recognized at fair value.

The expense recorded in the statement of comprehensive income is an actuarial calculation of the cost less contributions from employees. This comprises:

  • Current service cost
  • Interest on the net defined benefit liability
  • Reassessments of defined benefit obligations

The current past service cost is recognized in personnel expense. The impact of changes in pension plan benefits is also reported in personnel expenses. The interest on the net defined benefit liability is recognized in financial expense. The expense or income from reassessments is recognized as other comprehensive income in the statement of comprehensive income.

Other long-term obligations to employees, such as anniver- saries or sabbatical leave programs are recognized using the same methodology, with the exception that any actuarial changes are recognized in personnel expense.

Equity

Equity represents the residual value (assets less liabilities). Capital reserves result from premium payments made by shareholders, transactions involving treasury shares, employee options and the fair value of conversion rights at the time of issue. Retained earnings comprise the income earned and retained by the Group as well as the reassessment of the net defined benefit liability (asset). Acquisitions of treasury stock are deducted from equity at cost. Other payments from equity instruments (derivatives classified as equity) are also taken directly as equity.

REVENUE RECOGNITION

Net sales

Net sales from the sale of goods and services are the sales revenues after taxes, credits and discounts. With the exception of construction contracts accounted for using the percentage of completion (POC) method, sales are recognized when the risks and rewards of ownership are transferred (see "Net assets of construction contracts/work in progress" on page 41 of this report).

Sales of goods include sales of machinery, including peripherals, tools, fineblanked and formed parts, as well as spare parts. Service income comprises income from services performed on plant and machinery.

Other operating income/expenses

Other operating income includes gains on the disposal of property, plant and equipment, investments and various smaller items of income, such as revenue from staff restaurants, IT costs charged to third parties and letting income.

Other operating expenses include operating costs with the exception of material cost and personnel expenses as well as depreciation.

Gains/losses on the disposal of property, plant and equipment are recognized when ownership and the incidental risks and rewards are transferred.

Research & development

Order-related development costs are capitalized as work in progress. Research & development costs are charged in full to the statement of comprehensive income in the year in which they are incurred, provided they are not capitalized. Development costs for new products are capitalized only if there is a likely prospect of realization in technical and market terms, the cost can be measured reliably and it is probable that the expected future economic benefit attributable to the asset will accrue to Feintool.

Interest

Interest is recognized using the effective interest method. Interest not yet received or paid is reported at the end of the reporting period in deferred income or expense. Interest is reported on the statement of comprehensive income under financial result.

1 Segment information

1.1 Products and services 2017 in CHF 1 000 Fineblanking Technology System Parts Total segments Finance/Other Eliminations Total Group
Net sales 91 419 547 420 638 839 -26 506 612 333
- Intersegment income -26 498 -8 -26 506 26 506
Total net sales – Group 64 921 547 412 612 333 612 333
Gross margin 1) 35 013 215 486 250 499 -4 879 245 620
EBITDA 5 660 88 276 93 936 -7 418 -3 277 83 241
Depreciation and amortization -1 682 -35 629 -37 311 -1 561 1 935 -36 937
Operating profit (EBIT) 3 978 52 647 56 625 -8 979 -1 342 46 304
Financial expenses -14 528
Financial income 8 326
Income taxes -12 359
Net income attributable to Feintool Holding shareholders 27 743
Assets 75 643 517 292 592 935 204 816 -200 371 597 380
Net working capital 2) 408 92 330 92 738 26 608 -41 265 78 081
Investments in property, plant and equipment/intangible assets (incl. leases) 1 943 57 768 59 711 2 591 -2 239 60 063
Number of employees 239 2 206 2 445 40 2 485
1.2 Geographical areas 2017 Switzerland Europe excl. Switzerland America Asia Total
Total net sales – Group 3) 5 321 329 348 171 827 105 837 612 333
thereof Germany 229 663
thereof USA 121 928
thereof Japan 39 842
thereof China 54 127
Fixed and intangible assets 46 349 135 192 81 572 60 599 323 711

The following footnotes are applicable to the 2017 and 2016 financial years.

1) The gross margin is calculated as net sales less material costs, the change in finished and semi-finished goods and work in progress, and direct personnel costs.

2) Net working capital comprises trade receivables, inventories, net assets of construction contracts/work in progress and prepaid expenses and accrued income less trade payables, advance payments received from customers and accrued expenses and deferred income. The remaining receivables and liabilities is included in the calculation for “Finances/Other” beginning in financial year 2017. The calculation from the previous year was adjusted accordingly.

3) Net sales is allocated to countries based on the customer's domicile.

4) In financial year 2016, the Swiss pension fund adopted an amendment to its regulation, which had a positive one-off effect of kCHF 7 083 on the statement of comprehensive income in accordance with IAS 19. Reference is also made to Note 5 in these Notes to the financial statements.

1.3 Products and services 2016 in CHF 1 000 Fineblanking Technology System Parts Total segments Finance/Other Eliminations Total Group
Net sales 92 718 479 298 572 016 -19 779 552 237
- Intersegment income -19 766 -13 -19 779 19 779
Total net sales – Group 72 952 479 285 552 237 552 237
Gross margin 1) 36 881 190 462 227 343 -4 802 222 541
Effect of plan amendment in the financial year 4) 1 940 1 264 3 204 3 204
Gross margin 1) 38 821 191 726 230 547 -4 802 225 745
EBITDA before effect of plan amendment 7 105 75 895 83 000 -4 929 -2 086 75 985
Effect of plan amendment in the financial year 4) 3 880 2 528 6 408 675 7 083
EBITDA after effect of plan amendment 10 985 78 423 89 408 -4 254 -2 086 83 068
Depreciation and amortization -2 790 -31 538 -34 328 -1 990 1 672 -34 646
Operating profit (EBIT) 4 315 44 357 48 672 -6 919 -414 41 339
Effect of plan amendment in the financial year 4) 3 880 2 528 6 408 675 7 083
Operating profit (EBIT) 8 195 46 885 55 080 -6 244 -414 48 422
Financial expenses -11 716
Financial income 8 527
Income taxes -13 171
Net income attributable to Feintool Holding shareholders 32 062
Assets 68 108 383 285 451 393 215 299 -135 952 530 740
Net working capital 2) 13 207 60 993 74 200 17 509 -31 067 60 642
Investments in property, plant and equipment/intangible assets (incl. leases) 2 872 71 680 74 552 2 540 -2 238 74 854
Number of employees 242 1 962 2 204 35 2 239
1.4 Geographical areas 2016 Switzerland Europe excl. Switzerland America Asia Total
Total net sales – Group 3) 11 130 276 476 168 751 95 880 552 237
thereof Germany 203 741
thereof USA 116 951
thereof Japan 41 291
thereof China 35 298
Fixed and intangible assets 39 604 106 417 85 511 24 326 255 858

The following footnotes are applicable to the 2017 and 2016 financial years.

The Fineblanking Technology segment develops, manufactures and sells presses, tools, peripheral systems and all related services.

The System Parts segment develops, produces and sells high-precision system components and assemblies using fineblanking and forming technology.

Finances/Other essentially comprises the figures for Feintool International Holding AG, the German sub-holding company Feintool Holding GmbH and the sub-holding company HL Holding AG and its real estate company.

The operating profit/loss comprises all operating income and expenses directly attributable to the individual segments. This includes all cross-segment expenses, which are charged directly on an arm’s-length basis. Feintool's financing is undertaken at the Group level. Financial expenses and income, financial liabilities as well as taxes, are therefore reported only at the Group level and do not appear in the segment reports. Feintool generates 17.4 % (previous year 17.1 %) of consolidated sales with one customer. Income is generated in all segments.

There is no reconciliation of data in management reports and data contained in the financial reports, as internal and external reporting are subject to the same valuation principles.­

2 ACQUISITION OF INVESTMENTS

On April 13, 2017, Feintool International Holding AG, Lyss, acquired 100 % of the shares of Schuler (Tianjin) Metal Forming Technology Center Co., Ltd. in Tianjin (China). The name of the company was then changed to Feintool Automotive System Parts (Tianjin) Co., Ltd.

With the purchase of the Chinese forming plant, Feintool can now offer sophisticated forming applications in all of the important automotive markets and thus continue to expand its market position. The forming business was founded in Tianjin in 2014, employed 52 people at the time of acquisition and has a modern infrastructure that is currently being expanded.

In its first nine months under the Feintool Group, Feintool Automotive System Parts (Tianjin) Co., Ltd. generated sales of CHF 11.6 million and an operating profit (EBIT) of CHF -2.0 million. Had the acquisition taken place on January 1, 2017, the consolidated sales of the Feintool Group would have totaled CHF 613.3 million and the operating result (EBIT) CHF 46.1 million. As Schuler (Tianjin) Metal Forming Technology Center Co. Ltd. did not apply IFRS accounting prior to the date of acquisition, these figures are estimates.

The Purchase Price Allocation is not yet final.

2.1 Consideration for the interests acquired in CHF 1 000
Cash and cash equivalents 27 243
Total consideration 27 243
2.2 Identifiable assets and liabilities in CHF 1 000
Cash and cash equivalents 2 520
Trade and other receivables 3 190
Inventories 2 629
Work in progress 5 534
Property, plant and equipment 15 459
Intangible assets 1) 11 179
Financial liabilities -12 727
Trade and other payables -6 029
Provisions -4 046
Deferred tax liabilities -2 333
Net identifiable assets 15 377

1) In intangible assets is mainly the value of customer contracts and relationships, as well as land-use-rights contained.

2.3 Goodwill at the acquisition date in CHF 1 000
Total consideration 27 243
Net identifiable assets -15 377
Goodwill 1) 11 866

1) Goodwill at historical rates on the acquisition date. Goodwill represents the figure that the Feintool Group would have had to pay in order to independently set up a profit-making operation for the production of chipless-formed parts on a "greenfield" basis (qualified employees, market entry, etc.). The acquisiton is intended to significantly advance the Feintool Group's forming capabilities, a process closely related to fineblanking, as well as boost the company's geographical market development in Asia.

The costs incurred by the Feintool Group for the acquisition of Schuler (Tianjin) Metal Forming Technology Center Co. Ltd. amounted to around CHF 0.4 million. In particular, this includes the fees of external lawyers and advisers. The costs were recognized in other operating expenses.

3 Net sales

2017 2016
in CHF 1 000 in CHF 1 000
Gross sales 1) 613 470 560 062
Sales deductions -1 137 -7 825
Total net sales 612 333 552 237

1) An amount of kCHF 32 960 (previous year kCHF 37 896) of the gross sales were calculated using the percentage-of-completion (POC) method.

4 capitalized Self-generated assets

2017 2016
in CHF 1 000 in CHF 1 000
Self-generated presses 360 1 091
Self-generated tools 606 2 799
Capitalized development costs 1 839 1 631
Other capitalized self-generated assets 44 82
Capitalized self-generated assets 2 849 5 603

5 Personnel expenses

2017 2016
in CHF 1 000 in CHF 1 000
Salaries and wages 140 559 130 954
Employee welfare expenses 23 514 23 491
Other personnel expenses 1) 15 804 4 595
Total personnel expenses 179 877 159 041
of which direct personnel expenses 2) 90 339 80 550
of which indirect personnel expenses 89 538 78 491

1) In financial year 2016, the Swiss pension fund approved an amendment to the regulations, which will result in a gradual reduction of the conversion rate from 6.2 % to 5.2 %. This amendment had a positive one-time effect of kCHF 7 083 on the statement of comprehensive income in the previous year. The one-time effect applied to other personnel expenses. See also Sections 1 and 26 in the Notes.

2) Direct personnel expenses are personnel expenses that can be directly assigned to the production process. The effect due to the regulation amendment of the Swiss pension fund to the direct personnel expenses in prior period amounts to kCHF 3 542.

The Group employed 2 485 staff at the end of the year under review (previous year 2 239) and 81 trainees (previous year 68).

6 Other operating expenses

2017 2016
in CHF 1 000 in CHF 1 000
Repair and maintenance 55 494 49 838
Rental and leasing expenses 5 366 5 052
Sales and marketing expenses 2 441 2 698
Administration and distribution expenses 11 278 10 263
Loss on the disposal of property, plant and equipment 62 106
Taxes and duties (not including taxes on income) 1 184 1 244
Other expenses 2 307 2 568
Total other operating expenses 78 132 71 769

7 Other operating income

2017 2016
in CHF 1 000 in CHF 1 000
Gain on the disposal of property, plant and equipment 88 310
Other income 1) 2 354 1 670
Total other operating income 2 442 1 980

1) "Other income" includes income from insurance compensation, staff restaurants, as well as sub-letting.

8 Financial expenses

2017 2016
in CHF 1 000 in CHF 1 000
Interest expense 2 892 2 829
Other finance costs 1) 666 937
Foreign exchange losses 10 970 7 950
Total financial expenses 14 528 11 716

1) Besides bank charges, other financial expenses include annual amortization of establishing cost for the promissory note/syndicated loan, market making costs and valuation expenses from swap transactions.

9 Financial income

2017 2016
in CHF 1 000 in CHF 1 000
Interest income 77 124
Other financial income 1) 161 1
Foreign exchange gains 8 088 8 402
Total financial income 8 326 8 527

1) Other financial income comprises valuation income from hedging.

10 Income taxes

2017 2016
10.1 Analysis of income taxes in CHF 1 000 in CHF 1 000
Tax credits/charges for the reporting period 14 238 9 498
Tax credits/charges from previous years 30 -1 161
Deferred income taxes -1 909 4 834
Total income taxes 12 359 13 171
2017 2016
10.2 Analysis of tax charge in CHF 1 000 in CHF 1 000
Earnings before taxes 40 102 45 233
Weighted tax rate as % 1) 29.6 % 29.3 %
Expected overall tax expense 11 882 13 267
Non tax-deductible expense 154 95
Non-taxable income 2) -1 427 -209
Unrecognized tax loss carryforwards from the current year 3) 2 885 2 779
Use of unrecognized loss carryforwards from previous years -189
Recognition of previously unrecognized loss carryforwards 4) -1 380
Reassessment of deferred tax assets/liabilities 60
Use of unrecognized deductible temporary differences -123 -221
Tax credits/charges from previous years 30 -1 161
Effect of changes in tax rates 5) -2 341 137
Reassessment of prior year 1 120
Other effects 179 -7
Effective income tax expense 12 359 13 171
Effective income tax expense as % 30.8 % 29.1 %

1) The weighted tax rate is calculated from the income tax rates likely to apply to the income of the individual Group companies in the respective tax jurisdiction, which naturally varies according to the actual earnings figures.

2) The non-taxable income from the current year refers mainly to a company in China.

3) Unrecognized tax loss carryforwards from the current year refer to companies in Switzerland, Germany, Czeck Republic and China.

4) The recognition of previously unrecognized loss carryforwards in prior year refers in particular to companies in Switzerland, China and Germany.

5) The effect of the tax rate changes in the current year amounting to TCHF 2 303 refers to companies in the USA.

11 Deferred taxes

12/31/2017 12/31/2016
11.1 Carrying amounts in CHF 1 000 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Deferred taxes for temporary differences
Current assets 3 233 1 486 2 707 1 574
Non-current assets 3 953 25 632 6 112 30 472
Provisions and other liabilities 2 321 967 2 899 982
Employee benefit plans 12 599 430 13 279 191
Loss carryforwards 10 424 14 120
Other temporary differences 136 2 2
Total gross values 32 530 28 651 39 118 33 222
Netting -15 808 -15 808 -21 780 -21 780
Total carrying amounts 16 722 12 843 17 338 11 442
of which recognized in the balance sheet as deferred tax assets 16 722 17 338
of which recognized in the balance sheet as deferred tax liabilities 12 843 11 442
Net deferred tax assets 3 879 5 896

Feintool does not disclose deferred taxes related to earnings not distributed as dividends, which will presumably be reinvested permanently in subsidiaries. The tax effect is estimated as not material.

12/31/2017 12/31/2016
11.2 Statement of deferred taxes in CHF 1 000 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Start of period 5 896 9 185
Recognition and reversal of temporary differences 4 250 -4 971
Temporary differences arising on tax rate changes -2 341 137
Temporary differences arising on acquisition/sale of entities -2 333
Temporary differences recognized directly in equity -1 200 1 632
Translation differences -393 -87
End of period 3 879 5 896

The temporary differences arising on the acquisition/sale of entities relate to the acquisition of Feintool Automotive System Parts (Tianjin) Co., Ltd.

11.3 Unrecognized tax assets

Deferred tax assets, including those for tax loss carryforwards and expected tax credits, are only recognized if it is probable that profits will be available against which the loss carryforwards and tax credits can be utilized.

12/31/2017 12/31/2016
11.4 Tax loss carryforwards in CHF 1 000 in CHF 1 000
Total tax loss carryforwards 68 742 56 352
of which recognized loss carryforwards 46 625 41 903
Total unrecognized tax loss carryforwards 22 117 14 449
of which expiring within 1 year 2 978 4 254
of which expiring in one to five years 7 811 7 285
of which expiring in more than five years 11 327 2 911
Tax effects of unrecognized tax loss carryforwards 5 921 3 692

Income taxes and information regarding the tax charge are shown in Note 10.

12 Consolidated earnings per share

2017 2016
12.1 Average number of shares outstanding Number Number
Average number of shares outstanding 4 462 971 4 462 971
Less number of treasury shares (weighted) -3 374 -7 534
Average number of shares outstanding – basic 4 459 597 4 455 437
Average number of shares outstanding – diluted 4 459 597 4 455 437
2017 2016
12.2 Net income Feintool Group in CHF 1 000 in CHF 1 000
Net income of the Feintool Group – basic 27 743 32 062
Net income of the Feintool Group – diluted 27 743 32 062

No dilution effects were recognized in the financial year. In financial year 2016, the Swiss pension fund approved an amendment to the regulations, which, according to IAS 19, had a positive impact on net income in the previous period to the tune of net kCHF 5 454. Without this impact, the net income would have been TCHF 26 608.

2017 2016
12.3 Earnings per share in CHF in CHF
Basic earnings per share 6.22 7.20
Diluted earnings per share 6.22 7.20

Earnings per share are calculated on the basis of the consolidated net income for the financial year divided by the average number of shares in circulation. No dilution effects were recognized in the financial year. In financial year 2016, the Swiss pension fund approved an amendment to the regulations, which, according to IAS 19, had a positive impact on net income in the previous period to the tune of net kCHF 5 454. Without this impact, the earnings per share would have been CHF 5.97.

13 Receivables

13.1 Trade and other receivables 12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Trade receivables 93 331 73 253
Valuation allowances -2 708 -2 004
Total trade receivables (net) 90 623 71 249
Bills receivable 55 140
Outstanding VAT credits 7 299 4 325
Advanced payments to suppliers 10 557 8 217
Other receivables 2 952 1 750
Total trade and other receivables 111 486 85 681

Feintool has various factoring programs not required to be included on the balance sheet. Receivables of kCHF 13 314 had been sold under this program as at December 31, 2017 (previous year kCHF 10 494).

13.2 Maturity profile of receivables in CHF 1 000 Carrying amount Not yet due Overdue up to 30 days Overdue for 31-90 days Overdue for 91-180 days Overdue for more than 180 days
12/31/2017
Trade receivables 93 331 76 317 8 841 5 240 791 2 142
Valuation allowances -2 708
Total receivables (net) 90 623
12/31/2016
Trade receivables 73 253 60 316 5 340 1 510 3 597 2 490
Valuation allowances -2 004
Total receivables (net) 71 249
2017 2016
13.3 Valuation allowance on receivables in CHF 1 000 in CHF 1 000
Start of period -2 004 -2 727
Translation differences -41 -4
Recognized -985 -155
Reversed 249 753
Used 73 129
End of period -2 708 -2 004

14 Inventories

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Raw material 33 131 25 880
Finished and semi-finished goods 43 649 36 643
Valuation allowances on inventories -20 350 -17 441
Total inventories 56 430 45 082

15 Net assets of construction contracts and work in progress

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Construction contracts in progress (POC) 15 133 15 658
Work in progress 20 319 20 765
Prepayments received -6 481 -8 453
Valuation allowances on construction contracts and work in progress -770 -926
Total net assets of construction contracts and work in progress 28 201 27 044

The gross margin recorded under "Construction contracts in progress (POC)" as at the closing date amounted to 37.6 % (previous year 38.9 %).

16 Prepaid expenses and accrued income

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Prepaid expenses for customer orders 1) 1 658 1 323
Issue costs of promissory note and syndicated loan 1 003 449
Rental agreement 2) 775 872
Other prepaid expenses and accrued income 834 464
Total prepaid expenses and accrued income 4 270 3 108

1) Prepaid expenses for customer orders includes expenses for constructions that are assigned to a specific order. These prepaid expenses are released on a straight-line basis over the course of the order.

2) The "rental agreement" shows the difference between a reduced rent owing to site contamination originally amounting to kEUR 1 500, which is charged to rent on the property for 10 years (until May 31, 2022) and the standard market-level rent on the property.

17 Property, plant and equipment

17.1 Summary of property, plant and equipment in CHF 1 000 Real estate Machinery Other property, plant and equipment Total
Cost of acquisition as at 01/01/2016 89 860 257 054 22 578 369 492
Additions 5 899 48 808 16 799 71 506
Disposals -46 -8 284 -564 -8 894
Reclassifications 1) 5 157 9 813 -14 829 141
Translation differences 724 2 478 19 3 221
As at 12/31/2016 101 594 309 869 24 003 435 466
Additions 868 22 622 33 026 56 516
Disposals -2 822 -6 483 -2 044 -11 349
Reclassifications 1) -144 10 449 -10 673 -368
Change in scope of consolidation 2) 4 456 10 923 80 15 459
Translation differences 2 886 10 780 1 342 15 008
As at 12/31/2017 106 838 358 160 45 734 510 732
Accumulated depreciation as at 01/01/2016 -29 645 -132 993 -8 732 -171 370
Additions -4 859 -26 151 -1 822 -32 832
Disposals 29 7 714 516 8 259
Translation differences -366 -1 604 -79 -2 049
As at 12/31/2016 -34 841 -153 034 -10 117 -197 992
Additions -3 635 -28 525 -1 641 -33 801
Disposals 2 802 5 375 1 687 9 864
Translation differences -1 186 -7 273 -365 -8 824
As at 12/31/2017 -36 860 -183 457 -10 436 -230 753
Net carrying amounts
As at 12/31/2016 66 753 156 835 13 886 237 474
Of which leased assets 34 008 34 008
As at 12/31/2017 69 978 174 703 35 298 279 979
Of which leased assets 39 039 39 039

1) Reclassifications include positions of immaterial assets amounting to kCHF -171 (previous year kCHF -219). The remaining amount concerns revaluations and therefore reclasses to the consolidated statement of comprehensive income. There are no reclassificatins on financial assets in the year under review (previous year kCHF -360).

2) The change in the scope of consolidation in the current year results from the purchase of Feintool Automotive System Parts (Tianjin) Co., Ltd.

Other property, plant and equipment includes installations, vehicles and assets under construction. Assets under construction amounted to kCHF 28 324 in the year under review (previous year kCHF 8 380). Gains on asset disposals are recognized as other operating income (Note 7). A gain of kCHF 88 (previous year kCHF 310) was generated in the reporting year. Losses on asset disposals are stated as other operating expenses (Note 6). In the year under review, this loss totaled kCHF 62 (previous year kCHF 106). As at December 31, 2017, the Feintool Group had entered into purchase commitments for the purchase of property, plant and equipment totalling approx. CHF 17.2 million (previous year CHF 19.4 million).

18 Intangible assets

18.1 Summary of intangible assets in CHF 1 000 Goodwill Capitalized development costs 1) Software Other intangible assets 2) Total
Cost of acquisition as at 01/01/2016 10 214 3 553 4 648 8 286 26 701
Additions 2 099 1 102 147 3 348
Disposals -432 -1 041 -1 473
Reclassifications 219 219
Translation differences -91 23 -33 -101
As at 12/31/2016 10 123 5 652 5 560 7 359 28 694
Additions 2 508 991 48 3 547
Disposals -800 -236 -3 -1 039
Reclassifications 171 171
Change in scope of consolidation 3) 11 866 8 11 171 23 045
Translation differences 1 188 182 692 2 062
As at 12/31/2017 23 177 7 360 6 676 19 267 56 480
Accumulated depreciation as at 01/01/2016 -1 609 -3 737 -4 617 -9 963
Additions -642 -580 -590 -1 812
Disposals 432 1 030 1 462
Translation differences -18 21 3
As at 12/31/2016 -2 251 -3 903 -4 156 -10 310
Additions -1 089 -881 -1 167 -3 137
Disposals 800 212 1 012
Reclassifications 24 24
Translation differences -122 -215 -337
As at 12/31/2017 -2 540 -4 670 -5 538 -12 748
Net carrying amounts
As at 12/31/2016 10 123 3 401 1 657 3 203 18 384
As at 12/31/2017 23 177 4 820 2 006 13 729 43 732

1) Research and development expenses amounting to kCHF 4 516 (previous year kCHF 4 107) were charged to the consolidated statement of comprehensive income.

2) Other intangible assets primarily comprise patents and licenses, customer relations purchased within acquisitions as well as land-use-rights.

3) The change in the scope of consolidation applies to Feintool Automotive System Parts (Tianjin) Co., Ltd., which was acquired in year under review.

Carrying amount
18.2 Other information in CHF 1 000
Goodwill 12/31/2017
Cash-generating unit System Parts China 12 145
Cash-generating unit System Parts Fineblanking Europe 3 548
Cash-generating unit System Parts Forming Europe 7 483
Total carrying amounts 23 177
Goodwill 12/31/2016
Cash-generating unit System Parts Fineblanking Europe 3 256
Cash-generating unit System Parts Forming Europe 6 867
Total carrying amounts 10 123

The goodwill of the cash-generating unit System Parts China is related to Feintool Automotive System Parts (Tianjin) Co., Ltd., which has been acquired in the year under review. The impairment test for this business unit has been performed by a comparison of the fair value less costs of disposal. Following impairment tests have been performed for the cash-generating units System Parts Fineblanking Europe and System Parts Forming Europe. The recoverable amounts for the cash-generating units are calculated on the basis of the value in use. The impairment test for goodwill was calculated by using the DCF method (discounted cash flow method). The cash flows were discounted with the WACCs by 8.4% (previous year 8.1%). After deducting liabilities, the goodwill was calculated accordingly as a net amount. The future cash flows are based on a budget approved by the management for a period of three years and an extended extrapolation over two years plus the residual value. The following values were used for the parameters to determine the WACCs:

Financial year:

2017

2016

Risk-free interest rate:

1.0%

1.6%

Market returns:

7.0%

7.6%

Risk premium:

2.0%

2.0%

Beta:

1.35

1.12

Growth rate:

1.1%

1.1%

Sensitivity analysis: If the discount rate were to increase by 1% (after taxes), the value in use for all cash-generating units would still be above the value of the net assets plus goodwill.

19 Financial assets

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Loans to third parties 104 114
Receivables from the financing of customer tools 1 198 1 027
Rental deposit accounts 327 451
Financial assets 1 629 1 592

The weighted average interest rate in the reporting period was 0.8 % (previous year 2.4 %).

Loans to third parties consist of marketable securities and loans to staff.

Receivables from the financing of customer tools refers to tools the customer has ordered but not yet or only partially paid for. Amortization is based on either the parts produced or an agreed payment plan. Ownership is normally transferred upon acceptance of the tool.

20 Financial liabilities

12/31/2017 12/31/2016
20.1 Current financial liabilities in CHF 1 000 in CHF 1 000
Current liabilities to banks 21 694 5 853
Current portion of lease liabilities 8 196 7 696
Current portion of non-current liabilities to banks 852 2 370
Total current financial liabilities 30 742 15 919

The weighted average interest rate in the reporting period was 1.8 % (previous year 2.5 %).

On June 13, 2017, Feintool signed a CHF 90 million syndicated loan agreement in cash loans with six banks with an option of increase about CHF 60 million. The contract is setted for a period of five years (up to June 2022) and has an option for renewal of one year. The syndicated loan defines a number of covenants, the principal one being:

- Equity ratio > 30 %

- Net senior debt/EBITDA < 3.0x

As of December, 31st 2017, CHF 8.2 million of the syndicated loan had been used (previous period CHF 0) and all the covenants had been met.

12/31/2017 12/31/2016
20.2 Non-current financial liabilities in CHF 1 000 in CHF 1 000
Non-current lease liabilities 20 046 18 749
Non-current promissory note 76 063 69 804
Non-current liabilities to banks 7 396 4 452
Total non-current financial liabilities 103 505 93 005

The weighted average interest rate in the year under review was 1.4 % (previous year 1.5 %).

On July 15, 2016, a promissory note was issued in the amount of EUR 65 million. The issuer, with a guarantee from Feintool International Holding AG, is Feintool Holding GmbH based in Germany. The loan is divided into three tranches with different maturities:

- EUR 25 million, term of 5 years, fixed interest rate of 0.90 %

- EUR 25 million, term of 7 years, fixed interest rate of 1.10 %

- EUR 15 million, term of 10 years, fixed interest rate of 1.66 %

Standard covenants are defined in the loan agreement. The only material covenant to be complied with is:

- Equity ratio > 25 %

As of December 31, 2017, all the covenants had been met.

Credit agreements concluded on a bilateral basis with various banks also contain standard covenants. As of December 31, 2017, all the covenants had been met.

If the Group or companies were unable to meet one or several covenants of the syndicated loan, promissory note or bilateral debts, the banks would have the right to terminate the loans at short notice.

As at December 31, 2017, Feintool has CHF 81.8 million (previous year CHF 25 million) in unused, confirmet creditlines at the bank.

2 017 2 016
20.3 Reconciliation of financial liabilities in CHF 1 000 in CHF 1 000
Start of period 108 924 42 606
Cash flows net 2 838 53 897
Non-cash changes 14 524 6 669
thereof acquisition 12 727
thereof new leases 1 797 6 669
Translation differences 7 961 5 752
End of period 134 247 108 924

21 Trade and other payables

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Trade payables 57 190 55 447
Prepayments from third parties 3 470 2 362
Notes payable 6 429 5 859
Customer payments from factoring 1) 1 529 1 084
Social security liabilities 3 778 3 333
Outstanding VAT liabilities 1 288 1 113
Other liabilities 1 141 1 476
Total trade and other payables 74 825 70 674

1) Customer payments from factoring include all customer payments not yet forwarded to the factoring company.

22 Accrued expenses and deferred income

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Accruals for salary, bonus, overtime, additional hours 14 343 11 997
Outstanding accounts payable 10 168 9 526
Outstanding installations and other work to be fulfilled in relation to customer orders 15 918 10 002
Accruals for environmental risks 1) 1 033 1 043
Other accrued expenses and deferred income 1 013 854
Total accrued expenses and deferred income 42 475 33 422

1) Feintool is renting property contaminated with trichloroethylene (PER) in Obertshausen (Germany). In principle, the proprietor is obliged to clean up the property. In certain circumstances, however, state authorities can also force the lessee to take responsibility for the cleanup operation. Feintool has committed itself to meeting half of the costs of cleanup, up to a value of EUR 1.5 million (in CHF 1.8 million). This amount is entered in full as a liability, less cleanup contributions made to the cleanup. According to the information currently available, the contamination of the leased property in Obertshausen will have no further effect on the Group's financial position, operating results or cash flows.

23 Provisions

in CHF 1 000 Onerous contracts Warranties Other provisions Total
Recognized 326 2 680 3 006
Used -54 -7 -1 075 -1 136
Reversed -468 -415 -883
Translation differences -3 -46 -49
Total provisions as at 12/31/2016 2 564 5 757 8 321
of which current provisions 1 159 5 740 6 899
of which non-current provisions 1 405 17 1 422
Recognized 264 2 352 2 616
Used -391 -1 465 -1 856
Reversed -90 -3 339 -3 429
Change in the scope of consolidation 2 290 2 290
Translation differences 33 396 429
Total provisions as at 12/31/2017 2 380 5 991 8 371
of which current provisions 1 227 5 348 6 575
of which non-current provisions 1 153 640 1 793

Provisions for actual warranty events cover the estimated cost arising from warranty services provided by the Group companies, which the company must cover for contractual reasons or due to its conduct. The outflow of funds occurs as and when the warranties are taken up, over a maximum of three years.

"Other provisions" include provisions for restructuring, scrap rebates, customer complaints, price reductions that were not passed on and various small items. The expected duration of the outflow of funds is 1 to 2 years.

In the 2013 financial year, Feintool sold a property in White Plains (USA). This is contaminated with tetrachloroethylene (PER). Feintool remains responsible for the cleanup, and has therefore joined the state-controlled Brownfield Cleanup Program. Under this program, the land is to be cleaned up to the extent that it can be put to a new use. At present, Feintool has allowed provisions totaling kCHF 443 (previous year kCHF 398) in its balance sheet for this remediation work. According to the current assessment, provisions for the cleanup at White Plains are sufficient.

24 Lease liabilities

Operating leases Finance leases
in CHF 1 000 in CHF 1 000
Lease liabilities as at 12/31/2017 due
within 1 year 1 063 8 462
in one to five years 2 698 19 941
in more than five years 76 427
Total liabilities 3 837 28 830
Less interest -588
Total lease liabilities as at 12/31/2017 28 242
Lease liabilities as at 12/31/2016 due
within 1 year 2 175 8 007
in one to five years 2 287 19 012
in more than five years 109
Total liabilities 4 571 27 019
Less interest -574
Total lease liabilities as at 12/31/2016 26 445

In the financial year, kCHF 10 809 (previous year kCHF 15 519) of new financial leasing agreements were concluded.

25 Commitments under long-term rental agreements

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Rental payments due
within 1 year 2 768 1 811
in one to five years 6 512 8 249
in more than five years 2 558 4 053
Total payments 11 838 14 113

26 Employee benefit plans

12/31/2017 12/31/2016
26.1 Overview of net employee benefit liabilities (assets) in CHF 1 000 in CHF 1 000
Net defined benefit liability (asset) 57 354 61 115
Anniversary benefits 2 006 1 898
Other benefit obligations 1) 171 87
Total net employee benefit liabilities (assets) 59 531 63 100

1) The liability from the valuation of early retirement obligations in the amount of CHF 236K from a German company was reclassified from accrued expenses and deferred income to employee benefit liabilities in financial year 2017.

The assets of the employee benefit plans do not include treasury shares (previous year kCHF 0). The Group uses assets (tangible assets) belonging to the retirement fund with a value of kCHF 6 731 (previous year kCHF 6 847).

The "Net defined benefit liability (asset)" item contains various benefit plans in Switzerland, Germany and Japan. The net liability from the Swiss plan amounts to kCHF 46 793 (previous year kCHF 51 836), the German plan to kCHF 9 775 (previous year kCHF 8 501) and the Japanese plan to kCHF 786 (previous year kCHF 778). On account of the materiality of the figures, only the Swiss and German plans are shown in Note 26.3 onwards.

Swiss plan

The majority of Feintool employees in Switzerland are insured against the risks of death, old age and disability through the semi-autonomous Feintool Group pension fund. The benefits provided by the Feintool Group's pension fund exceed the minimum level prescribed by the Federal Occupational Old Age, Survivors' and Disability Pension Act (BVG). The ordinary employer contributions comprise risk contributions of 2.2 % and age-related contributions of 5.5 %-14.0 % of the insured salary for credits to individual retirement assets. The typical retirement age is 65 for men and 64 for women. Employees have a right to early retirement from age 58, in which case the conversion rate is reduced in accordance with the longer expected pension payment period and the absence of contribution payments prior to retirement. Furthermore, employees can withdraw their retirement pension in full or in part as a lump sum. The amount of pension paid out is arrived at from the conversion rate, which is applied to the insured individual's accumulated retirement savings at the time of retirement. In the case of retirement at age 65/64, the conversion rate is 6.0 % (previous year 6.2 %). Afterwards, it will fall by 0.2 % each year until it reaches 5.2 % in financial year 2021. This amendment to the regulations of the Swiss pension fund has been agreed on in financial year 2016. The accumulated retirement assets are arrived at from the employee and employer contributions paid into the individual savings account of each insured member, together with the interest credited to the retirement assets, vested benefits brought in and any voluntary payments made by the insured person. The interest rate paid on the retirement assets is set by the Board of Trustees each year.

The legal form of the Feintool Group's pension fund is that of a foundation. The Board of Trustees, which comprises an equal number of employee and employer representatives, is responsible for managing the foundation. The duties of the pension fund Board of Trustees are laid down in the BVG and in the rules of the pension fund. A temporary shortfall is permitted under the BVG. The Board of Trustees is required to take measures to rectify any underfunding within a reasonable period. Under the BVG, additional employer and employee contributions may be incurred if the pension fund exhibits a significant shortfall (shortfall < 90 % = considerable shortfall; in this instance, contributions to rectify the situation are essential). In these cases, the contributions to rectify the situation are split between the employer and the employee; the law does not require the employer to assume more than 50 % of the additional contributions. The BVG funding ratio of the Feintool Group pension fund was around 94.7 % as at December 31, 2017 (previous year 91.0 %). The Board of Trustees is the central coordination and monitoring body for the management of the assets. The pension assets are administered by a mandated, independent financial services provider. The Board of Trustees determines the investment strategy and tactical bandwidths in accordance with the statutory provisions. In accordance with its guidelines, the financial services provider is able to decide on the asset allocation subject to the statutory requirements concerning asset classes and bandwidths. In the financial year 2016, the company that established the pension fund committed to the addition of another CHF 1.2 million annually for the restructuring of the pension fund for the Feintool Group – along with the standard contributions – until a 100 % degree of coverage is achieved.

German plans

The German plans comprise:

  • A "Works Agreement on the Introduction of an Occupational Pension Plan" concluded on June 25, 1998 that was terminated effective December 31, 2005 with the announcement that new employees would no longer be able to join the pension scheme from January 1, 2006, and that any entitlements already accrued would be frozen effective December 31, 2005.
  • Individual commitments to certain managers

This essentially includes the right to a lifetime pension payable upon retirement, disability and/or death. The level of monthly pension entitlement on reaching the retirement age of 65, and on reaching age 63 at the earliest, amounts to 50 % of the annual pensionable income broken down into a monthly amount; the annual pensionable income is deemed to be the fixed annual income at the time the pension becomes due for payment.

Japanese plan

The Japanese plan includes all employees who have worked at the company for three or more years. Employees are entitled to a pension from age 60.

Defined benefit obligation Plan assets Net defined benefit liability (asset)
2017 2016 2017 2016 2017 2016
26.2 Change in defined benefit liability (asset) in CHF 1 000 in CHF 1 000 in CHF 1 000 in CHF 1 000 in CHF 1 000 in CHF 1 000
As at January 1 185 763 181 288 -124 648 -120 703 61 115 60 585
Recognized in income statement
Current service cost 5 041 4 367 5 041 4 367
Interest cost (income) 1 179 1 868 -743 -1 202 436 666
General and administrative expenses 218 228 218 228
Impact of plan amendment in previous year 1) -7 083 -7 083
Total 6 220 -848 -525 -974 5 695 -1 822
Recognized in other comprehensive income
Expense/(income) from remeasurement of
Actuarial loss/(gain) due to:
Change in demographic assumptions -7 -166 -7 -166
Change in financial assumptions 10 285 10 285
Experience adjustment -430 962 -430 962
Return on plan assets (excluding interest income) -4 571 -4 044 -4 571 -4 044
Translation differences 861 29 -78 -79 783 -50
Total 424 11 110 -4 649 -4 123 -4 225 6 987
Other
Contributions from employer 2) -403 -1 512 -4 828 -3 122 -5 231 -4 634
Contributions from employees 3 164 2 586 -3 164 -2 586
Benefits paid out -10 810 -6 861 10 810 6 860 -1
Total -8 049 -5 787 2 818 1 152 -5 231 -4 635
As at December 31 184 358 185 763 -127 004 -124 648 57 354 61 115
of which Swiss plans 170 697 173 511 -123 904 -121 675 46 793 51 836
of which German plans 10 820 9 484 -1 045 -983 9 775 8 501
of which Japanese plans 2 839 2 767 -2 052 -1 989 787 778

1) In previous year, the Swiss pension fund approved an amendment to the regulations, which will result in a gradual reduction of the conversion rate from 6.2 % to 5.2 %. This amendment had a positive one-time effect of kCHF 7 083 on the statement of comprehensive income in the previous year.

2) In the previous period, the employer undertook to contribute an additional kCHF 1 200 annually to the Feintool Group's pension fund in addition to the regular contributions, until a funding ratio of 100 % is achieved.

The expected contributions made to the employee benefit plans for the following financial year amount to CHF 5.3 million in the case of employer contributions and CHF 3.2 million in the case of employee contributions.

2017 2016
26.3 Plan assets of defined benefit plans in % in %
Equities 9.1 8.4
Bonds 65.3 65.8
Real estate (including real estate funds) 14.5 14.6
Other 0.9 1.0
Cash 10.2 10.2
Total 100.0 100.0

Swiss plan

The plan assets are invested by an AAA-rated bank in line with the predefined strategy. The following limits apply to investment:

  • Equities < 50 %
  • Bonds < 70 %
  • Real estate < 30 %
  • Alternative investments 0 %

Currencies other than the CHF are hedged. With the exception of directly held real estate, all investments are traded on a public exchange.

German plan

The German plan includes a reinsurance policy to cover pension liabilities. Assets from the insurance policy are included in plan assets.

2017 2016
26.4 Defined benefit plan obligations – actuarial assumptions in % in %
Swiss plan
Discount rate 0.6 0.6
Future increase in wages and salaries 1.3 1.3
German plans
Discount rate 1.6 1.6
Future increase in wages and salaries 0.0 - 2.0 0.0 - 1.8
Future increase in pensions 1.8 - 2.0 1.8 - 2.0
2017 2016
26.5 Defined benefit plan obligations – actuarial assumptions in years in years
Swiss plan
Life expectancy at age 65 for newly retired persons
Men 22.4 22.3
Women 24.4 24.3
Life expectancy at age 65 for employees currently aged 45
Men 24.3 24.2
Women 26.3 26.2
German plans
Life expectancy at age 65 for newly retired persons
Men 19.3 19.1
Women 23.3 23.2
Life expectancy at age 65 for employees currently aged 45
Men 21.9 21.8
Women 25.8 25.7

As at December 31, 2017, the weighted-average duration of pension benefit obligations was 14.7 years for the Swiss plan (previous year 14.8 years) and 18.9 - 20.2 years for the German plans (previous year 19.0 - 19.5 years). Feintool uses the GT 2015 mortality table in Switzerland and Heubeck in Germany for the hypothetical life expectancy.

2017 2016
26.6 Defined benefit plan obligations – sensitivity analysis in CHF 1 000 in CHF 1 000
Swiss plan
Change in discount rate -0.25 % 6 177 6 370
Change in discount rate +0.25 % -5 773 -5 953
Change in wages and salaries -0.25 % -541 -532
Change in wages and salaries +0.25 % 540 531
German plans
Change in discount rate -0.25 % 502 476
Change in discount rate +0.25 % -469 -446
Change in wages and salaries -0.25 % -69 -62
Change in wages and salaries +0.25 % 71 64

27 Equity

12/31/2017 12/31/2016
27.1 Share capital Number/CHF Number/CHF
Number of shares 4 462 971 4 462 971
Nominal value 10 10
Share capital 44 629 710 44 629 710
12/31/2017 12/31/2016
27.2 Conditional capital – employee stock option plan in CHF 1 000 in CHF 1 000
Start of period 558 558
Used
End of period 558 558

This conditional capital of 55 750 registered shares with a par value of CHF 10 each was created following the resolution of the Extraordinary General Meeting of July 2, 1998 for the payment of rights conferred under the employee stock option plan.

31.12.2017 31.12.2016
27.3 Authorized capital in CHF 1 000 in CHF 1 000
Start of period 6 000
Created1) 6 000
Used
Expired
End of period 6 000 6 000

1) According to the decision of the Annual General Meeting of April 19, 2016, the Board of Directors is authorized to create capital up to a maximum amount of kCHF 6 000 as required through the issue of up to 600 000 new shares, each having a nominal value of CHF 10. The new shares are to be paid up in full. The Board of Directors is authorized to restrict or exclude subscription rights under certain circumstances. The new shares can be issued in one or more stages. The approval is limited to a period of two years. The authorized capital will expire on April 19, 2018.

12/31/2017 12/31/2016
27.4 Treasury shares – changes Number in CHF 1 000 Number in CHF 1 000
Start of period 6 742 660 10 558 905
Bought 7 000 4 520
Sale/transfer -7 336 -8 336
End of period 6 406 703 6 742 660
of which trading portfolio 6 406 6 742

In the 2017 financial year, 7 000 shares were purchased at an average price of CHF 112.08 (previous year 4 520 shares at an average price of CHF 112.92) and 7 336 shares sold at an average price of CHF 113.25 (previous year 8 336 shares at an average price of CHF 97.82) for the share-based management remuneration. Treasury shares are reserved primarily for management remuneration.

28 Capital participation plans

As a component of the bonus, 7 336 shares (previous year 8 336) were allocated to the Board of Directors, the Group Management and other managers in the financial year at a transaction value of kCHF 860 (previous year kCHF 951). Of this amount, 5 000 shares have been distributed in January 2018, 1 936 shares in December 2017 and 400 shares in March 2017. All shares were transferred from treasury shares and were transferred directly to the ownership of the recipient.

29 Off-balance sheet transactions, contingent liabilities

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Contingent obligations 3 268 2 664
Contingent liabilities 3 268 2 664

Contingent obligations comprise funding that has been received and is subject to certain conditions. In the event of a breach of these conditions, there is a risk that these funds or a portion of them will have to be repaid.

In White Plains, NY (USA), a Feintool company owned a property that is contaminated with tetrachloroethylene (PERC). Feintool has joined the state-controlled Brownfield Cleanup Program. This program is intended to ensure the property is cleaned up. At present, Feintool has allowed provisions totaling roughly kCHF 443 (previous year kCHF 398) in its balance sheet for this remediation work. According to the information currently available, the White Plains cleanup will have no significant effect on the Group's financial position, operating results or cash flows.

In Germany, the works councils of a number of Feintool companies have established a Group works council. Feintool disputes the basis for establishing this body. The Weiden (Germany) labor court agreed with Feintool's position in full in the first and second instance. The Works Council of one company appealed the ruling in federal court. The next trial will take place in early summer 2018. Feintool believes, however, that these proceedings will not have a significant effect on the Group's financial position, operating results or cash flows.

In the US, Feintool delivered defective parts to a customer. The customer is currently demanding compensation from Feintool for costs incurred, which have not yet been substantiated. In autumn 2017, the customer as well as the end customer have brought a claim against Feintool. Feintool is of the opinion, however, that it is not or is only partially responsible for the cause of the defect. Furthermore, any damage to third parties would also be covered by insurance. On the basis of the information available today, this case will not have a significant effect on the Group's financial position, results of operations and cash flows.

At the end of the reporting period, Feintool was not involved in any other court proceedings. However, disputes relating to product liability, promotional activities, labor law and unfair dismissals, anti-trust law, securities trading, sales and marketing practices, health and safety, environmental and tax-related claims, state investigations and copyright law are always a possibility. Such proceedings could result in substantial claims being brought against Feintool that may not be covered by insurance policies. Feintool believes, however, that any such proceedings would not have a significant effect on the Group's financial position, operating results or cash flows.

30 Assets pledged as security for own liabilities

12/31/2017 12/31/2016
in CHF 1 000 in CHF 1 000
Real estate 6 367 6 613
Machinery and equipment 39 039 34 009
Assets pledged as security for own liabilities 45 406 40 622

31 Economic risks

For the global economy going forward, we see risks primarily in changes in energy and commodity prices, growing protectionism and persistently large trade imbalances. The aforementioned factors could result in relatively sharp changes in exchange rates, in particular continuing weakness of the euro, and a further slowdown in global economic growth. The scenarios described could give rise to severe adverse effects for Feintool.

Management of financial risks

Financial risk management is based on the directives approved by the Board of Directors and Group Management. The principles of risk management and the processes applied are reviewed on a regular basis in order to address changes in the market environment and in Feintool's activities.

Besides standards for general financial risk management, these directives include standards for specific aspects of liquidity, interest rate, exchange rate and default risk management, the use of derivative financial instruments, capital procurement and the policy on investing surplus liquidity. Capital procurement within the Group is mostly undertaken on a centralized basis.

Liquidity risk

Liquidity risk denotes the risk that the Feintool Group may at some point in the future be unable to meet its regular payment obligations on time and in full. Feintool must ensure that the Group is able to meet its payment obligations at all times. This will be the case if sufficient funds can be generated by the cash flow from operating activities or if the necessary financial resources can be raised on the financial markets or from banking institutions. Feintool Group's management considers an operating liquidity reserve equivalent to one month's costs of the Group (approx. CHF 25 million) to be adequate. This liquidity reserve can also be secured through unused credit lines. Management receives regular reports on the Group's present and anticipated liquidity status, giving it an overview of the liquidity situation.

Feintool has a promissory note in the amount of EUR 65 million (previous year EUR 65 million), a syndicated loan of CHF 90 million (previous year EUR 25 million) and several bilateral credit loans.

These contracts contain standard covenants, particularly

  • equity ratio > 30 %
  • net senior debt / EBITDA < 3.0 x

Were the Group or individual companies unable to meet these covenants, the banks would have the right to terminate the loans at short notice. As at December 31, 2017, all covenants had been met. As at December 31, 2017, Feintool had CHF 81.8 million (previous year CHF 25 million) in unused, confirmed credit lines at the bank.

Financial liabilities – carrying amounts and cash outflows in CHF 1 000 Carrying amounts Due within 1 year Due within 3 years Due within 5 years Due in more than 5 years Total
12/31/2017
Liabilities 1) 66 289 66 289 66 289
Accrued expenses and deferred income 2) 12 214 12 214 12 214
Current liabilities to banks 21 694 21 694 21 694
Lease liabilities 28 242 8 207 13 356 6 837 430 28 830
Other liabilities to banks 84 311 853 6 641 33 274 47 989 88 757
Total 212 750 109 257 19 997 40 111 48 419 217 784
Foreign exchange futures 3)
Cash inflows 429 429 429
Cash outflows 2 2 2
12/31/2016
Liabilities 63 866 63 866 63 866
Accrued expenses and deferred income 11 423 11 423 11 423
Current liabilities to banks 5 853 5 853 5 853
Lease liabilities 26 445 7 696 13 460 5 863 27 019
Other liabilities to banks/bonds 76 626 2 370 3 413 31 167 44 602 81 552
Total 184 213 91 208 16 873 37 030 44 602 189 713
Foreign exchange futures 3)
Cash inflows 135 135 135
Cash outflows 105 105 105

1) Excluding social security obligations, advance payments from third parties and outstanding VAT obligations.

2) Excluding accruals for salary, bonus and overtime.

3) As at December 31, 2017, the contractual values of the forward exchange deals amounted to kCHF 25 617 (previous year kCHF 19 563).

Interest rate risk

Interest rate risk can have a negative impact on the Group's earnings as a result of higher interest rates on borrowings or lower interest rates on assets. Furthermore, changes in interest rates can affect the fair value of underlying financial instruments. Depending on the expected trend in interest rates, Feintool obtains financing at either fixed or variable rates. There are currently financial liabilities from the promissory note loan due to fixed interest payments, from bank loans where half have fixed rates and half adjustable rates, and from lease liabilities with fixed rates, fixed terms and running amortization. Interest rate management is mostly undertaken on a centralized basis so as to limit the impact of interest rate changes on net financial income/finance costs.

A 0.5 % increase in the interest rate would adversely affect pretax profits by kCHF 73.

Exchange rate risk

Owing to its geographical diversification, Feintool is exposed to exchange rate risk particularly in relation to the euro (EUR), US dollar (USD), Japanese yen (JPY) and the Chinese currency yuan (CNY). The Czeck crown – the CZK – is increasingly important. Changes in exchange rates can affect the fair value of existing financial instruments and in particular the expected future cash flows. As far as possible, the Group uses natural hedges in order to offset the impact of exchange rate fluctuations. It seeks to ensure that costs are incurred in the same currency as the resulting income. The resulting surpluses (euro in particular) and requirements (Swiss franc in particular) at Group level are coordinated centrally in the various currencies. The net position of the most important foreign currencies is hedged over a period of usually six to twelve months, as required.

The Feintool Group's exchange rate risk is calculated by way of the following sensitivity analysis. The table shows the impact on total earnings and equity if foreign currencies were to appreciate by 5 % versus the Swiss franc and simultaneously all other variables were to remain the same.

2017 2016
Sensitivity analysis exchange rate risk Base amounts in EUR 1 000 / USD 1 000 Effect in CHF 1 000 Base amounts in EUR 1 000 / USD 1 000 Effect in CHF 1 000
EUR – Comprehensive Incom 18 059 -1 056 27 599 -1 462
USD – Comprehensive Income 3 991 -87 6 653 -473
Equity (EUR) 10 300 -553

Other market risks

The fair value of financial instruments may change as a result of exchange rates, interest rates or changes in credit ratings, and may therefore affect the Group's financial position and earnings. Feintool seeks to minimize the net effect of market risks through a balanced financing and asset structure.

Derivative financial instruments

Derivative financial instruments are used to minimize existing interest rate or exchange rate risks. The positive and negative fair values in the Notes show current market values. The contract volumes also shown indicate the extent of the exposure to derivatives.

Capital structure

In terms of capital management, the Group's objective is to ensure that the business has the financial means necessary to continue as a going concern, and to provide the resources required to achieve the Group's objectives so that added value can be generated for shareholders and other stakeholders and a cost-effective, low-risk capital structure can be maintained. Among the criteria used by the Group to monitor its capital structure are the equity ratio and net financial liabilities. In addition, it monitors the main covenants (equity, senior net debt/EBITDA) under the syndicated loan agreement.

The equity ratio is calculated as the ratio of equity to total assets. Net financial liabilities consist of current and non-current interest-bearing liabilities less cash and cash equivalents.

The Group's aims for an equity ratio of at least 40 % and for a net-debt/EBITDA ratio of less than 1. Comments on the aforementioned ratios are provided in the Financial Review. In terms of dividends policy, Feintool aims to pay shareholders approximately 30 % of consolidated annual profit in the form of a dividend.

Credit risk

Feintool's credit risk is the fair value of the recognized financial assets with the exception of financial guarantee contracts. In this case, the guaranteed amount represents the credit risk, with Feintool retaining the press sold at the time in the event of a warranty being taken up.

Default risk

Default risk is the risk that a counterparty will be unable to meet its liabilities to the Group companies. By avoiding cluster risk and concentrating financial investments among first-class counterparties, it should be possible to avoid extensive credit default risk. The automobile sector is the focal point of Feintool's operations. By definition, this market segment involves a certain risk for Feintool's operations. As far as normal customer credit balances are concerned, outstanding receivables are constantly monitored as part of the process of regular reporting by the Group companies to Head Office. As at December 31, 2017, the overall default risk amounts to kCHF 150 361 (previous year kCHF 169 634). Feintool generates more than 17.4 % (previous year 17.1%) of consolidated sales from one customer. Income is generated in all segments. With the other customers, the share is less than 14.3 % (previous year 11.5 %) in each case.

The Feintool Group banks exclusively with renowned national and international institutions that have a minimum rating of BBB. It specifies the type of transactions that the subsidiary companies may conduct with the banks.

32 Financial instruments

32.1 Financial assets in CHF 1 000 Cash and cash equivalents Prepaid expenses and accrued income 1) Receivables Financial assets Total
Cash and cash equivalents 52 384 52 384
Financial assets at fair value through profit and loss held for trading 429 429
Loans and receivables 218 93 630 1 629 95 477
Carrying amounts as at 12/31/2017 52 384 647 93 630 1 629 148 290
Cash and cash equivalents 92 752 92 752
Financial assets at fair value through profit and loss held for trading 135 135
Loans and receivables 2 016 73 139 1 592 76 747
Carrying amounts as at 12/31/2016 92 752 2 151 73 139 1 592 169 634
32.2 Financial liabilities in CHF 1 000 Trade payables Accrued expenses and deferred income 2) Current financial liabilities Non-current financial liabilities Total
Financial liabilities held for trading
Other financial liabilities 66 289 12 214 30 742 103 505 212 750
Carrying amounts as at 12/31/2017 66 289 12 214 30 742 103 505 212 750
Financial liabilities held for trading
Other financial liabilities 63 866 11 423 15 919 93 005 184 213
Carrying amounts as at 12/31/2016 63 866 11 423 15 919 93 005 184 213

The carrying amounts do not differ significantly from the fair values.

1) Excluding accruals for commitment fees, prepaid expenses for customer orders rental agreements and prepaid insurance premiums.

2) Excluding accruals for salary, bonus and overtime as well as outstanding installations and other work to be fulfilled in relation to customer orders.

32.3 Fair value hierarchy

Feintool has measured financial instruments at fair value and uses the following hierarchy to determine fair value.

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

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Feintool holds only financial instruments in Level 2 amounting to kCHF 427 net (previous year kCHF 30).

32.4 Classification of financial income/financial expenses in CHF 1 000 Cash and cash equivalents Held for trading Loans and receivables Other financial liabilities Total
Carrying amounts as at 12/31/2017 52 384 427 95 477 212 750
Interest income/expenses 77 -2 892 -2 815
Other financial income/finance expenses -216 -443 154 -505
Change in valuation allowances on customer receivables and bad debt losses -571 -571
Total net gain/loss 2017 -216 -937 -2 738 -3 891
Carrying amounts as at 12/31/2016 92 752 30 76 747 184 213
Interest income/expenses 124 -2 829 -2 705
Other financial income/finance expenses -696 -428 188 -936
Change in valuation allowances on customer receivables and bad debt losses -539 -539
Total net gain/loss 2016 -696 -843 -2 641 -4 180
Fair values
32.5 Derivative financial instruments outstanding in CHF 1 000 positive negative Contract volumes
Futures contracts 429 2 25 617
Currency instruments 429 2 25 617
Total derivative financial instruments as at 12/31/2017 429 2 25 617
Futures contracts 135 105 19 563
Currency instruments 135 105 19 563
Total derivative financial instruments as at 12/31/2016 135 105 19 563

Currency instruments primarily relate to the hedging of foreign-currency risks in euros. The life of the foreign exchange futures is a few months.

33 Related parties

33.1 Compensation paid to members of the Board of Directors and Group Management

Levels of compensation paid to the Board of Directors and Group Management are defined by the Nomination and Compensation Committee and approved by the full Board of Directors. Total compensation (excluding tax-allowable expenses), specifically fees, salaries, credits, bonuses and benefits in kind agreed during the financial year and paid directly or indirectly to the members of the Board of Directors and Group Management, amounted to kCHF 2 896(previous year kCHF 2 976).

2017 2016
in CHF 1 000 in CHF 1 000
Pay (including cash bonuses), fees 1) 1 881 1 865
Contributions to pension plans 385 391
Share-based payment 2) 630 720
Total 2 896 2 976

1) Incl. benefits in kind

2) For the Chairman of the Board of Directors, allocation of a predefined number of shares. The shares are locked in for five years. The valuation corresponds to the price at the time of allocation. For the 2017 financial year, the shares were transferred on January 3, 2018. Group Management is entitled to a predefined amount in Swiss francs. Remuneration is in the form of shares. The number of shares depends on the average price in October/November. The shares have a staggered lock-in period of 1-4 years. Disbursement took place in December.

2017 2016
33.2 Other related parties in CHF 1 000 in CHF 1 000
Balance Sheet
Trade receivables 1) 47 59
Income Statement
Net sales 1) 823 511

1) Transactions with Muhr und Bender KG or its subsidiaries and with Franke Artemis Group, proceeded at arm's length.

34 Major shareholders

12/31/2017 12/31/2016
Date of notification Number Share of capital Number Share of capital
Artemis Beteiligungen I AG and Michael Pieper 09/30/2014 2 245 949 50.32 % 2 245 949 50.32 %
Muhr und Bender KG and Dr. Thomas Muhr 1) 10/02/2017 616 500 13.81 %
Geocent AG 07/15/2013 400 285 8.97 % 400 285 8.97 %

1) Held by a subsidiary of Muhr und Bender KG and Dr. Thomas Muhr Beteiligungs AG. On October 2, 2017, Muhr und Bender KG and Dr. Thomas Muhr disclosed official that it had reduced its holding of Feintool shares of 615 000 (13.81 %) and had therefore fallen below the minimal reporting treshold of three percent.

35 Events after the balance sheet date

There were no significant events after the balance sheet date.

36 Approval of the consolidated financial statements

The consolidated financial statements were authorized for issue by the Board of Directors on March 5, 2018 and will be submitted to the Annual General Meeting for approval on April 24, 2018.