Annual report 2018

Notes to the Consolidated Financial Statements

as at December 31, 2018

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, 2018, include the Company and its subsidiaries ("Feintool"). Feintool is the world's leading technology group specializing in the development of fineblanking systems and a worldwide provider of high-quality and cost-effective fineblanked, formed steel components and punched electro sheet metal products. The Group maintains close partnerships with its customers across the entire fineblanking, forming and punching of electric engine components 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 punching of electric engine components 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 2 697. At its various locations, Feintool provides training for 82 young people mainly as polymechanics, constructing engineers and commercial employees.

GENERAL INFORMATION

The consolidated financial statements for the financial year are based on the financial statements of the Group companies as at December 31, 2018, 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.

increase in share capital

On September 20, 2018, the Feintool Group concluded a capital increase. The transaction resulted in the creation of 451 871 new Feintool shares with a par value of CHF 10 each at the transaction price of CHF 112.50 each. Further information is provided in Note 27.

FINANCIAL COVENANTS

Further information on financial covenants is provided in Note 20.

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, 2018, Feintool adopted the following new Standards and Interpretations:

IFRS 9 – Financial Instruments

The substitution of IAS 39 with the new IFRS 9 standard for “Financial instruments” has only a small impact on the Group’s financial performance. Trade and other receivables are now accounted for based on continued values, but this has a negligible effect on the value adjustments arising for these. The initial application of IFRS 9 takes place according to the prospective method.

Classification and Valuation of financial assets

To a great extent, classification and valuation of financial assets under IFRS 9 incorporate the provisions relating to classification and valuation that were already provided for under IAS 39. In contrast to the old standard, the categories “Held-for-trading”, “Loans and receivables” and “Available-for-sale” are no longer applied. Instead, in the first instance a company classifies a financial asset as “Amortized costs”, as “Fair value through other comprehensive income – debt investments”, as “Fair value through other comprehensive income – equity investments” or as “Fair value through profit and loss” ("FVTPL"). Classification is based on the basis of the company’s business model for the control of financial assets and the characteristics of the contractual payment flows of the financial asset.

A financial asset is to be evaluated at amortized cost if the following two conditions are met:

  • The financial asset is contained within the scope of a business model, the objective of which is to keep financial assets for the absorption of contractual payment flows, and:
  • The contractual conditions of the financial asset lead to payment flows at specified points in time that exclusively represent principal repayments and interest payments on the outstanding capital sum.

A financial asset is to be valued as “Fair value through other comprehensive income” if the following two conditions are met:

  • The financial asset is contained within the scope of a business model, the objective of which is the absorption of contractual payment flows and the sale of financial assets, and:
  • The contractual conditions of the financial asset lead to payment flows at specified points in time that exclusively represent principal repayments and interest payments on the outstanding capital sum.

On initial recognition of an equity instrument that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI. This election is made on investment-by-investment basis.

In the initial calculation, the Feintool Group values a financial asset (with the exception of a trade receivable with no significant financing component) at fair value. For financial assets that are not valued at fair value through profit or loss, the valuation takes place with the addition or deduction of transaction costs that can be attributed directly to the acquisition or the disbursement of the financial asset. Trade receivables with no significant financing components are initially recognized at the transaction price.

The following valuation guidelines apply for the subsequent valuation of financial assets:

  • Financial assets at amortized cost:
  • The subsequent valuation of these assets is based on the procurement costs carried over. The interest earned is to be calculated according to the effective interest method. The procurement costs carried over are to be reduced by any depreciations. Interest earned, foreign currency gains and value adjustments are recorded through profit and loss.
  • Financial assets at FVTPL:
  • The subsequent valuation of these assets is recorded through profit and loss.

Feintool does not currently apply hedge accounting. For this reason, the changes to IFRS 9 regarding hedge accounting do not have any impact on the Feintool Group.

Impairment of financial assets

Under IFRS 9, expected credit losses are recorded. This new model applies for financial assets at amortized cost as well as for contract assets. At the Feintool Group, the financial assets at amortized costs consist of trade and other receivables, cash and cash equivalents, and other current and non-current financial assets.

Under IFRS 9, the expected credit losses are valued based on one of the following two principles:

  • 12-month credit loss: default event is expected in the next 12 months;
  • credit loss expected over the duration: default event is expected over the full duration.

For trade and other receivables and similar receivables, the Feintool Group records the credit losses expected over the duration.

A credit loss is expected in the following two cases:

  • The borrower is unlikely to pay its credit obligations;
  • the financial asset is overdue by more than 30 days.

The calculation of the expected credit losses takes into account experience values and future expected losses based on market development, client position, and other components.

According to IFRS 9, the expected credit losses must likewise be evaluated with the following financial assets:

  • Cash and cash equivalents
  • Prepaid expenses and accrued income
  • Non-current financial assets

Feintool does not expect any material credit losses for these items. The avoidance of clumping risks and a concentration of the financial investments on first-rate counterparties should help to avoid bigger loan losses. The Feintool Group carries out its banking business exclusively with nationally and internationally renowned banks that boast a BBB rating or better. It specifies the type of transactions that the subsidiaries are permitted to carry out with the banks.

An overview of the original classification according to IAS 39 and the new one under IFRS 9 for the categories of financial assets that have switched to a new category is shown in the following table.

Original classification under IAS 39

New classification under IFRS 9

Original carrying amount under IAS 39

New carrying amount under IFRS 9

as of 12/31/2017

as of 01/01/2018

in CHF 1 000

in CHF 1 000

Cash and cash equivalents

Loans and receivables

Amortized cost

52 384

52 384

Trade and other receivables

Loans and receivables

Amortized cost

93 630

93 630

Financial assets

Loans and receivables

Amortized cost

1 629

1 629

Total financial assets

147 643

147 643

IFRS 15 – Revenue from contracts with customers

This standard has only a limited impact on the Group’s financial situation and profits. Individual business transactions – which occur relatively rarely – are dealt with differently in the new standard and lead to increased volatility of the trading results. The initial application of IFRS 15 takes place according to the full retrospective method.

The new standard uses new terms only in part. These are adapted for both the period under report and the same period the previous year. The new standard also requires the reclassification of contractual property assets for non-current contract assets. Since the client contracts arising at Feintool generally have a duration of less than a year, this reclassification does not apply.

Under IFRS 15, income is recorded from the point when the client takes control of the product or service. The following provides an overview of the fundamental valuation guidelines.

Sale of series parts

These net sales arise in the System Parts segment. The client gets control upon the delivery of the series parts – depending on the arrangement of the income terms. The net sales are recorded at this specific point in time. In the case of client complaints as a result of quality deficiencies, the client issues an invoice to Feintool. These complaints are dealt with swiftly and – where justified – are recorded in material expenditure. Under IAS 18, net sales were already realized upon delivery of series parts.

Sale of presses and tools

These net sales arise in the Fineblanking Technology segment. The client gets control over the period of production of the presses, including peripheral devices and tools, as the process here is job production with corresponding specifications. Any dissolution of a contract results in invoicing of the manufacturing costs plus the calculated profit. Recording of net sales therefore takes place over the specific period if the following conditions are also met:

  • The value of the contract is greater than CHF 500 000 or the equivalent in foreign currency.
  • The income from the contract can be reliably calculated.
  • It is likely that the economic advantage linked to the contractual property asset of the company will accrue.
  • Contractual costs and the degree of completion of the production order can be determined reliably.

The expenditure for expected warranty costs is incorporated in the calculation, and a corresponding accrued liability is shown via the material expenditure across the whole period. In warranty cases, the press is repaired and the accrued costs charged to the accrued liability. Under IAS 18, when the above-mentioned criteria were met, net sales and expenditure for presses and tools were accounted for by means of POC methods. In terms of content, there is no change here under the new standard.

The System Parts segment also sells tools in connection with parts production. Since these tools remain in the corresponding production facility for the parts production, invoicing takes place after the "Production Part Approval Process" (PPAP).

Service contracts (in the press business)

The service and inspection contract is similar to a framework agreement with a description of the service scope and the daily rates to be applied. Customers are charged once the service has been rendered. The recording of net sales takes place at the defined time. Under IAS 18, sales were realized upon invoicing after the service had been rendered.

Other new and revised standards

  • Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions
  • Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
  • Amendments to IAS 40 – Transfers of Investment Property
  • IFRIC 22 – Foreign Currency Transactions and Advance Consideration
  • Annual Improvements IFRS – 2014 to 2016 Cycle, IFRS 1, IAS 28

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

NEW ACCOUNTING REQUIREMENTS

Various new IFRS regulations were published on the balance sheet date, but have not yet entered into force. 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:

  • IFRS 16 – Leases (January 1, 2019)

The new standard, which Feintool will adopt on January 1, 2019, has material impacts on the Group's financial position, results of operations and cash flows. In particular, the new standard leads to an increase in borrowed capital and, when first applied, to the recognition of a right of use in the same amount. Feintool will apply the modified retrospective approach, under which the comparative figures of the prior-year periods are not adjusted. For low-value leased assets and for short-term leases (less than twelve months), use is made of the practical expedients. At present, the balance sheet total is expected to increase by approximately 1 to 2 % or CHF 10 million, EBITDA by approximately 3 to 5 % or CHF 3 million and EBIT by approximately 0.5 to 1 % or CHF 0.2 million. On average, there are no effects on the Group result. Minor shifts may arise depending on the age structure of the rental and operating lease agreements.

  • IFRIC 23 – Uncertainty over Income Tax Treatments (January 1, 2019)
  • IFRS 9 – Amendments Prepayment Features with Negative Compensation (January 1, 2019)
  • IAS 19 – Amendments Plan Amendments, Curtailment or Settlement (January 1, 2019)
  • IAS 28 – Amendments Long-term Interests in Associates and Joint Ventures (January 1, 2019)
  • Annual Improvements IFRS – 2015 to 2017 Cycle, IFRS 3, 11, IAS 12, 23 (January 1, 2019)
  • IFRS 3 – Amendments Definition of a Business (January 1, 2020)
  • IAS 1 and 8 – Amendments Definition of material (January 1, 2020)
  • IFRS 17 – Insurance Contracts (January 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.

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 95.

On July 31, 2018, Feintool Holding GmbH, Bayreuth, Germany, acquired 100 % of the shares of the German company Stanzwerk Jessen GmbH, located in Jessen, Saxony-Anhalt, Germany, with its subsidiaries Jela GmbH, SLTJ GmbH and Stanz- und Lasertechnik Jessen GmbH. SLTJ GmbH merged after that with Stanz- und Lasertechnik GmbH. The name of Stanz- und Lasertechnik Jessen GmbH was then changed to Feintool System Parts Jessen GmbH.

Retroactive as of January 1, 2018, Feintool Equipment AG,

Lyss, merged with Feintool System Parts Lyss AG.

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.

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:

2018

2017

Closing rate

Average rate

Closing rate

Average rate

China

CNY 100

14.2848

14.6626

14.9669

14.5691

Czech Republic

CZK 100

4.3807

4.4836

4.5827

4.2536

Eurozone

EUR 1

1.1269

1.1516

1.1702

1.1162

Japan

JPY 100

0.8954

0.8891

0.8668

0.8757

USA

USD 1

0.9842

0.9774

0.9757

0.9813

FINANCIAL ASSETS AND LIABILITIES

The notes on the classification and valuation of financial assets can be found on page 40ff.

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 liabilities are de-recognized when repaid.

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 expected credit losses. Other receivables are stated at their nominal amount less expected credit losses. Notes on the calculation of the expected credit loss can be found on page 40ff.

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. Work in progress is stated at the cost of conversion.

Contract assets

This item includes all contract assets less prepayments received and necessary allowances for identifiable risks. Recording of net sales of contract assets takes place over the specific period if several conditions are met. These conditions are explained in detail on page 42.

If these conditions are not met, the income is recognized when the control is 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.

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. 15 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 "IFRS 9 Financial instruments" on page 40), 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

The notes on the recording of net sales can be found on page 42ff.

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 2018 in CHF 1 000

Fineblanking Technology

System Parts

Total segments

Finance/Other

Eliminations

Total Group

Net sales

106 905

586 921

693 826

-14 275

679 551

- Intersegment income

-12 237

-2 038

-14 275

14 275

Total net sales – Group 1)

94 668

584 883

679 551

679 551

Gross margin 2)

38 496

227 527

266 023

-1

-3 253

262 769

EBITDA

10 799

84 932

95 731

-5 520

-496

89 715

Depreciation and amortization

-958

-41 446

-42 404

-1 934

2 139

-42 199

Operating profit (EBIT)

9 841

43 486

53 327

-7 454

1 643

47 516

Financial expenses

-21 867

Financial income

18 353

Income taxes

-13 524

Net income attributable to Feintool Holding shareholders

30 478

Assets

79 302

601 958

681 260

241 102

-217 082

705 280

Net working capital 3)

7 961

96 979

104 940

26 348

-36 139

95 149

Investments in property, plant and equipment/intangible assets (incl. leases)

2 258

100 158

102 416

1 982

-3 227

101 171

Number of employees

174

2 489

2 663

34

2 697

1.2 Geographical areas 2018

Switzerland

Europe excl. Switzerland

America

Asia

Total

Total net sales – Group 4)

6 357

365 366

184 848

122 980

679 551

thereof Germany

248 766

thereof USA

133 794

thereof Japan

38 659

thereof China

59 584

Fixed and intangible assets

55 180

232 220

85 578

75 288

448 265

1.3 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 1)

64 921

547 412

612 333

612 333

Gross margin 2)

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

78 628

517 292

595 920

204 816

-200 371

600 365

Net working capital 3)

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

1.4 Geographical areas 2017

Switzerland

Europe excl. Switzerland

America

Asia

Total

Total net sales – Group 4)

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 2018 and 2017 financial years.

1) Total Net Sales include "Sales from products transferred over time" about CHF 56.7 million (prior year CHF 33.0 million). The net sales have been recognized in the Fineblanking Technology Segment. The remaining net sales in this segment mainly consist of tool sales and services.

2) 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.

3) Net working capital comprises trade receivables, inventories, net assets of construction contracts 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”.

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

The following explanations on the segment information apply to the financial years 2017 and 2018.

The Fineblanking Technology segment comprises the development, manufacture and sale of 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 as well as electronic sheet stamping. The segment also sells production-specific tools to third-party customers. The production and internal sale of tools is also included in this segment.

For operational reasons, the tool making business in Switzerland has been shifted from Fineblanking Technology to the System Parts segment as of June 1, 2018. This affects 68 employees and assets amounting to CHF 3.3 million.

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

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 17.2 % (previous year 17.4 %) of consolidated sales with one customer. Income is generated in all segments. With the other customers, the share is less than 12.8 % (previous year 14.3 %) in each case.

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 July 31, 2018, Feintool Holding GmbH, Bayreuth, Germany, acquired 100 % of the shares of the German company Stanzwerk Jessen GmbH with its subsidiaries Jela GmbH, SLTJ GmbH and Stanz- und Lasertechnik Jessen GmbH. SLTJ GmbH merged after that with Stanz- und Lasertechnik GmbH. The name of Stanz- und Lasertechnik Jessen GmbH was then changed to Feintool System Parts Jessen GmbH.

With this acquisition, Feintool is further expanding its global and technological position. Stanzwerke Jessen GmbH was founded in Jessen in 1879 and at the time of the acquisition employed 202 people, 6 of whom were trainees.

In its first five months as part of the Feintool Group, Feintool System Parts Jessen GmbH generated net sales of CHF 18.1 million and operating earnings (EBIT) of CHF 1.5 million. If the acquisition had taken place on January 1, 2018, the consolidated net sales of the Feintool Group would have amounted to CHF 708.9 million and the operating earnings (EBIT) to CHF 50.4 million. As Feintool System Parts Jessen GmbH did not prepare its financial statements in accordance with IFRS at the time of acquisition, these figures are estimates.

The purchase price allocation, in particular the item "Intangible assets", is not yet final. A change in the valuation of the customer orders and relationships contained therein is possible in the twelve months from the acquisition date.

2.1 Consideration for the interests acquired

in CHF 1 000

Cash and cash equivalents

43 257

Total consideration

43 257

2.2 Identifiable assets and liabilities

in CHF 1 000

Cash and cash equivalents

3 691

Trade and other receivables

4 853

Inventories

3 718

Work in progress

1 009

Property, plant and equipment

12 449

Intangible assets 1)

19 261

Financial liabilities

-34 321

Trade and other payables

-5 373

Deferred tax liabilities

-6 464

Net identifiable assets

-1 176

1) In intangible assets is mainly the value of customer contracts and relationships contained.

2.3 Goodwill at the acquisition date

in CHF 1 000

Total consideration

43 257

Net identifiable assets

1 176

Goodwill 1)

44 433

1) Goodwill at historical rates on the acquisition date. For the Feintool Group, goodwill represents the value that it would have had to pay in order to independently set up a profitable "greenfield" operation for the production of pressed parts from electrical sheets (qualified employees, market access, etc.). The acquisition of this company is related to the expected increase in e-mobility.

The costs incurred by the Feintool Group for the acquisition of Stanzwerk Jessen GmbH and it's subsidiaries Jela GmbH, SLTJ GmbH and Stanz- und Lasertechnik Jessen GmbH amounted to around CHF 0.8 million. In particular, this includes the fees of external lawyers and advisers. The costs were recognized in other operating expenses.

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.

01/01 - 12/31/2018

04/13 - 12/31/2017

2.4 Unconsolidated net operating income of the interests acquired

in CHF 1 000

in CHF 1 000

Net Sales

15 120

11 567

EBIT

-2 379

-2 043

2.5 Consideration for the interests acquired

in CHF 1 000

Cash and cash equivalents

27 243

Total consideration

27 243

2.6 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.

2.7 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 acquisition 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 in the previous year 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

2018

2017

in CHF 1 000

in CHF 1 000

Gross sales 1)

687 828

613 470

Sales deductions

-8 277

-1 137

Total net sales

679 551

612 333

1) Total gross sales include "sales generated over a period" of CHF 56.7 million (previous year CHF 33.0 million). These sales were generated in the Fineblanking Technology segment. For a further breakdown of sales, see Section 1.1 Segment information.

4 capitalized Self-generated assets

2018

2017

in CHF 1 000

in CHF 1 000

Self-generated presses

420

360

Self-generated tools

483

606

Capitalized development costs

1 467

1 839

Other capitalized self-generated assets

57

44

Capitalized self-generated assets

2 427

2 849

5 Personnel expenses

2018

2017

in CHF 1 000

in CHF 1 000

Salaries and wages

164 115

148 325

Employee welfare expenses

24 712

23 514

Other personnel expenses

6 081

8 038

Total personnel expenses

194 908

179 877

of which direct personnel expenses 1)

102 474

90 339

of which indirect personnel expenses

92 434

89 538

1) Direct personnel expenses are personnel expenses that can be directly assigned to the production process.

The Group employed 2 697 staff at the end of the year under review (previous year 2 485) and 82 trainees (previous year 81).

6 Other operating expenses

2018

2017

in CHF 1 000

in CHF 1 000

Repair and maintenance

60 066

55 494

Rental and leasing expenses

5 173

5 366

Sales and marketing expenses

4 138

2 441

Administration and distribution expenses

11 647

11 278

Loss on the disposal of property, plant and equipment

541

62

Taxes and duties (not including taxes on income)

1 614

1 184

Other expenses

2 606

2 307

Total other operating expenses

85 785

78 132

7 Other operating income

2018

2017

in CHF 1 000

in CHF 1 000

Gain on the disposal of property, plant and equipment

1 013

88

Other income 1)

1 725

2 354

Total other operating income

2 738

2 442

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

8 Financial expenses

2018

2017

in CHF 1 000

in CHF 1 000

Interest expense

3 859

2 892

Other finance costs 1)

904

666

Foreign exchange losses

17 104

10 970

Total financial expenses

21 867

14 528

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 hedging.

9 Financial income

2018

2017

in CHF 1 000

in CHF 1 000

Interest income

68

77

Other financial income 1)

8

161

Foreign exchange gains

18 277

8 088

Total financial income

18 353

8 326

1) Other financial income comprises valuation income from hedging.

10 Income taxes

2018

2017

10.1 Analysis of income taxes

in CHF 1 000

in CHF 1 000

Tax credits/charges for the reporting period

11 752

14 238

Tax credits/charges from previous years

-447

30

Deferred income taxes

2 219

-1 909

Total income taxes

13 524

12 359

2018

2017

10.2 Analysis of tax charge

in CHF 1 000

in CHF 1 000

Earnings before taxes

44 002

40 102

Weighted tax rate as % 1)

24.1 %

29.6 %

Expected overall tax expense

10 612

11 882

Non tax-deductible expense

348

154

Non-taxable income

-454

-1 427

Unrecognized tax loss carryforwards from the current year 2)

3 376

2 885

Recognition of previously unrecognized loss carryforwards

-111

Use of unrecognized deductible temporary differences

-124

-123

Tax credits/charges from previous years

-447

30

Effect of changes in tax rates 3)

-57

-2 341

Reassessment of prior year

52

1 120

Other effects

329

179

Effective income tax expense

13 524

12 359

Effective income tax expense as %

30.7 %

30.8 %

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

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

11 Deferred taxes

12/31/2018

12/31/2017

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

2 756

1 442

3 233

1 486

Non-current assets

4 515

30 893

3 953

25 632

Provisions and other liabilities

1 527

2 605

2 321

967

Employee benefit plans

12 805

527

12 599

430

Loss carryforwards

9 046

10 424

Other temporary differences

339

136

Total gross values

30 988

35 467

32 530

28 651

Netting

-14 536

-14 536

-15 808

-15 808

Total carrying amounts

16 452

20 931

16 722

12 843

of which recognized in the balance sheet as deferred tax assets

16 452

16 722

of which recognized in the balance sheet as deferred tax liabilities

20 931

12 843

Net deferred tax assets/liabilities

4 479

3 879

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.

12/31/2018

12/31/2017

11.2 Statement of net deferred taxes assets/liabilities

in CHF 1 000

in CHF 1 000

Start of period

3 879

5 896

Recognition and reversal of temporary differences

-2 276

-432

Temporary differences arising on tax rate changes

57

2 341

Temporary differences arising on acquisition/sale of entities

-6 464

-2 333

Temporary differences recognized directly in equity

240

-1 200

Translation differences

85

-393

End of period

-4 479

3 879

The temporary differences arising on the acquisition/sale of entities in the financial year relate to the acquisition of Stanzwerk Jessen GmbH and its subsidiaries.

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.

12/31/2018

12/31/2017

11.4 Tax loss carryforwards

in CHF 1 000

in CHF 1 000

Total tax loss carryforwards

69 781

68 742

of which recognized loss carryforwards

38 978

46 625

Total unrecognized tax loss carryforwards

30 803

22 117

of which expiring within 1 year

2 050

2 978

of which expiring in one to five years

9 460

7 811

of which expiring in more than five years

19 293

11 327

Tax effects of unrecognized tax loss carryforwards

8 174

5 921

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

12 Consolidated earnings per share

2018

2017

12.1 Average number of shares outstanding

Number

Number

Average number of shares outstanding

4 602 008

4 462 971

Less number of treasury shares (weighted)

-5 366

-3 374

Average number of shares outstanding – basic

4 596 642

4 459 597

Average number of shares outstanding – diluted

4 596 642

4 459 597

2018

2017

12.2 Net income Feintool Group

in CHF 1 000

in CHF 1 000

Net income of the Feintool Group – basic

30 478

27 743

Net income of the Feintool Group – diluted

30 478

27 743

No dilution effects were recognized in the financial year.

2018

2017

12.3 Earnings per share

in CHF

in CHF

Basic earnings per share

6.63

6.22

Diluted earnings per share

6.63

6.22

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.

13 Receivables

13.1 Trade and other receivables

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Trade receivables

85 757

93 331

Valuation allowances

-1 661

-2 708

Total trade receivables (net)

84 096

90 623

Bills receivable

6 533

55

Outstanding VAT credits

8 221

7 299

Advanced payments to suppliers

30

10 557

Other receivables

2 149

2 952

Total trade and other receivables

101 029

111 486

Feintool has various factoring programs not required to be included on the balance sheet. Receivables of kCHF 11 389 had been sold under this program as at December 31, 2018 (previous year kCHF 13 314).

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

12/31/2018

Trade receivables

85 757

64 796

14 159

4 006

1 658

1 138

Valuation allowances

-1 661

-2

-130

-232

-267

-1 030

Total receivables (net)

84 096

12/31/2017

Trade receivables

93 331

76 317

8 841

5 240

791

2 142

Valuation allowances 1)

-2 708

Total receivables (net)

90 623

1) Value adjustments were not subdivided according to maturity until the 2017 financial year. This subdivision will now take place from the current financial year onwards.

2018

2017

13.3 Valuation allowance on receivables

in CHF 1 000

in CHF 1 000

Start of period

-2 708

-2 004

Translation differences

-41

Recognized

-1 130

-985

Reversed

2 013

249

Used

164

73

End of period

-1 661

-2 708

14 Inventories

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Raw material

41 738

33 131

Finished and semi-finished goods

53 243

43 649

Work in progress 1)

20 457

22 111

Valuation allowances on inventories 1)

-22 017

-20 637

Total inventories

93 421

78 254

1) In the previous year, revenues from contracts with customers were reclassified in the amount of kCHF 21 824 between inventories and net contract assets due to the new IFRS 15 standard.

15 contract assets

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Contract assets

14 079

20 047

Prepayments received

-7 236

-10 202

Valuation allowances on construction contracts

-419

-483

Total net contract assets

6 424

9 362

In the previous year, revenues from contracts with customers were reclassified in the amount of kCHF 2,985 between net assets from contract assets and trade payables/other liabilities due to the new IFRS 15 standard. In addition, reclassifications amounting to kCHF 21 824 were made between inventories and net contract assets. The gross margin recorded under contract assets as at the closing date amounted to 38.0 % (previous year 37.6 %).

16 Prepaid expenses and accrued income

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Prepaid expenses for customer orders 1)

807

1 658

Issue costs of promissory note and syndicated loan

782

1 003

Rental agreement 2)

575

775

Tax accruals

2 770

Scrap and material income

1 203

Other prepaid expenses and accrued income

642

834

Total prepaid expenses and accrued income

6 779

4 270

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 01/01/2017

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

Additions

3 331

31 972

62 850

98 153

Disposals

-785

-9 693

-534

-11 012

Reclassifications 1)

8 866

28 186

-34 888

2 164

Change in scope of consolidation 2)

9 053

3 176

220

12 449

Translation differences

-1 492

-5 455

-1 716

-8 663

As at 12/31/2018

125 811

406 346

71 666

603 823

Accumulated depreciation as at 01/01/2017

-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

Additions

-3 992

-31 679

-1 781

-37 452

Disposals

740

7 562

477

8 779

Translation differences

254

2 129

236

2 619

As at 12/31/2018

-39 858

-205 445

-11 504

-256 807

Net carrying amounts

As at 12/31/2017

69 978

174 703

35 298

279 979

Of which leased assets

39 039

39 039

As at 12/31/2018

85 953

200 901

60 162

347 016

Of which leased assets

49 142

49 142

1) Reclassifications include positions of immaterial assets amounting to kCHF -157 (previous year kCHF -171). Furthermore there was a reclassification from immaterial assets to fixed assets of kCHF 2 319.

2) The change in the scope of consolidation applies to Stanzwerk Jessen GmbH with its subsidiaries, which was acquired in year under review. In previous year it applies to 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 48 874 in the year under review (previous year kCHF 28 324). Gains on asset disposals are recognized as other operating income (Note 7). A gain of kCHF 1 013 (previous year kCHF 88) 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 541 (previous year kCHF 62). As at December 31, 2018, the Feintool Group had entered into purchase commitments for the purchase of property, plant and equipment totaling approx. CHF 13.6 million (previous year CHF 17.2 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 01/01/2017

10 123

5 652

5 692

7 359

28 826

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

6 808

19 267

56 612

Additions

1 934

352

731

3 017

Disposals

-19

-70

-89

Reclassifications

157

-2 319

-2 162

Change in scope of consolidation 3)

44 433

19 261

63 694

Translation differences

-1 471

-94

-888

-2 453

As at 12/31/2018

66 139

9 294

7 204

35 982

118 619

Accumulated depreciation as at 01/01/2017

-2 251

-4 035

-4 156

-10 442

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

-4 802

-5 538

-12 880

Additions

-1 482

-981

-2 284

-4 747

Disposals

3

3

Reclassifications

7

7

Translation differences

68

179

247

As at 12/31/2018

-4 022

-5 705

-7 643

-17 370

Net carrying amounts

As at 12/31/2017

23 177

4 820

2 006

13 729

43 732

As at 12/31/2018

66 139

5 272

1 499

28 339

101 249

1) Research and development expenses amounting to kCHF 4 381 (previous year kCHF 4 516) 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 Stanzwerk Jessen GmbH with its subsidiaries, which was acquired in year under review. In previous year it applies to Feintool Automotive System Parts (Tianjin) Co., Ltd.

Carrying amount

18.2 Other information

in CHF 1 000

Goodwill 12/31/2018

Cash-generating unit System Parts China

11 593

Cash-generating unit System Parts Fineblanking Europe

3 417

Cash-generating unit System Parts Forming Europe

7 207

Cash-generating unit System Parts Stamping Europe

43 923

Total carrying amounts

66 139

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

The following impairment test was performed for all business units in the financial year: 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 using the DCF method (discounted cash flow method). The cash flows were discounted using the WACC (discount rate after tax). The future cash flows are based on a budget approved by the management for a period of three years and an extended projection over two years plus the residual value.

The goodwill of the cash-generating unit System Parts Stamping Europe is allocated to Feintool System Parts Jessen GmbH and its subsidiaries acquired in the current financial year. The acquisition of this company is related to the expected increase in e-mobility. This development is expected to continue for at least the next ten years. For this reason, the period of future cash flows has been set at a total of eight years.

2018

2017

18.3 Parameter for Discount rate

System Parts China

System Parts Europe

System Parts China

System Parts Europe

Discount rate after taxes

9.5

8.3

n/a

8.4

Market returns

6.0

6.0

n/a

7.0

Growth rate in residual value

2.5

1.6

n/a

1.1

The cash-generating unit System Parts China is included in this overview in the System Parts China group. The cash-generating units System Parts Fineblanking Europe, Forming Europe and Stamping Europe are included in the System Parts Europe group. As of the date of the impairment test, the recoverable amount of the cash-generating unit System Parts China exceeded the net carrying amount by kCHF 10 273. An increase in the weighted average cost of capital to 10.12 % leads to a situation where the value in use equates the net carrying amount. If the discount rate were to increase by 1 % (after taxes), the value in use for all other cash-generating units would still be above the value of the net assets plus goodwill.

19 Financial assets

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Loans to third parties

88

104

Receivables from the financing of customer tools

1 349

1 198

Rental deposit accounts

313

327

Financial assets

1 750

1 629

The weighted average interest rate in the reporting period was 0.9 % (previous year 0.8 %). 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

12/31/2018

12/31/2017

20.1 Current financial liabilities

in CHF 1 000

in CHF 1 000

Current liabilities to banks

62 316

21 694

Current portion of lease liabilities

10 944

8 196

Current portion of non-current liabilities to banks

530

852

Total current financial liabilities

73 790

30 742

The weighted average interest rate in the reporting period was 1.7 % (previous year 1.8 %).

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. On May 17, 2018, this contract was extended and will now run until June 13, 2023. 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 2018, CHF 34.1 million of the syndicated loan had been used (previous period CHF 8.2 million) and all the covenants had been met.

12/31/2018

12/31/2017

20.2 Non-current financial liabilities

in CHF 1 000

in CHF 1 000

Non-current lease liabilities

25 741

20 046

Non-current promissory note

73 249

76 063

Non-current liabilities to banks

5 960

7 396

Total non-current financial liabilities

104 950

103 505

The weighted average interest rate in the year under review was 1.3 % (previous year 1.4 %).

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 until fiscal year 2021, fixed interest rate of 0.90 % 

- EUR 25 million, term until fiscal year 2023, fixed interest rate of 1.10 % 

- EUR 15 million, term until fiscal year 2026, 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, 2018, all the covenants had been met.

Credit agreements concluded on a bilateral basis with various banks also contain standard covenants. As of December 31, 2018, 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, 2018, Feintool has CHF 55.9 million (previous year CHF 81.8 million) in unused, confirmed creditlines at the bank.

2018

2017

20.3 Reconciliation of financial liabilities

in CHF 1 000

in CHF 1 000

Start of period

134 247

108 924

Cash flows net 1)

-2 768

2 838

Non-cash changes

42 765

14 524

thereof acquisition

34 321

12 727

thereof new leases

8 444

1 797

Translation differences

4 496

7 961

End of period

178 740

134 247

1) This item includes the borrowing of interest-bearing debt, the repayment of interest-bearing lease liabilities and the repayment of interest-bearing debt.

21 Trade and other payables

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Trade payables

50 052

57 190

Prepayments from third parties

7 220

6 455

Notes payable

4 992

6 429

Customer payments from factoring 1)

2 088

1 529

Social security liabilities

4 512

3 778

Outstanding VAT liabilities

1 132

1 288

Other liabilities

2 066

1 141

Total trade and other payables

72 062

77 810

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

In the previous year, revenues from contracts with customers were reclassified in the amount of kCHF 2 985 between net contract assets and trade payables/other liabilities due to the new IFRS 15 standard.

22 Accrued expenses and deferred income

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Accruals for salary, bonus, overtime, additional hours

11 552

14 343

Outstanding accounts payable

11 193

10 168

Outstanding installations and other work to be fulfilled in relation to customer orders

12 821

15 918

Accruals for environmental risks 1)

855

1 033

Other accrued expenses and deferred income

658

1 013

Total accrued expenses and deferred income

37 079

42 475

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

Warranties

Other provisions

Total

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

Recognized

1 821

5 072

6 893

Used

-108

-2 113

-2 221

Reversed

-424

-1 868

-2 292

Translation differences

-17

-241

-258

Total provisions as at 12/31/2018

3 652

6 841

10 493

of which current provisions

1 868

6 246

8 114

of which non-current provisions

1 787

592

2 379

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 407 (previous year kCHF 443) 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 12/31/2018 due

within 1 year

551

11 097

in one to five years

1 778

25 861

in more than five years

25

227

Total liabilities

2 354

37 185

Less interest

-500

Total lease liabilities as at 12/31/2018

36 685

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

In the financial year, kCHF 16 337 (previous year kCHF 10 809) of new financial leasing agreements were concluded.

25 Commitments under long-term rental agreements

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Rental payments due

within 1 year

2 003

2 768

in one to five years

7 062

6 512

in more than five years

2 297

2 558

Total payments

11 362

11 838

26 Employee benefit plans

12/31/2018

12/31/2017

26.1 Overview of net employee benefit liabilities (assets)

in CHF 1 000

in CHF 1 000

Net defined benefit liability (asset)

56 924

57 354

Anniversary benefits

2 020

2 006

Other benefit obligations

105

171

Total net employee benefit liabilities (assets)

59 049

59 531

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 6 619 (previous year kCHF 6 731).

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 47 329 (previous year kCHF 46 793), the German plan to kCHF 8 739 (previous year kCHF 9 775) and the Japanese plan to kCHF 856 (previous year kCHF 786). 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 5.8 % (previous year 6.0 %). 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 90.6 % as at December 31, 2018 (previous year 94.7 %). 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)

2018

2017

2018

2017

2018

2017

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

184 358

185 763

-127 004

-124 648

57 354

61 115

Recognized in income statement

Current service cost

4 894

5 041

4 894

5 041

Interest cost (income)

1 180

1 179

-752

-743

428

436

General and administrative expenses

186

218

186

218

Total

6 074

6 220

-566

-525

5 508

5 695

Recognized in other comprehensive income

Expense/(income) from remeasurement of

Actuarial loss/(gain) due to:

Change in demographic assumptions

34

-7

34

-7

Change in financial assumptions

-5 085

-5 085

Experience adjustment

-172

-430

-172

-430

Expense/(income) on plan assets (excluding interest income)

4 983

-4 571

4 983

-4 571

Translation differences

-294

861

-26

-78

-320

783

Total

-5 517

424

4 957

-4 649

-560

-4 225

Other

Contributions from employer

-468

-403

-4 910

-4 828

-5 378

-5 231

Contributions from employees

3 228

3 164

-3 228

-3 164

Benefits paid out

-6 917

-10 810

6 917

10 810

Total

-4 157

-8 049

-1 221

2 818

-5 378

-5 231

As at December 31

180 758

184 358

-123 834

-127 004

56 924

57 354

of which Swiss plans

167 839

170 697

-120 510

-123 904

47 329

46 793

of which German plans

9 913

10 820

-1 174

-1 045

8 739

9 775

of which Japanese plans

3 002

2 839

-2 146

-2 052

856

787

The expected contributions made to the employee benefit plans for the following financial year amount to CHF 5.4 million in the case of employer contributions and CHF 3.3 million in the case of employee contributions.

2018

2017

26.3 Plan assets of defined benefit plans

in %

in %

Equities

7.2

9.1

Bonds

65.8

65.3

Real estate (including real estate funds)

14.9

14.5

Other

1.2

0.9

Cash

10.9

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.

2018

2017

26.4 Defined benefit plan obligations – actuarial assumptions

in %

in %

Swiss plan

Discount rate

0.8

0.6

Future increase in wages and salaries

1.3

1.3

German plans

Discount rate

1.8

1.6

Future increase in wages and salaries

0.0 - 2.0

0.0 - 2.0

Future increase in pensions

1.8 - 2.0

1.8 - 2.0

2018

2017

26.5 Defined benefit plan obligations – actuarial assumptions

in years

in years

Swiss plan

Life expectancy at age 65 for newly retired persons

Men

22.5

22.4

Women

24.5

24.4

Life expectancy at age 65 for employees currently aged 45

Men

24.3

24.3

Women

26.4

26.3

German plans

Life expectancy at age 65 for newly retired persons

Men

20.2

19.3

Women

23.8

23.3

Life expectancy at age 65 for employees currently aged 45

Men

23.0

21.9

Women

26.0

25.8

As at December 31, 2018, the weighted-average duration of pension benefit obligations was 14.4 years for the Swiss plan (previous year 14.7 years) and 18.3 - 19.4 years for the German plans (previous year 18.9 - 20.2 years). Feintool uses the GT 2015 mortality table in Switzerland and Heubeck in Germany for the hypothetical life expectancy.

2018

2017

26.6 Defined benefit plan obligations – sensitivity analysis

in CHF 1 000

in CHF 1 000

Swiss plan

Change in discount rate -0.25 %

5 919

6 177

Change in discount rate +0.25 %

-5 538

-5 773

Change in wages and salaries -0.25 %

-315

-541

Change in wages and salaries +0.25 %

310

540

German plans

Change in discount rate -0.25 %

481

502

Change in discount rate +0.25 %

-450

-469

Change in wages and salaries -0.25 %

n/a

-69

Change in wages and salaries +0.25 %

n/a

71

27 Equity

12/31/2018

12/31/2017

27.1 Share capital

Number/CHF

Number/CHF

Number of shares

4 914 842

4 462 971

Nominal value

10

10

Share capital

49 148 420

44 629 710

12/31/2018

12/31/2017

27.2 Changes of Share capital

in CHF

in CHF

Start of period

44 629 710

44 629 710

Increase

4 518 710

End of period

49 148 420

44 629 710

On September 20, 2018, the Feintool Group concluded a capital increase. The transaction resulted in the creation of 451 871 new Feintool shares with a par value of CHF 10 each at the transaction price of CHF 112.50 each.

12/31/2018

12/31/2017

27.3 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.

12/31/2018

12/31/2017

27.4 Authorized capital

in CHF 1 000

in CHF 1 000

Start of period

6 000

6 000

Expired

-6 000

Created

6 000

Used

-4 518

End of period

1 482

6 000

The "authorized capital" amounting to a maximum of CHF 6 000 000 created on April 19, 2016, by issuing a maximum of 600 000 new shares with a par value of CHF 10 each expired on April 19, 2018. By resolution of the General Meeting of April 24, 2018, the Board of Directors was authorized, if required, to create authorized capital amounting to a maximum of CHF 6 000 000 by issuing a maximum of 600 000 new shares with a par value of CHF 10 each. The new shares must be paid up in full. The Board of Directors is authorized to restrict or exclude the subscription right in certain cases. The shares may be issued in one or more steps. The authorization is limited to two years. The authorized share capital will expire on April 24, 2020.

As of September 20, 2018, 451 871 new shares with a par value of CHF 10 each were issued as part of a capital increase. The shares were fully drawn from the "authorized share capital".

12/31/2018

12/31/2017

27.5 Treasury shares – changes

Number

in CHF 1 000

Number

in CHF 1 000

Start of period

6 406

703

6 742

660

Bought

19 909

7 000

Sale/transfer

-9 174

-7 336

End of period

17 141

1 780

6 406

703

of which trading portfolio

17 141

6 406

In the 2018 financial year, 19 909 shares were purchased at an average price of CHF 103.55 (previous year 7 000 shares at an average price of CHF 112.08) and 9 174 shares sold at an average price of CHF 108.05 (previous year 7 336 shares at an average price of CHF 113.25) for the share-based management remuneration. Treasury shares are reserved primarily for management remuneration.

28 Capital participation plans

As a component of the bonus, 8 763 shares (previous year 7 336) were allocated to the Board of Directors, the Group Management and other managers in the financial year at a transaction value of kCHF 723 (previous year kCHF 860). Of this amount, 5 000 shares have been distributed in January 2019 and 3 763 shares in December 2018. All shares were transferred from treasury shares and were transferred directly to the ownership of the recipient.

29 Off-balance sheet transactions, contingent liabilities

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Contingent obligations

3 585

3 268

Contingent liabilities

3 585

3 268

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 407 (previous year kCHF 443) 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.

At one location in Switzerland, a neighbor filled a suit due to excessive noise emissions from a production site. Together with the responsible authorities, Feintool is currently examining structural and organizational modifications with the aim of reducing the effects of the emissions. Feintool does not expect these modifications to have a material impact on the Group's financial position, results of operations or cash flows.

In Germany, the Federal Labor Court ruled in the last instance that Feintool had no basis for a group works council.

In the US, Feintool delivered defective parts to two customers. Both cases were concluded in the reporting period; Feintool's insurances covered the damage in full.

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

12/31/2018

12/31/2017

in CHF 1 000

in CHF 1 000

Real estate

6 162

6 367

Machinery and equipment

49 142

39 039

Assets pledged as security for own liabilities

55 304

45 406

31 Economic risks

Continuously growing protectionism with rising tariffs, the change in raw material and energy prices as well as the persistently high external trade imbalances entail risks for the future development of the global economy. These factors could lead to a decline in global economic growth. The inherent uncertainties cause stronger exchange rate fluctuations, and a continuation of the weakness of the euro in particular. 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 syndicated loan of CHF 90 million (previous year EUR 90 million), a promissory note in the amount of EUR 65 million (previous year EUR 65 million), bilateral credit loans and several leasing and rental contracts (more details in note 20 and 24).

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, 2018, all covenants had been met. As at December 31, 2018, Feintool had CHF 55.9 million (previous year CHF 81.8 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

12/31/2018

Liabilities 1)

59 198

59 198

59 198

Accrued expenses and deferred income 2)

12 706

12 706

12 706

Current liabilities to banks

62 316

62 316

62 316

Lease liabilities

36 685

10 946

18 866

7 146

227

37 185

Other liabilities to banks

79 739

530

32 989

32 003

17 606

83 128

Total

250 644

145 696

51 855

39 149

17 833

254 533

Foreign exchange futures 3)

Cash inflows

87

87

87

Cash outflows

31

31

31

12/31/2017

Liabilities

66 289

66 289

66 289

Accrued expenses and deferred income

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/bonds

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

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

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

3) As at December 31, 2018, the contractual values of the forward exchange deals amounted to kCHF 14 062 (previous year kCHF 25 617).

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 adjustable interest rate would adversely affect pretax profits by kCHF 243.

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), the Chinese currency yuan (CNY), the Japanese yen (JPY) and the Czeck (CZK). 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 if foreign currencies were decreased by 5 % versus the Swiss franc and simultaneously all other variables were to remain the same.

2018

2017

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

-13 929

813

18 059

-1 056

USD – Comprehensive Income

3 450

-78

3 991

-87

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 (on page 28). 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 book value of the recognized financial assets with the exception of financial guarantees. In this case, the guaranteed amount corresponds to the credit risk.

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, 2018, the overall default risk amounts to kCHF 129 882 (previous year kCHF 148 290). Feintool generates more than 17.2 % (previous year 17.4%) of consolidated sales from one customer. Income is generated in all segments. With the other customers, the share is less than 12.8 % (previous year 14.3 %) 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

Financial assets at amortised cost

Financial assets at fair value through profit and loss

Total

Cash and cash equivalents

30 872

30 872

Prepaid expenses and accrued income 1)

4 395

87

4 482

Receivables

92 778

92 778

Financial assets

1 750

1 750

Carrying amounts as at 12/31/2018

129 795

87

129 882

Loans and receivables

Financial assets at fair value through profit and loss for trading

Total

Cash and cash equivalents

52 384

52 384

Prepaid expenses and accrued income 1)

218

429

647

Receivables

93 630

93 630

Financial assets

1 629

1 629

Carrying amounts as at 12/31/2017

147 861

429

148 290

32.2 Financial liabilities

in CHF 1 000

Financial liabilities at amortised cost

Financial liabilities at fair value through profit and loss

Total

Accrued expenses and deferred income 2)

12 706

12 706

Trade payables

59 198

59 198

Non-current financial liabilities

73 790

73 790

Non-current financial liabilities

104 950

104 950

Carrying amounts as at 12/31/2018

250 644

250 644

Other financial liabilities

Financial liabilities held for trading

Total

Accrued expenses and deferred income 2)

12 214

12 214

Trade payables

66 289

66 289

Non-current financial liabilities

30 742

30 742

Non-current financial liabilities

103 505

103 505

Carrying amounts as at 12/31/2017

212 750

212 750

Based on the new standard IFRS 9 Financial Instruments, financial assets and liabilities will be divided into new categories as of the 2018 financial year. The previous year remains unchanged due to the prospective implementation method. 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 56 net (previous year kCHF 427).

32.4 Classification of financial income/financial expenses

in CHF 1 000

Cash and cash equivalents

Measured at fair value

Loans and receivables

Other financial liabilities

Total

Carrying amounts as at 12/31/2018

30 872

56

94 528

250 644

Interest income/expenses

68

-3 859

-3 791

Other financial income/finance expenses

-608

-285

-3

-896

Change in valuation allowances on customer receivables and bad debt losses

1 047

1 047

Total net gain/loss 2018

-608

830

-3 862

-3 640

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

Fair values

Contract volumes

32.5 Derivative financial instruments outstanding

in CHF 1 000

positive

negative

Futures contracts

87

31

14 062

Currency instruments

87

31

14 062

Total derivative financial instruments as at 12/31/2018

87

31

14 062

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

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 2 605 (previous year kCHF 2 896).

2018

2017

in CHF 1 000

in CHF 1 000

Pay (including cash bonuses), fees 1)

1 663

1 881

Contributions to pension plans

414

385

Share-based payment 2)

528

630

Total

2 605

2 896

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 2018 financial year, the shares were transferred on January 4, 2019. 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.

2018

2017

33.2 Other related parties

in CHF 1 000

in CHF 1 000

Balance Sheet

Trade receivables

47

Other payables

145

149

Income Statement

Net sales 1)

24

823

1) Transactions in the year under review with Franke Artemis Group, proceeded at arm's length.

34 Major shareholders

12/31/2018

12/31/2017

Date of notification

Number

Share of capital

Number

Share of capital

Artemis Beteiligungen I AG and Michael Pieper

09/20/2018

2 473 349

50.32 %

2 245 949

50.32 %

Geocent AG 1)

07/15/2013

400 285

8.14 %

400 285

8.97 %

1) The notice dated July 15, 2013, comprised 400 285 shares or 8.97 % of the corresponding share capital. Following the capital increase on September 20, 2018, 400 285 shares correspond to a capital share of 8.14 %.

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 4, 2019 and will be submitted to the Annual General Meeting for approval on April 30, 2019.