ANNUAL REPORT
2018/19

KLINGELNBERG AG
Binzmühlestrasse 1718050 Zürich, SwitzerlandFon:+41 44 278 7940
Mail: investorrelations@klingelnberg.com
Web: www.klingelnberg.com

1

Content
03 To our Shareholders
06 At a Glance
10 Highlights 2018/19
16 Company Profile
22 Management Report
30 Corporate Governance
56 Compensation Report
70 Consolidated Financial Statements
106 Statutory Financial Statements of
KLINGELNBERG AG
126 Alternative Performance Measures
132 Financial Calendar

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KLINGELNBERG GROUP
To our Shareholders

Dear Shareholders,Your company, KLINGELNBERG AG, has enjoyed a highly eventful, challenging, but above all
successful fiscal year. The most significant event for the company in the past year was no doubt the
IPO. Particularly for a company that has developed so outstandingly over so many years in carefulfamily hands, this step was and is of great importance. We saw our successful IPO – the shares wereoversubscribed several times over – as a vote of confidence on the part of our new shareholders
especially.
For the Board of Directors and the management,
it was therefore particularly important to fully
achieve its intended goals in the first year. And
we stood by this goal even when the economic
environment steadily lost its luster shortly after the
IPO. The escalation of trade conflicts, the economic
downturn on key markets and the enormouspressure to change in central customer sectors have
all left their mark. Taking all of this into account,
we are proud to report that we have achieved ourgoals.

Historic revenue and earnings
Net sales of the KLINGELNBERG Group were significantly higher than in the prior-year period(increase of around 8% from EUR 257,0 million to EUR 278,2 million).
Likewise, after adjustment for IPO costs (around EUR 1,1 million), EBIT rose by EUR 8,3 million as
against the previous year. This is also the highest earnings figure that the KLINGELNBERG Grouphas ever achieved.
The figures were therefore entirely in line with the forecasts we had communicated to the market– EBIT was even slightly higher.

3KLINGELNBERG GROUP
To our Shareholders

Growth drivers: Cylindrical gears and “non-gear”
The solid organic growth of our Group is thanks above all to cylindrical gear technology andprecision measuring centers. As announced during the IPO, we placed ten Speed Viper cylindricalgear grinding machines on a wide range of geographical markets as incoming orders. Straightout of the gate, we were able to secure references on key sales markets following the launch inIndia, Germany, China and North America. We also added a system for the rapid cycloid gearing
measurement in robot gears to the measuring software of our precision measuring centers andestablished this on the market.
Regionally, revenue performance was highly positive in Asia and Europe especially.

Challenging environment
The competitive environment of the global mechanical engineering industry is becoming
increasingly volatile. It is clear that we can certainly not rely on momentum from the markets. On
the contrary, the markets are signaling a growing reluctance to invest in new and replacement
equipment. The uncertainty stemming from political factors such as Brexit, trade conflicts,
upheaval in entire product categories – such as the automotive industry – will not be making ourbusiness any easier in the new fiscal year now underway. This is all the more important, as looking
back at 2018/19 shows that we can be successful even on difficult markets.
In a challenging fiscal year, especially after the first half, we were able to deliver virtually 100%of the machinery ordered from us on schedule and with the promised quality. Given the familiar
tensions on the supplier market, this is not something that can be taken for granted. Ultimately,
however, we were able to master these challenges thanks to robust order processing combinedwith highly motivated and well-trained expert staff.
And we will say it once again: this is not something that can be taken for granted. And repeating
or even improving on our strong results in the clearly depressed global economic environmentof the current fiscal year isn’t something that can be taken for granted either. But it is also clearthat this company is excellently positioned – it will prove its very special quality even in difficult
times. Our strategy of tapping new markets with new products, such as the Speed Viper, and new
applications in measurement technology, worked admirably last year, and it will help us to face themounting challenges in the current year as well.

4KLINGELNBERG GROUP
To our Shareholders

OutlookDespite the current uncertainty in the automotive industry, we believe that we will be able tocontinue our growth in cylindrical gears and measurement technology.
We anticipate a tougher uphill struggle in bevel gears and drive technology owing to the factors
described above. However, we are confident that revenue growth in cylindrical gears andmeasurement technology can largely neutralize the market effects in the other two segments.
It will also be a challenge to sustain our margin quality. It is especially important here that weestablish robust processes for our new products. Even though the launch of the Speed Viper
can be termed a success, it is also clear that we have not yet matched the level of our bevel gear
technology. We will approach this task systematically and with all our energy. Taking all this into
account, we assume that we can maintain revenue at the prior-year level. Due to the shift in the
product mix and the associated change in the margin structure, profits will remain below the very
good level of the previous year 2018/19. Nevertheless, we expect a clearly positive result.
In the medium term, we will continue to achieve double-digit EBIT margins as soon as the markets
return to normal.

Our thanks
We would like to thank our customers, employees and shareholders for their support in the past
year – success is a product of team work, and you have all played your part.
We look forward to mastering the coming challenges with all of you, and we thank you again forchoosing to be our shareholders!

Dr. Jörg Wolle
Chairman of the Board of Directors

Jan Klingelnberg
CEO

Zürich, 09 July 20195

At a Glance

6

KLINGELNBERG GROUP
At a Glance

Financial overview
Key facts
 Order intake rises by EUR 2,0 million
to EUR 265,2 million

 Respectable net profit amounted
to EUR 19,2 million

 Record-high net sales of
EUR 278,2 million

 Basic earnings per share EUR 2,20

 EBIT climbed to EUR 30,0 million

 Solid equity ratio of 63,8%
 Dividend of CHF 1,00 per share Operating margin adjusted by IPO
costs of 11,2%
Group key figures
EUR million

2018/192017/18

ChangeNet sales from goods and services

278,2

257,0

21,2

Order intake

265,2

263,2

2,0

Operating result (EBIT)

30,0

22,1

7,9

Operating result (adjusted, without IPO costs)

31,1

22,8

8,3

Net profit

19,2

14,2

5,0

Basic earnings per share (in EUR)

2,20

1,69

0,51

Diluted earnings per share (in EUR)

2,20

1,69

0,51

Operating result as % of net sales from goods and services

10,8%

8,6%

2,2%

Operating result (adjusted, without IPO costs)
as % of net sales from goods and services

11,2%

8,9%

2,3%

Net profit as % of net sales from goods and services

6,9%

5,5%

1,4%

Cash flow from operating activities

27,6

6,4

21,2

Investments

7,8

6,2

1,6

Free cash flow

22,0

0,8

21,2

Employees (FTE)

1.310,01.266,843,231.03.2019

31.03.2018

ChangeTotal liabilities and equity

255,4

235,0

20,4

Net debt

-22,2

19,7

-41,9

Total equity

163,0

120,3

42,7

Equity ratio

63,8%

51,2%

12,6%

EUR million

For alternative performance measures please refer to chapter alternative performance measures.

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KLINGELNBERG GROUP
At a Glance

Net sales, in EUR million

Order intake, in EUR million

300

300

250
200

257,0
226,9

278,2

231,0

250
200

150

150

100

100

50

50

0

2015/162016/17228,4

2017/180

2018/192015/16

124,9

120

130,7

1.200

118,2

102,9

1.000

80

800

60

600

40

400

20

200
0
2015/162016/172017/18

2018/19

Personnel expense, in EUR million

1.152

2015/16

1.207

2016/17

1.267

1.310

2017/18

2018/19

36,1

36,4

2017/18

2018/19

45

85,1

86,3

94,8

101,2

40
35

37,7

37,4

2015/162016/17

30

60

25
20

40

15
10

20

8

2018/19

50

100

0

2017/18

Personnel expense ratio, in %

120

80

265,2

1.400

140

0

2016/17263,2

Employees, full time equivalents as of 31 March 2019

Order backlog, in EUR million

100

253,4

2015/162016/172017/18

2018/1950KLINGELNBERG GROUP
At a Glance

Adjusted other operating expense ratio, in %Adjusted other operating expense, in EUR million
30

50
45

25

40
35

37,3

40,7

38,1

38,7

20

30
20
10

0
2015/162016/172017/18

35

12

31,1

17,1

2017/18

2018/19

11,2

8

22,8

20

2016/17

10

25

6

18,3

8,9

7,5

7,9

2015/162016/17

4

10

2

5

60

13,9

Adjusted EBIT margin, in %1430

2015/162018/19

40

0

15,5

5

Adjusted operating result (EBIT), in EUR million

15

16,5

10

15
5
0

16,5

15

25

0
2015/162016/172017/18

2018/192017/18

2018/19

Share price, from 29 June 2018 – 29 March 2019 in CHF

50

40

30
06.2018

07.2018

08.2018

09.2018

10.2018

11.2018

12.2018

01.201902.2019

03.20199

Highlights 2018/19

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KLINGELNBERG GROUP
Highlights 2018/19

Trade Fairs:

KLINGELNBERG presented cutting-edge Industry 4.0 solutions on numerous
international trade show platforms
Klingelnberg solutions are close to the market and also the user – as visitors to various international trade show platforms in 2018/19 were able to experience first-hand. The focus countries
were Italy, Germany, Russia, the USA, Japan, and India. The show highlights included the Höfler
Cylindrical Gear Grinding Machine with Closed Loop technology, the new hybrid technology fortactile and optical measuring technology, and SmartTooling, a digital identification method fortools and fixtures.
And last but not least: with its entry into the robotics industry, Klingelnberg has launched an initiative to expand its business outside the gear industry. Klingelnberg’s cycloid measurement option for precision measuring centers provides a reliable solution for monitoring high production
standards.

A&T
Turin, Italy
18.04.-20.04.2018

Metalloobrabotka
Moscow, Russia
14.05.-18.05.2018

BI-MU
Milan, Italy
09.10.-13.10.2018

Expomaq
León, Mexico
17.04.-20.04.2018

IMTS
Chicago, USA
10.09.-15.09.2018

JIMTOFTokyo, Japan
01.11.-06.11.2018

Control
Stuttgart, Germany
24.04.-27.04.2018

AMB
Stuttgart, Germany
18.09.-22.09.2018

IMTEX
Bangalore, India
24.01.-30.01.2019

11KLINGELNBERG GROUP
Highlights 2018/19

Industry 4.0 experience – live at KLINGELNBERG plant in Ettlingen, Germany
From 18 to 19 April 2018, international experts from the automotive industry were
inspired by the system supplier’s industryspecific solutions at Klingelnberg’s Ettlingen Oberweier plant. In keeping with thetheme of “High-production generating
grinding in large-scale production – quiet
gearing with Klingelnberg Industry 4.0 solutions,” the main attraction of the event
was the market launch of the Speed Viper2cylindrical gear generating grinding machine featuring the dual-spindle concept.
On either side stood additional exhibits from the Höfler cylindrical gear and Oerlikon bevel gear
machine lines, precision measuring centers from Klingelnberg and innovative production concepts
such as SmartTooling and Closed Loop. In a number of interesting live demonstrations, over 100
gear experts from throughout Europe, Asia and the USA had an opportunity during the two-day
event to design their own generating grinding process on the single- and dual-spindle machines
on display: Speed Viper 300, Speed Viper 180 and Speed Viper2 80.
Gear Seminars:

Knowledge forums “made by” KLINGELNBERG: KLINGELNBERG hosts its
original gear seminars in Europe, Asia and the USA
In 2016, Klingelnberg initiated its own international “GEAR Seminar” series. Since then, the exclusive trade events have been held annually for Klingelnberg customers, at different locations eachyear. In 2018 Klingelnberg chose Italy, Asia (with Taiwan and China) and the USA as its priority
venues.
With trade events provided free of charge under the
GEAR Seminar brand, Klingelnberg offers knowledge forums covering all aspects of gearing technology. During the events, typically lasting two days,
Klingelnberg experts bring their customers up-todate on current technologies, trends and innovations
in bevel gear technology, cylindrical gear technology
and gear measuring technology. Focal points this year
included topics such as smart production in the Industry 4.0 environment, new hybrid technology for tactile

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KLINGELNBERG GROUP
Highlights 2018/19

and optical measuring technology, high-performance processes for bevel gears with an extended“Power Skiving” application, and the new level of high-productivity generating grinding with the
new Speed Viper machine generation. Klingelnberg also succeeded in attracting guest lecturers –instructors from the Department of Machine Tools and Production Engineering at RWTH Aachen
University – who gave fascinating presentations at the Gear Seminar in Ann Arbor, USA.
Product Highlights:

Höfler Cylindrical gear grinding machine Speed Viper
The new Speed Viper generation is designed for high productivity and robustness of the grinding process and therefore
fulfills all of the requirements that are needed in modern
large-scale production: short set-up times, minimum cycle
times, innovative software solutions, and digital process
and quality control in a Closed Loop system.
Depending on the model, Speed Viper is designed for
maximum workpiece diameters of 80, 180, and 300 mm.
These match the standard component sizes of the automotive and commercial vehicle sectors and their suppliers,
for whom the Speed Viper is mainly intended. They also
perfectly meet the stringent productivity requirementsof this industry. However, the series is also ideal for cylindricalgears in industrial transmissions and for robotic applications.

Hybdrid technology for tactile and optical measurement
The demands placed on gear measuring technology are extremely high: Accuracies in the nanometer range on the one hand, and on the other, short measuring times with a higher information
density. In late 2018, Klingelnberg launched
a new hybrid technology that combines all
the advantages of both tactile and opticalmeasuring technology. The advantage of
rapid sampling by the optical sensor is combined with the flexibility and extremely highaccuracy of the 3D NANOSCAN tactile sensor system. This ensures that the new, highly
appealing potential of optical measurement
can be utilized without compromising themeasuring accuracy.

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KLINGELNBERG GROUP
Highlights 2018/19

Cycloid gears – reliable measurement of robot gears
The demand for high-precision robots grows as
the level of automation increases. Cycloid gears,
which enable high reduction ratios, are used totransmit forces in the robot arms. With the cycloid
measurement option, Klingelnberg now offers areliable solution for monitoring high production
standards. Extremely high requirements in regard
to gear measurement combined with decades ofbusiness experience form the basis for precise, efficient measurement of cycloid workpieces, making a perfect complement to existing optionsof dimension, form and position measurement. Bringing precision measuring centers and gear
grinding machines together to produce cycloids from a single source contributes to continuous
improvements in production quality. Leading expertise for the most demanding requirements
makes Klingelnberg a skilled partner in the robot industry.

Maximizing full potential with revolutionary digitization solutions
With its time-tested Closed Loop process, Klingelnberg already has a long-standing tradition of elegantly integrating software solutions into the production process. But anyone who tackles the challenges of efficient, effective gear production today knows that Industry 4.0 and the networking ofproduction systems into smart factories that this requires calls for expertise in developing innovative
software systems. And that is where the Klingelnberg digital solutions comes in – to deliver integrated solutions designed to improve efficiency in production and reliable quality results.
The unique GearEngine® application combines all of the Klingelnberg solutions for gear production
in one. This modular software solution is the key product that provides highly effective functionalities for capturing, tracking, and evaluating information covering all aspects of the components,
machines, and production equipment.
GearEngine® consists of three global
modules, which are continually updatedwith exciting add-on functions. SmartTooling is the easy answer to every question on how to optimize the productivity and quality of production. The digitaltwin of production equipment such as
grinding and cutting tools, fixtures, anddressing units is linked to informationfrom machine operation and job engi-

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KLINGELNBERG GROUP
Highlights 2018/19

neering and collected. Where today data must (or should) be manually recorded and maintained,
tomorrow it will quite simply be possible to utilize the full potential of comprehensive production
data for targeted analyses and a continuous increase in efficiency. In addition, the Closed Loop Production System is the logical development of our well-established rule and correction algorithms tocreate an active system that provides all of the component data and associated measurement andcorrection data in an integrated format and feeds it automatically to the machine.
The third fundamental module in the GearEngine® platform is the high-resolution machine dataacquisition module, which goes above and beyond other established approaches to capture the specific characteristics of gear cutting machines, allowing valuable certainty to be ascertained about
the status of individual machines, production equipment, and process result alike. Klingelnberg has
combined all of the expertise required to design and develop individual software products for gear
production. This makes it possible to create robust, customer-oriented solutions and provide a valuable contribution to the individual added value.
Awards:KLINGELNBERG wins “Best of Industry Award” in the “Industry 4.0” category
for its cyber-physical production system
2018 winners of the “Best of Industry Award” were honored on 07 June 2018, during a gala eventat the Vogel Convention Center in Würzburg, Germany. It was the third time that the trade journal
MM Maschinenmarkt has bestowed the honor. In 2018 the journal presented a total of 31 nominated companies in nine categories. Klingelnberg was among the lucky winners, receiving accolades in the “Industry 4.0” category for its cyber-physical production system.
For the third time, the “Best of Industry Award” honored the best of the best. Solutions that werequalified to vie for the award had won an industry prize between
01 July 2016, and 31 December 2017, or had made an extremely favorable impression on the market. Klingelnberg earned its nominationin late 2016, when the company won the Industry 4.0 Award grantedby the trade journal Produktion in collaboration with the consulting
firm ROI Management, for which the company had presented its cyber-physical production system. The winners were determined on an
equal standing based on the results of an online vote by MM Maschinenmarkt readers and a decision by a nine-member jury of experts.
The jury, consisting of MM Maschinenmarkt editors and experts fromindustry and research, evaluated each nominated product basedon the following criteria: technological innovation, benefit for industry, environment and society, and presentation.

15

Company Profile

16

KLINGELNBERG GROUP
Company Profile

We make the world turn
The KLINGELNBERG Group is one of the world’s leading companies in developing and manufacturing machines for bevel gear and cylindrical gear machining and precision measuring centers foraxially symmetrical components and gearing. The group also manufactures spiral bevel gears tocustomer specifications – with ultimate precision using in-house technology.
The origins of the engineering company date back to 1863. The Klingelnberg family remains ananchor shareholder of the company. The path from the company's origins to global market leadership has been shaped by continuous striving towards first-rate quality and absolute reliability, forboth products and service. With numerous R&D engineers worldwide and more than 200 registered patents, the company demonstrates its capacity for innovation each and every day.
Klingelnberg operates engineering and manufacturing facilities in Switzerland, Germany, and
Hungary. The company ensures a global presence with regional sales offices and service centers.
In addition, its ISO 14001 certification and participation in the VDMA’s (German Mechanical Engineering Industry Association) “Blue Competence” initiative give credence to the company’s sustainable, environmentally sound business practices.

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KLINGELNBERG GROUP
Company Profile

The KLINGELNBERG segments:OERLIKON Bevel Gear Technology
The Oerlikon Bevel Gear Technology segment makes economical,
high-precision manufacturing of bevel gears a reality for customers. All machines in the system have been designed to work together to enable pre-machining and finishing of even the mostcomplex gears. Klingelnberg offers the most advanced technology and efficient machines for each and every step in the process
chain.
The production process chain for bevel gears includes tool preparation, cutting, measuring, hardening, grinding or lapping and testing. The KIMoS (Klingelnberg Integrated Manufacturing of Spiral Bevel Gears) software package supports every stepin bevel gear design and optimization. Measurement results are converted to gear corrections
with the software KOMET. As part of this process, all necessary data for the gear cutting process, tool preparation and quality control of the finished bevel gears is prepared in parallel.
At the same time, a convenient data handling system offers the possibility of using development and production databases to access machine tools in production and quality assurance.
The software package thus provides the optimum basis for ultra-modern bevel gear production
according to the Closed Loop method, ensuring transparency and documented quality throughout the entire process chain.

KLINGELNBERG Precision Measuring Centers
Stringent accuracy requirements for gear tooth measurements and increasingly complex drive
components demand the best measuring technology available and a machine and software concept optimized for these applications. That is why leading manufacturers put their trust in precision measuring centers from Klingelnberg which represent the most widely used standard in theindustry, while also serving as a reference for metrology institutes.
Today, Klingelnberg precision measuring centers (P series) are ideally suited to handle most measurement tasks in a wide range of sectors: Users in the automotive and commercial vehicle industries, andthe aerospace and aeronautical engineering industries, rely on thistechnology that replaces up to six different conventional measuring devices. This allows the following measurement tasks to be fully automated in a single setting: Gear measurement
 General coordinate measurement
 Form and position measurement18

 Roughness measurement
 Contour measurement
 Optical measurement

KLINGELNBERG GROUP
Company Profile

HÖFLER Cylindrical Gear Technology
The Höfler Cylindrical Gear Technology segment is synonymous with efficient and flexible production of cylindrical gears. All machines have been perfectly designed to work as a system family,
enabling pre-machining and finishing of even the most complex gears. Moreover, thanks to decades-long expertise and great innovative strength, we are able to maintain a leadership position
not only through our high research and development standards, but also our in-house applicationengineering services.
Klingelnberg offers the most advanced technology andefficient machines for each and every step in the cylindrical gear process chain. The production steps in the process chain include process design, cutting, measuring,deburring, grinding and quality control. Höfler cylindrical gear machines stand out not just because of their advanced hardware; the company’s own Gear Production
software also makes a key contribution to the successful
execution of each step.
The software guarantees convenient machining of even the most complex topographies and ensures maximum efficiency in daily use. Only in this way is concentrated
knowledge of state-of-the-art machining strategies and process sequences placed right in theuser’s hands. And with its numerous options, Gear Production plays an active role in achieving
productivity gains.

KLINGELNBERG Drive Technology
Back in 1923, Klingelnberg was the first company in the world to begin made-to-order production of bevel gears using the continuous
hobbing method at its site in Hückeswagen,Germany. A high level of innovation and close
partnership with customers and suppliers hasconstituted a tried-and-tested success model
ever since. In 2008, the Drive Technology segment Germany was moved from the originalplant in the center of Hückeswagen to the Winterhagen industrial zone, located approximately five kilometers away. Today, spiral bevel gears
with diameters up to 3.000 millimeters are manufactured there – using state-of-the-art methods.
The plant in Hückeswagen (Winterhagen) provides ideal conditions with approximately 100 employees and a flexible production capacity of over 2.000 bevel gear sets per year.

19

KLINGELNBERG GROUP
Company Profile

KLINGELNBERG History

1863 to 1897
FOUNDING

 The company is foundedin Remscheid, Germany.

1922 to 1923

 The founders of W. Ferd.
Klingelnberg, Söhne (Julius
and Ernst Klingelnberg).

GEAR TECHNOLOGY Production of bevel gear
machines for the Palloid
method.
 First hobbing machinebuilt at the Hückeswagen
plant, model FK 150,
construction year 1923.

1951

INTERNATIONALIZATION
 Internationalization
begins. First subsidiaryabroad.

1908 to 1916

PRODUCTION SITES
 Production of tools andmachine blades begins
on the company’s own
production site in
Remscheid, Germany.
 Tool production is relocated from Remscheid toHückeswagen, Germany.

20

KLINGELNBERG GROUP
Company Profile

2004 to 2012

EVOLUTION
 The company enters its
seventh generation withJan Klingelnberg.

 Commissioning of theworld's most advanced
large bevel gear manufacturing facility in Winterhagen/Hückeswagen,Germany.

1985 to 1996
EXPANSION First introduction of a
CNC measuring device.
 Entry into bevel gear
grinding business throughacquisition of Dr.-Ing.-Wiener-Verzahntechnik-GmbH.

 Assumption of core businessof Höfler Maschinenbau
GmbH in Ettlingen, Germany.

 Takeover of Oerlikon
Geartec AG - Zürich, Switzerland.
 Acquisition of ZEISSIndustrial Metrology(Höfler) in Ettlingen.

1997 to 2003

Since 2017...

 Introduction of a dry
cutting process for spiralbevel gears with the newgeneration of C machines:OERLIKON Spiral Bevel
Gear Cutting Machine
C 28.

 Premiere of HÖFLER
Cylindrical Gear Grinding
Machine Speed Viper for
high-production generating
grinding.

INNOVATIONS Introduction of a newseries of OERLIKON Bevel
Gear Grinding Machines
G 27 / G 60 with verticalconcept.

KLINGELNBERG 2.0

 Klingelnberg receives
iF Design Award for its innovative machine design.
 Klingelnberg has been listedon the SIX Swiss Exchange
since 20 June 2018.
21

Management Report

22KLINGELNBERG GROUPManagement Report

Segments and markets
Net sales of the KLINGELNBERG Group rose convincingly in the past financial year 2018/19 andreached a new high in the company's history of EUR 278,2 million. Based on strong increases insales in the Cylindrical Gear and Measuring Centers segment, total net sales were up year on year
by EUR 21,2 million or 8,2%. While sales weakened in the USA and Switzerland, Germany and Japan positioned themselves as sales drivers. They expanded sales by EUR 25,7 million comparedwith the previous year.
In the past financial year 2018/19, the KLINGELNBERG Group generated 43,0% of all sales in the
EMEA region (Europe, Middle East and Africa). As a large proportion of all sales was invoiced inEuros (79,0%), there are negligible currency effects.
In particular, Klingelnberg’s strategy of top quality combined with leading technology was crucial
to its success. Development in the Bevel Gear and Drive Technology business units has followedmarket conditions as expected, while the Cylindrical Gears and Measuring Centers business units
have enjoyed an increase in business thanks to new products and application developments.

Bevel Gear segment:
The Bevel Gear segment developed solidly in the past financial year, albeit with a slight decline in
net sales of EUR 2,3 million or 1,9% compared with the previous year. The impending trade conflicts, unclear Brexit situation and current discussions on electric mobility in particular are leading to restrained economic activity in the automotive industry. The increasing number of major
projects with long decision-making times and open projects characterizes the outlook for thissegment. At the end of the financial year, order intake was approximately EUR 2,0 million or 1,8%
down on the previous year. Against the backdrop of this diffuse and weak market environment,
the order backlog at the end of the financial year was EUR 49,2 million, EUR 12,5 million down on
the previous year.

Cylindrical Gear segment:
As in the previous year, the Cylindrical Gear segment posted strong sales growth. Based on thehigh order intake of the previous year, a significant increase in net sales from EUR 38,4 million in
the financial year 2017/18 to EUR 53,1 million (+38,2%) was achieved. In addition to the establishedproduct business, the successful market entry into highly productive gear grinding with the new
Speed Viper platform was a factor contributing to this growth. With an increase to EUR 57,7 million,
the ambitious order intake level of the previous year was again exceeded by EUR 6,6 million, reaching an order backlog of EUR 39,1 million. This was driven by the upturn in markets such as the mining industry, which stabilized financially after a consolidation phase, and also the entry into theautomotive market.

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KLINGELNBERG GROUPManagement Report

Measuring Centers segment:
With net sales of EUR 80,4 million, the Measuring Centers segment exceeded the previous year
by EUR 7,2 million or 9,9%. The expansion of the solid position in the automotive sector and theestablishment of KLINGELNBERG Measuring Centers in the electric drive train sector underpinned
the positive development of the segment in the last financial year. In addition, new markets suchas measurement technology for transmissions and robotic applications were opened up and diversification within the segment was driven forward.
Order intake of EUR 76,0 million is at a high level, but does not quite match the extremely strong
previous-year figure of EUR 77,2 million. The slight cooling of the order situation is in line with theforecast developments on international automotive markets. This is due to distortions surrounding the new fuel consumption cycle "WLTP", which may result in decreasing new registrations inGermany, France and Spain in 2019. Special effects such as the general uncertainty of consumers
caused by the Brexit with an expected fall in the pound sterling are noticeably slowing new registrations in the UK, Europe's second-largest automobile market.

Drive Technology segment:
Compared to the previous year, the Drive Technology segment recorded a slight increase in net
sales by EUR 0,2 million to EUR 13,3 million. However, the order situation within the segment remains tense. Order intake at the end of the financial year was around EUR 1,0 million lower thanin the previous year, and the order backlog was also slightly below the prior-year period (decreaseby EUR 0,1 million). Low order volumes in global shipbuilding continue to dampen production capacity utilization. Coupled with the restrained growth in freight traffic, existing overcapacities aredampening the upturn in the cargo ship sectors. However, order impulses from the consolidated
and price-stable mining industry partially compensate for weakening cargo ship construction andcontribute to a growing diversification within the drive technology segment.

Research and development
In the last financial year, Klingelnberg generated a range of innovative new and further developments that will offer additional sales and earnings prospects in the future as well as open up market opportunities for the company.
In addition to the technical functions, the handling and ergonomics of processing and measuringmachines are gaining importance. For this reason, Klingelnberg has processed and standardized
the overall design and the ergonomics of its product pallet according to the new brand and designprinciple "The new precision is black".
In times of Industry 4.0, the relevance of solutions for networked production systems is growing
and requires expertise in the development of innovative software systems. Klingelnberg bundles

24

KLINGELNBERG GROUPManagement Report

this expertise in its new digital solution business unit with the objective of continuing to be apioneer for modern, software-driven production processes and of delivering integrated solutions
designed to improve efficiency in production and reliable quality results.
The unique GearEngine® application combines all of Klingelnberg solutions for gear production.
This modular software solution is the key product that provides highly effective functionalities for
capturing, tracking, and evaluating information covering all aspects of components, machines,
and production equipment. SmartTooling, a digital identification system for tools and clamping
devices, enables traceability and thus a 360-degree view of the production goods. The additional
data also provides a good basis for identifying optimization potential for process improvement.
Various machine types of the Bevel Gear segment are now integrated into the new Klingelnberg
design. Further machine types will follow in the financial year 2019/20. With the C 50 bevel gear
cutting machine and the G 60 bevel gear grinding machine, the implementation of the new design is accompanied by a changeover to the intuitive and proven KOP-C or KOP-G control concept,
which is already established in the C 30 and G 30 bevel gear machine.
In addition, Klingelnberg developed new retrofit and refurbishment packages for the aftersales
market which are also based on the current generation of control systems. These include the retrofit for older generation grinding machines (G 20, G 30DS, and G 50), the mini-retrofit for thegrinding machine type G 27 and the refurbishment for the cutting machine C 27. Further retrofit
packages are under development.
In the field of precision measuring technology, Klingelnberg has extended the measuring software with a system for the rapid measurement of cycloid gears in robot gears. This allows a significant reduction of the measuring time for robotic gears with high precision requirements.
The Measuring Centers are characterized by the high-precision 3D-Nanoscan touch probe as well
as a comfortable roughness probe system. Klingelnberg has now added a powerful optical sensor
to this system. This new concept of optical measurement technology enables a very fast changeover between the tactile touch probe as well as the optical sensor and creates a hybrid system that
optimally combines the advantages of both measurement methods.
With the Viper 500 MFM (MultiFunction Machine), Klingelnberg is expanding the Viper 500, whichis established in the market, for grinding drillings and test collars. Especially with regard to the editing of cycloid discs, this offers a tremendous advantage. According to the “DONE-IN-ONE” philosophy, with the Viper 500 MFM it is possible to manufacture cycloid-shaped external gears and theaccuracy-specified “CAMBORES” in a single clamping. Furthermore, the integrated measurement of
the cycloids in conjunction with an adaptive control strategy eliminates classification processes. This
results in the potential to eliminate costly manufacturing steps in cycloidal gear production. The

25

KLINGELNBERG GROUPManagement Report

established KLINGELNBERG Closed Loop is also used here. Klingelnberg has expanded its portfolio in the Cylindrical Gear business unit for the automotive sector with the Speed Viper platform.
From now on, the focus will be on the consistent functional expansion of the new machine software Gear Operator and Gear Designer. Grinding processes to reduce noise emission are in theforeground.
The ratio of research and development expenses increased by 0,3 percentage points compared to theprevious year and totaled 8,8% in the financial year 2018/19. Expenses increased by EUR 2,5 million incomparison to the previous year.

Business performance trends
The standard intra-year seasonal trends of recent years can also be seen in this year’s business performance. In general, approximately 60% to 70% of total sales are generated in the second half ofthe year. As a result, sales have been stronger and therefore profits higher in the second half ofthe year.

Gross profit
Net sales growth of EUR 21,2 million and lower changes in inventory of EUR 5,9 million comparedwith the prior-year period resulted in an increase in total operating performance of EUR 15,3 million.
The lower change in inventory is due to higher capitalization of demonstration machines (in particular Measuring Centers and Speed Vipers) of EUR 3,6 million.
Driven by higher operating performance, raw material expenses increased by EUR 7,5 million. As
a result, the KLINGELNBERG Group's materials ratio rose to 39,0%, 0,6 percentage points above
the previous year's level. Excluding the shift in capitalized machinery, the materials ratio would
have been 38,5%, almost at the previous year's level. Lower sales in the Bevel Gear segment of
EUR 2,3 million are offset by significant increases in the Cylindrical Gear segment of EUR 14,7 million.

Personnel expenses and employees
Personnel expenses amounted to EUR 101,2 million at the end of the financial year, EUR 6,4 million
higher than in the previous year. This was mainly caused by the collective bargaining agreement
for the metal and electrical engineering industry that was concluded in February 2018 for
KLINGELNBERG GmbH. The significant increase in total operating performance of EUR 15,3 million
resulted in 43 more employees than in the previous year. But the strong rise in output softened
the personnel expense ratio increase from 36,1% in the financial year 2017/18 to 36,4%. The
KLINGELNBERG Group had 1.310 employees as of 31 March 2019.

26

KLINGELNBERG GROUPManagement Report

Other operating expense
Other operating expense amounted to EUR 39,9 million at the end of the fiscal year, EUR 1,6 million
less than in the previous year. The other operating expense ratio adjusted by EUR 1,1 million IPO
costs amounted to 13,9% at the end of the financial year, a remarkable 1,6 percentage points
down on the previous year.

Operating result
Despite restrained momentum in the automotive industry and global political tensions, theKLINGELNBERG Group successfully opened up new markets in the past financial year. The combination of newly developed products such as the Speed Viper and sales diversification in established products contributed to the increase. Countervailing increases in personnel and material
expenses were fully offset. This enables an operating result of EUR 30,0 million, EUR 7,9 million
higher than the previous year.
Excluding IPO costs, adjusted EBIT for the financial year totaled EUR 31,1 million and exceeded
previous financial year by EUR 8,3 million. The stronger increase in sales combined with stringent
cost awareness led to an increase in the EBIT margin adjusted for IPO costs to 11,2%. This significantly exceeds the previous year's figure of 8,9%. The development is also reflected in net profit,
which was EUR 5,0 million higher than in the previous year. Basic earnings per share amounted to
EUR 2,20.

Financial result
In 2018/19 Klingelnberg reported a loss of EUR 3,2 million. EUR 2,7 million of this came from theexchange rate result, generated mainly by KLINGELNBERG AG. The holding company reports
Group figures in Euro, but accounting of KLINGELNBERG AG is in Swiss francs. The loss is primarily the result of cash pool receivables of KLINGELNBERG AG held in Euro which suffered fromthe change in Swiss franc year-end exchange rate from CHF/EUR 1,17875 on 31 March 2018 to
CHF/EUR 1,11835 on 31 March 2019.

Balance sheet
The balance sheet total of the KLINGELNBERG Group expanded by EUR 20,3 million comparedto the financial statements on 31 March 2018 and totaled EUR 255,4 million on 31 March 2019.
Non-current assets decreased by EUR 1,8 million (-2,6%) mainly due to lower deferred tax assets(EUR -2,6 million), while current assets rose by EUR 22,1 million (+13,2%) essentially caused by increased cash and cash equivalents (EUR +20,1 million).
Equity rose by EUR 42,7 million (+35,5%) to EUR 163,0 million compared to the financial statements
on 31 March 2018. This increase is mainly due to the capital increase in connection with the IPO as

27

KLINGELNBERG GROUPManagement Reportwell as higher net profit. As a result, the equity ratio increased by 12,6 percentage points to 63,8%
compared to 31 March 2018. Total liabilities fell by EUR 22.4 million compared to 31 March 2018
and totaled EUR 92,4 million as of 31 March 2019. Financial liabilities were significantly reduced asa result of the aforementioned capital increase as well as retained earnings.
Net debt decreased by EUR 41,9 million and totaled EUR -22,2 million at the end of the financial
year 2018/19. As a result, the KLINGELNBERG Group further reinforced its excellent financial position in the financial year 2018/19.

Cash flow statement
Operating cash flow climbed to EUR 27,6 million from EUR 6,4 million in 2017/18. Compared to last
financial year, net profit and cash flow from receivables and accrued income developed positively.
The above-mentioned rise in capitalization of demonstration machines pushed outflows for investment of tangible fixed assets to EUR -7,3 million from EUR -5,5 million in 2017/18. At the sametime, inflows from the sale of tangible fixed assets and for investment in financial assets increased.
Therefore, cash flow from investing activities stayed stable at the same level as the previous year.
Cash flow from financing activities totaled EUR -2,2 million and was down by EUR 3,8 million on
the previous year. As a result of the IPO, equity increased by EUR 19,8 million during the period
under review, while short-term financial liabilities decreased by EUR 22,0 million.
Overall, the net change in cash totaled EUR 20,1 million, which means a strong year-on-year upturn of EUR 18,1 million .

Financial risk management
In 2018, Klingelnberg established a holistic risk management system to identify, evaluate andmanage business risk. For further information about the system, please refer to the section 5.7.7of the Corporate Governance report. Klingelnberg has to deal with a variety of financial risks as
described in the following.

Market risks
 Currency risks: Klingelnberg’s primary exposure to currency risks relates to the CHF, USD and JPY,
which arises in the context of business transactions from the translation of the disclosed assets andliabilities. Typically, Klingelnberg uses foreign exchange forwards or currency options to hedge
against the USD and JPY currency risk in connection with current machinery transactions affecting
open and, in some cases, expected production orders and purchase orders.

28KLINGELNBERG GROUPManagement Report Interest rate risks: Short-term bank account balances are subject to market fluctuations. Suchbalances are not hedged. Klingelnberg has no long-term interest-bearing assets. Most of the longterm financial liabilities are at fixed interest rates. The short-term bank debt is not hedged.
 Sales risks: An increase in the intensity of competition can lead to a decrease in sales and profitability.

Credit risk
Credit risks affect cash and cash equivalents, account balances with financial institutions and receivables from goods and services. Klingelnberg’s long-standing business relationships with wellknown customers limit its overall credit risk. Klingelnberg does not expect significant losses onreceivables from goods and services and we do not believe that there are any concentration risks.
Receivables that cannot be recovered in full are impaired.

Liquidity risk
Liquidity risk arises when Klingelnberg cannot meet its financial obligations. Diligent liquidity risk
management requires sufficient available liquid funds as well as having financing options in placein the form of approved credit facilities for appropriate amounts with multiple banks.

Outlook
VDMA, the German Mechanical Engineering Industry Association, recently lowered its production
forecast for 2019 from plus 2% in real terms to plus 1% but still expects growth. This was because
the trade disputes between the world's major economic blocs have lost none of their sharpness or
explosiveness in recent months.
Looking at the order intake of the last quarter 2018/19 makes us optimistic regarding sales in
2019/20. However, Klingelnberg remains cautious and acknowledges risk resulting from global
effects on the economy such as uncertainties in Europe, tendencies towards rising protectionism
especially due to the trade war between China and the U.S., and increased and constantly changing regulations on business. In the Bevel Gear and Drive Technology segments, we are exposed toeconomic fluctuations due to our market position. We are confident that sales growth in the Cylindrical Gear and Measuring Centers segments will largely offset market weakness in the other twosegments. In addition, it should also be noted that the new “Speed Viper” machine platform naturally still needs some time to reach its full potential and cost efficiency and thus its targeted margins. This will be our special focus this year. For Klingelnberg, these effects will result in a change
to the product mix that may decrease the rate of return and slightly increase operating expenses,
leading to lower EBIT estimates compared with fiscal year 2018/19.

29

Corporate Governance30

31

Introduction

31Group structure

32

Shareholders

33

Capital36

Board of Directors

48

The Group Executive Board

50

Compensation, shares and loans

51

Shareholders’ participation rights

53

Changes of control anddefense measures

53

Auditors

54

Information policyKLINGELNBERG GROUP
Corporate Governance1

Introduction

This report describes the principles of corporate governance for the KLINGELNBERG Group (hereinafter also the “Group”) and provides background information on the Group’s Executive Management (hereinafter also the “EM”) and the Board of Directors (hereinafter also the “BoD”) as of
31 March 2019. The report contains the information that is stipulated by the directive on information relating to corporate governance of the SIX Swiss Exchange AG.
The Articles of Association (hereinafter the “Articles”) of KLINGELNBERG AG (hereinafter also the“Company”) can be accessed at the corporate governance section of the Klingelnberg website:
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf
For clarity and transparency, the compensation report is presented as a separate chapter of theannual report.

2

Group structure

2.1

Operational group structure

Headquartered in Zürich, Switzerland, KLINGELNBERG AG is the mother company of the
KLINGELNBERG Group, with 16 subsidiaries in 11 other countries and a network of independent
distributors serving additional markets.
The KLINGELNBERG Group has effective oversight and efficient management structures at all levels. The operational Group structure as of 31 March 2019 is as follows:
The Company’s BoD acting collectively, has the ultimate responsibility for the conduct of business of the Company and for delivering sustainable shareholder and stakeholder value. The BoD
sets the Company’s strategic aims, ensures that the necessary financial and human resources arein place to meet the Company’s objectives, and supervises and controls the management of theCompany. The BoD also has two committees: the Audit Committee (hereinafter “Audit Committee” or “AC”) and a Nomination and Compensation Committee (hereinafter the “Nomination andCompensation Committee” or “NCC”).
In accordance with and subject to Swiss law, the Articles and the Organizational Regulations, theBoD has delegated the executive management of the Company’s business to the EM, which isheaded by the Chief Executive Officer (hereinafter the “CEO”) pursuant to the Organizational
Regulations. The EM comprises: the CEO, the Chief Financial Officer (hereinafter the “CFO”) andthe Chief Operations Officer (hereinafter the “COO”). The EM is supervised by the BoD and its
committees.

31

KLINGELNBERG GROUP
Corporate Governance

2.2

Listed companies

KLINGELNBERG AG, the ultimate parent company of the KLINGELNBERG Group, is listed on the SIX
Swiss Exchange. Apart from KLINGELNBERG AG, no other company belonging to the consolidated
KLINGELNBERG Group is listed on any stock exchange.
Registered officeBinzmühlestrasse 171, 8050 Zürich, Switzerland

Listed on

SIX Swiss Exchange

VALOR number

42046226

ISIN

CH0420462266

VALOR symbol

KLIN

Nominal value

CHF 5

2.3

Non-listed companies

A list of the subsidiaries of the KLINGELNBERG Group as of 31 March 2019 can be found in note 2.3of the consolidated financial statements.

3

Shareholders

3.1

Significant shareholders

According to the disclosure notifications reported to the Company during 2018/19 and publishedby the Company via the electronic publishing platform on SIX Swiss Exchange, the following shareholders had holdings of 3% or more of the voting rights of the Company as of 31 March 2019:

Date

IssuerBeneficial owner/persons
who can exercise the voting
rights at their own discretion

18 August 2018

KLINGELNBERG AG

Henderson Global
Investors Limited

29 June 2018

KLINGELNBERG AG

Jan Klingelnberg
Diether Klingelnberg 1

29 June 2018

KLINGELNBERG AG

Arndt Klingelnberg

23 June 2018

KLINGELNBERG AG

The Capital Group
Companies, Inc.

1 Jointly registered as a Group due to an agreement on exercising of voting rights

32

Direct shareholder

Position

3,06%
Klingelnberg
Luxemburg A.G.

48,62%
4,86%

Capital Research andManagement Company

6,369%KLINGELNBERG GROUP
Corporate GovernanceNotifications made in 2018/19 in accordance with Article 120 et seq. of the Financial Market Infrastructure Act (“FMIA”) can be viewed using the following link:
https://www.six-exchange-regulation.com/en/home/publications/significant-shareholders.html?companyId=KLINGELN

As regards to the value of the percentage of voting rights shown, it should be noted that any
changes in the percentage of voting rights between the notifiable threshold values are not subject to disclosure requirements.
As of 31 March 2019, the Company held no treasury shares.

3.2

Cross-shareholdings

As of the 31 March 2019, the Company does not have any cross-shareholdings exceeding 5% of theholdings of capital or voting rights on both sides.

4

Capital

4.1

Share capital

As of 31 March 2019, the ordinary share capital of KLINGELNBERG AG registered with the Commercial Register of the Canton of Zürich is CHF 44.200.000 fully paid-up and divided into 8.840.000
registered shares with a par value of CHF 5 each.
As of 31 March 2019, the Company has not issued any participation certificates or profit sharing
certificates, nor has it issued any preference shares within the meaning of Article 654 et seq. of the
Swiss Code of Obligations (hereinafter also “CO”).
Subject to the provisions of Article 5 of the Articles (provisions regarding entry in share register,also see 4.6 below), each share entitles to one vote (Article 11 of the Articles):
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf

4.2

Authorized and conditional capital

4.2.1 Authorized share capital
The General Meeting of 09 June 2018 approved the creation of authorized share capital of 891.280
shares with a par value of CHF 5 per share. The authorized capital amounts to CHF 4.456.400.
More information on the authorized capital can be found in Article 3 B of the Articles at:https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf

33

KLINGELNBERG GROUP
Corporate Governance4.2.2 Conditional capital
The General Meeting of 09 June 2018 approved the creation of conditional capital of 445.640
shares with a par value of CHF 5 per share to improve the Company’s financial flexibility for financing, acquisitions and other purposes. The conditional capital amounts to CHF 2.228.200.
More information on the conditional share capital can be found in Article 3 A of the Articles available at:https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf

4.2.3 Options
KLINGELNBERG AG has not granted any options.

4.2.4 Convertible bonds
KLINGELNBERG AG has not issued any convertible bonds.

4.3

Changes in capital

The capital of the Company was as follows:
31.03.2019

31.03.2018

31.03.2017

31.03.2016

Ordinary capital (in CHF)

44.200.000

42.000.000

42.000.000

42.000.000

Share capital in units

8.840.000

42.00042.00042.000

Authorized capital (in CHF)

4.456.400000Authorized capital in units

891.280000Conditional capital (in CHF)

2.228.200000Conditional capital in units

445.640000There have been no changes in capital since the IPO on 20 June 2018. In preparation for the IPO,
an Extraordinary Shareholders’ Meeting of the Company held on 09 June 2018 resolved, among
other things, to (i) split each of the existing registered shares of the Company in the amount of
42.000 with a nominal value of CHF 1.000 into 200 shares with a nominal value of CHF 5 each (thenamounting to 8.400.000 fully paid up shares), (ii) increase the Company’s share capital by up to
CHF 2.564.000 through the issuance of up to 512.800 registered new shares with a nominal valueof CHF 5 each (whereby the final number of new shares amounted to 440.000 shares according
to the supplement to the Offering Memorandum of the Company dated 19 June 2018), (iii) create

34

KLINGELNBERG GROUP
Corporate Governanceconditional share capital in the amount of CHF 2.228.200, (iv) create authorized share capital in
the amount of CHF 4.456.400 and (v) further amend and restate the Articles.
The conditional share capital of 445.640 registered shares, which was created on 09 June 2018 inorder to improve the Company’s financial flexibility for financing, acquisitions and other purposes,
has not yet been used.

4.4

Share buyback program

Klingelnberg has no ongoing share buyback program.

4.5

Convertible bonds and options

As outlined above, Klingelnberg has not issued any convertible bonds or options.

4.6

Limitations on transferability and nominee registration

The Company maintains a share register. Any person who acquires shares may submit an application to be registered in the share register as a shareholder with voting rights, provided such person
expressly declares that he or she has acquired and holds such shares in his/her own name and for
his/her own account. Entry into the Share Register with voting rights may be refused based on the
grounds set forth in Article 5 of the Articles described below under “Nominees”. If the Company
does not refuse to register the acquirer as shareholder with voting rights within 20 calendar days
upon receipt of the application, the acquirer is deemed to be a shareholder with voting rights.
According to Article 5 of the Articles, any person who does not expressly state in his/her application to the Company that the relevant shares were acquired for his/her own account (any such
person, a “Nominee”) may be entered in the Share Register as a shareholder with voting rights
without further inquiry up to a maximum of 3,0% of the share capital outstanding at that time.
Above this limit, shares held by Nominees shall be entered in the share register with voting rights
only if the Nominee in question makes known the names, addresses and shareholdings of the persons for whose account he or she is holding 0,5% or more of the outstanding share capital thatis outstanding at the time and provided that the disclosure requirement stipulated in the FMIA iscomplied with. The BoD has the right to conclude agreements with Nominees concerning their disclosure requirements. Subject to Article 652b para 3 CO, the abovementioned limit of registration
also applies to the subscription for or acquisition of registered shares by exercising pre-emptive,
option or convertible rights arising from shares or any other securities issued by the Company
or third parties. Legal entities, partnerships, other associations or joint ownership arrangementsthat are linked in the form described in Article 5 of the Articles are considered one shareholder or
nominee.

35

KLINGELNBERG GROUP
Corporate Governance

Until an acquirer becomes a shareholder with voting rights for the shares in accordance with Article 5 of the Articles, she/he may neither exercise the voting rights connected with the shares nor
rights associated with the voting rights.
Details regarding legal entities or people acting in concert can be found in Article 5 para 8 of the
Articles availabe at:https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf

4.6.1 Admissibility of nominee registrations
The BoD has the right to conclude agreements with nominees concerning their disclosure requirements. In special cases, the Company may approve exceptions to the above restrictions. More information can be found in Article 5 of the Articles (see link in clause 4.6 above).

4.6.2 Exceptions granted in the year under review
No exceptions under Article 5 of the Articles were granted by the BoD during the reporting period.

4.6.3 Procedure and conditions for easement or abolition of the restriction of
the transferability
A resolution of the General Meeting passed by at least two-thirds of the represented share votes
and the absolute majority of the nominal value of the represented shares is required for the easement or abolition of the restriction of the transferability of the registered shares(Article 12 para 2 lit. 2 of the Articles
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf).

5

Board of Directors

5.1

Introduction

The BoD of KLINGELNBERG AG sets the overall direction and supervision of the management(see Article 716a para. 1 of the Swiss Code of Obligations). Its organization is reflected in the
Organizational Rules. No member of the BoD holds an executive management position with
KLINGELNBERG AG or any of its subsidiaries, or has held such a position in the past three years.
In the 2018/19 fiscal year, there were no significant business connections between a member ofthe BoD and KLINGELNBERG AG or one of its subsidiaries. For a list of other related party transactions, please refer to note 6.2 of the consolidated financial statements.

36

KLINGELNBERG GROUP
Corporate Governance

5.2

Other activities and vested interests

Except as disclosed in the biographies of the members of the BoD, no member of the BoD holds
a position in a governing or supervisory body of any significant private or public sector organization, institution, or foundation, a permanent management or consultancy position with an important interest group, or a public or political office.

5.3

Mandates outside KLINGELNBERG AG

The Articles stipulate that no member of the BoD may hold more than five additional mandates
as a member of the board of directors, other top management or administrative body in listedcompanies and no more than 10 mandates as a member of the board of directors, other top management or administrative body of legal entities that do not meet the abovementioned criteria.
In addition to the mandates permitted as described above, each Member of the BoD may haveup to 10 mandates in the top management or administrative bodies of legal entities that must be
registered in a commercial register and that serve exclusively as entities for the private administration and management of real estate and other assets of the respective member of the BoD orsuch member’s relatives. With respect to the additional activities, mandates in companies that areunder uniform control or the same beneficial ownership are deemed to be one mandate.
For further details, especially regarding mandates that are not subject to the abovementioned
limitations please see Article 23 of the Articles available at:https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf
All BoD members comply with the aforementioned rules.

5.4

BoD competences and evaluation

The NCC/BoD evaluate current and prospective members of the EM according to their skills andexperience in order to ensure that the Executive Management has an appropriate mix of relevant
skills and experience.
The NCC/BoD identify and evaluate prospective candidates for the BoD to ensure an appropriate
mix of relevant skills and experience is represented on the BoD. Both the BoD and its Committees
perform an annual self-assessment of their work.

5.5

Elections and terms of officeAccording to Article 6 para 2 lit. 2 of the Articles of KLINGELNBERG AG, the Annual General Meeting(hereinafter also the “AGM”) has the non-transferable powers to elect and recall the members of the
BoD, the Chairman of the BoD, the members of the NCC, the auditors, and the independent proxy. Article
15 of the Articles of KLINGELNBERG AG states that the BoD must consist of a minimum of four members.

37

KLINGELNBERG GROUP
Corporate GovernanceAll elections are made for a term of one year. In this context, a year means the time period between one AGM and the next or, if a member is elected at an Extraordinary Shareholders’ Meeting, between the Extraordinary Shareholders’ Meeting and the next AGM. Re-election is permitted. According to Article 11 of the Articles, members of the BoD and of the NCC are elected individually. There is no limit on the term in office.

5.6

Members of the BoD

The following chart provides an overview of the current members of the BoD:

38

Name

Position

Committee
MembershipYear of Appointment

Dr. Jörg Wolle

Chairman

NCC (Chairman)

2018

Diether Klingelnberg

MemberNCC

1991

Dr. Hans-Martin Schneeberger

MemberNCC

2007

Hans-Georg Härter

Member–2008

Roger Baillod

MemberAC (Chairman)

2018

Prof. Dr. Michael Hilb

MemberAC

2018

KLINGELNBERG GROUP
Corporate Governance

Dr. Jörg Wolle
is the Chairman of the BoD and a Swiss and German citizen born in 1957. He has been chairman of
the BoD of the company since June 2018. Dr. Wolle has also served as the Chairman of the Board of
Directors of Kuehne + Nagel International AG since 2016. He is a member of the Board of Kuehne
Holding AG as well as a member of the Board of Trustees of the Kuehne Foundation, Switzerland.
Dr. Wolle was Chairman of DKSH Holding Ltd. from 2017 to March 2019 and President and CEO of
DKSH from June 2002 to March 2017. Previously, he was president and CEO of SiberHegner Holding Ltd. from early 2000. Dr. Wolle obtained his PhD in engineering in 1987 from the University ofTechnology in Chemnitz, Germany. He graduated from the Senior Executive Program at the Stanford Business School, USA.

Diether Klingelnberg
is a BoD member and German citizen born in 1944. Mr. Klingelnberg has been a member of the
BoD of the Company since 1991 and acted as its Chairman between 1991 and 2018. He became
CEO of the KLINGELNBERG Group in 1969 and held the position until he was succeeded by Jan
Klingelnberg in 2004. In addition, he was the Managing Director of MF GmbH between 2002 and2013. Mr. Klingelnberg was President of the VDMA between 2001 and 2004, a trade association
for the industrial sector in which the Company is active, and Vice President of the Bundesverband
der Deutschen Industrie e. V. between 2003 and 2006. Mr. Klingelnberg holds a degree in Businessand Engineering from the Technische Hochschule in Darmstadt, Germany.

Dr. Hans-Martin Schneeberger
is a BoD member and Swiss citizen born in 1955. Dr. Schneeberger has been a member of the
BoD of the Company since 2007. He currently serves as Chairman of the Board of Directors ofSchneeberger Holding AG since 2003. He was CEO of Schneeberger AG from 1993 to 2018 and
its Managing Director and Head of Marketing and Sales from 1988 to 1993. From 1985 to 1988,
Dr. Schneeberger was an account and project manager with a European-based management
consulting firm. Since 2006, he has served on the Board of Directors of Unitectra AG and served
as its Chairman between 2014 and 2018. Between 2010 and 2012, Dr. Schneeberger was on the
Executive Committee of Swissmem, an association of Swiss companies in the mechanical andelectrical engineering industries and related technology-oriented sectors. He currently is the
Designated President of CECIMO, the European Machine Tool Builders Association in Brussels.
Dr. Schneeberger obtained a PhD from the Krannert Business School at Purdue University in the
USA in 1984 and was a tenure track Assistant Professor at the Ross Business School at the University of Michigan from 1984 to 1985.

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KLINGELNBERG GROUP
Corporate GovernanceHans-Georg Härter
is a BoD member and German citizen born in 1945. Mr. Härter has been a member of the BoD of theCompany since 2008. He has also been a member of the European Advisory Board of BainCapital
since 2016. He also served as the Chairman of the Supervisory Committee of Knorr-Bremse AG from2016 until 2018, as a member of the Board of Directors of Saurer Jintan from 2013 until 2018, as amember of the Board of Directors and Strategic Committee of Faurecia S.A. from 2012 until May
2019, as the Chairman of the Board of Directors of Deutz AG from 2013 until 2018, a member ofthe Board of Directors of ZF Friedrichshafen AG from 2006 until 2012, and the CEO of that company
between 2007 and 2012. Before that, he was the CEO of ZF Sachs AG between 2002 and 2006. Between 1994 and 2001, Mr. Härter was the CEO of ZF Passau GmbH as well as a member of the Boardof Corporate Management of ZF Friedrichshafen AG. He has held various roles in the ZF Group since1973, including as a member of the management of ZF Passau GmbH. Mr. Härter holds a degree inengineering from Meersburg Academy in Germany.

Roger Baillod
is a BoD member and Swiss citizen born in 1958. He has been member of the BoD of the company since June 2018. Mr. Baillod has been a professional director and management consultant since2017. He has been a member of the NCC of Migros-Genossenschafts-Bund since 2018 and was the
Chairman of its AC from 2012 to 2018. He has served as a member of the Board of Directors andChairman of the Audit and Risk Management Committee of BKW AG since 2013, a member of theBoard of Directors and Chairman of the AC of Rieter Holding AG since 2016, as well as President of
the Board/member of the Board of four non-listed Swiss companies since 2017 and 2018 respectively. He is president of a pension fund commission and member of the board of trustees of theJoh. Jacob Rieter-Stiftung. Between 1996 and 2016, Mr. Baillod was the Chief Financial Officer and amember of the Group management of Bucher Industries AG. Between 1993 and 1996, he was member of the executive board of two industrial companies. Mr. Baillod started his career as an auditor
and consultant at ATAG Ernst & Young AG in Zürich from 1984 until 1993. Mr. Baillod holds a degreein Business Economics and is a Certified Public Accountant.

Prof. Dr. Michael Hilb
is a BoD member and Swiss citizen born in 1977. He has been member of the BoD of the company sinceJune 2018. Prof. Dr. Hilb is founder and CEO of DBP Holding Ltd., a business group with a focus on developing international digital businesses. He was with DKSH from 2010 to 2018, most recently as Vice
President of Group Strategy and Digital Business. Before that, Prof. Dr. Hilb was a project manager
with Roland Berger from 2005 until 2010 and with Holcim Commerce from 2001 until 2003. He currently serves as a member of the Board of Trustees of the Board Foundation and as a member of theSupervisory Board of IMP at the University of St. Gallen, Switzerland. Prof. Dr. Hilb is a titular professor at the University of Fribourg, Switzerland. He holds a PhD and an MSc in Management as well as
a CAS in Board Effectiveness from the University of St. Gallen, was a fellow at Harvard University and
INSEAD, and completed executive education programs at IMD, HBS, and MIT.

40

KLINGELNBERG GROUP
Corporate Governance

5.7

Structure of the internal organization – Allocation of tasks within the
Board of Directors

Except for the election of the Chairman of the BoD and the chairman and members of the NCC by
the AGM, the BoD organizes itself.
If the office of the Chairman of the BoD is vacant, the BoD shall appoint a substitute that must be amember of the BoD for the time period until the conclusion of the next AGM. In case of a vacancy
on the NCC, the NCC shall appoint a substitute for the time period until the conclusion of the next
AGM (Article17, last paragraph of the Articles
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf).
In accordance with the Charter of the AC, the BoD appoints the members of the AC on an annual
basis until the next AGM.

5.7.1 Tasks and areas of responsibility of the Board of Directors’ committees
The BoD may delegate the preparation and execution of its decisions to committees or to individual members. The duties and authorities of the committees are defined in the Articles (Article 19,
NCC only), the Organizational Regulations and the Committee Charters of the BoD. The committees usually meet before the BoD meetings and regularly report to the BoD on their activities andfindings. The overall responsibility for duties delegated to the committees remains with the BoD.
The period of office of all Committee members is one year. Re-election is possible.

5.7.2 Audit Committee
The Audit Committee consists of two or more members of the BoD who are appointed by the BoD.
The term of office of the members of the Audit Committee is one year ending upon conclusion of
the subsequent AGM. Re-election is possible. The current members of the Audit Committee are
Roger Baillod and Prof. Dr. Michael Hilb. The organization, detailed responsibilities, and reporting
duties of the AC are stipulated in its charters and the Organizational Regulations.
Meetings of the AC are held as often as required but at least three times a year or upon requestof its members.
The AC assists the BoD in fulfilling its supervisory responsibilities with respect to accounting andfinancial reporting, the internal control system and the statutory auditors of the Company. According to the AC Regulations, the AC’s responsibilities include but are not limited to: review and assess the plans and the scope of the external audit, to review the reports of thestatutory auditors, to discuss their content with the statutory auditors and the EM, and tosupervise the implementation of the recommendations issued by the statutory auditors

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KLINGELNBERG GROUP
Corporate Governance review and assess the performance of the statutory auditor
 review and assess the qualifications and effectiveness of the statutory auditors in consultation
with the EM and to make recommendations to the BoD regarding proposals to the AGM for theappointment or removal of the statutory auditors
 review and assess on an annual basis the independence of the statutory auditor and thecompatibility of advisory mandates, if any, with their role as statutory auditors
 approve, based upon the proposal of the CFO, the budget for auditing fees review the annual and interim statutory and consolidated financial statements and discussthese with the EM and statutory auditor prior to making a proposal to the BoD with respect tothese annual and interim statutory and consolidated financial statements
 review in cooperation with the statutory auditor and the EM whether the accounting processes
and the financial control mechanism of the Company and the Group are appropriate in view ofthe size and complexity of the Group review the effectiveness of the internal control system and to assess on an ongoing basis theGroup’s compliance with applicable laws and regulations
 assess whether the risk management established by the EM addresses all relevant risks andwhether the appropriate measures have been implemented
 assess the effectiveness of the Group’s compliance systems.
The BoD may entrust the AC with additional duties in financial matters. In discharging its responsibilities, the AC has unrestricted and direct access to all relevant information in relation to theCompany and the Group. The AC ensures that it is informed by the statutory auditors on a regularbasis. The AC is required to report its activities to the BoD on a regular basis and to make recommendations and propose appropriate measures to the BoD.

5.7.3 Nomination and Compensation Committee
As required by Swiss law, the members of the NCC are elected by the AGM. As of 31 March 2019 themembers of the NCC are Dr. Jörg Wolle, Diether Klingelnberg and Dr. Hans-Martin Schneeberger.
The organization, detailed responsibilities and reporting duties of the NCC are stipulated in its
charter and the Articles of Association.

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KLINGELNBERG GROUP
Corporate Governance

Meetings of the NCC are held as often as required but at least twice a year, or upon request of its
members.
Pursuant to the Organizational Regulations and the charters of the NCC, a majority of the members of the NCC should be independent as defined in the Swiss Code of Best Practice for Corporate
Governance and a majority of the members of the NCC, including its chairperson, should be experienced in the areas of succession planning, performance evaluation as well as the nomination andcompensation of members of boards of directors and executive management boards.
The NCC supports the BoD in the discharge of its duties in the area of personnel and compensation
policy. The NCC’s responsibilities include but are not limited to: preparing and periodically reviewing the Group’s compensation policy and principles and periodically reviewing their implementation as well as submission of related proposals and recommendations to the BoD
 submitting proposals to the BoD regarding the approval by the AGM of the maximum aggregate compensation for the members of the BoD as well as the maximum aggregate compensation of the members of the EM submitting proposals to the BoD regarding the determination of the individual compensationof the Chairman and the other members of the Board as well as of the CEO and, based upon a
proposal of the CEO, the other members of the EM, in each case within the limits of the respective maximum amounts approved by the AGM
 submitting proposals to the BoD regarding the determination of compensation-related performance metrics and targets for the EM and assessing the performance of the members of the
EM on an annual basis
 submitting proposals to the Board regarding the mandate or employment agreements withthe members of the BoD and the EM submitting proposals to the BoD regarding the approval of, and any amendments to, compensation plans and other compensation regulations and regarding the persons eligible for participation in compensation plans as well as assessing such compensation plans on a regular basis
and submitting proposals to the BoD in connection with this reviewing the compensation report prepared by the EM and submitting the compensation report to the BoD for approval

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KLINGELNBERG GROUP
Corporate Governance making recommendations on BoD composition and balance, setting criteria for the assessmentof the independence of BoD members as well as submitting proposals to the BoD regarding
the criteria to be applied for the selection of the Chairman, other members of the Board and its
committees as well as for the nomination of candidates for positions in the EM identifying and assessing candidates for membership in the BoD and for the position of CEO
and submitting proposals to the BoD regarding the appointment and removal of the CEO assessing candidates proposed by the CEO for other positions in the EM and submitting proposals to the BoD regarding the appointment of such persons
 informing the BoD at least annually on succession and contingency plans in relation to themembers of the EM and other key employees reviewing the acceptance of mandates outside the Group by members of the BoD or the EM supporting and advising the BoD in matters of corporate governance.
The BoD may entrust the NCC with additional duties in related matters. The NCC is required toreport its activities to the BoD on a regular basis and to make recommendations and propose appropriate measures to the BoD.

5.7.4 Working methods of the Board of Directors and its committees
A familiarization meeting was held after the IPO in order to introduce the three board members
who were not part of the pre-IPO board. Between the General Meeting held on 09 June 2018 andthe end of the reporting period (i.e. 31 March 2019, hereinafter also “the Reporting Period”), theBoD held two regular meetings and a short general on-boarding session, attended by all Membersof the BoD. The table shows the individual members’ attendance at BoD and committee meetings
and the average length of meetings:

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KLINGELNBERG GROUP
Corporate Governance

Name

BoD

AC

NCC

Dr. Jörg Wolle

32

Diether Klingelnberg

32

Dr. Hans-Martin Schneeberger

32

Hans-Georg Härter

3

Roger Baillod

3

2Prof. Dr. Michael Hilb

3

2

Average meeting length

3 hours

2 hours and
30 minutes

1 hourUrgent business matters were discussed in telephone conferences. In addition to formal meetings
at which minutes were taken, members of the BoD or of the Committees also met informally forother issues and discussions that required additional time, such as preparations for formal meetings. In particular, the members of the AC met twice for lengthy initial information gathering
meetings with members of the management.
According to the Organizational Regulations, the BoD meets at the invitation of the Chairman
at least four times each year, or whenever a member or the CEO requests a meeting of the BoD
indicating the reasons in writing. The Chairman or, if he is not available, another member of the
BoD, shall preside over BoD meetings. Meetings of the BoD may be held in person, by telephoneor video conference, or by similar means of live communication.
BoD resolutions may also be passed in writing by way of circular resolution, provided that no member of the BoD requests oral deliberation. In such cases, the Organizational Regulations requirethat the text of the resolution be provided to all members of the BoD and that the majority of themembers cast a vote and approve the matter.
The BoD is quorate to validly pass resolutions when a majority of its members is present. The Board
passes resolutions by the majority of the votes cast. In case of a tie, the Chairman (but not anyother member acting as chairman) has the casting vote.
The BoD works closely with the EM. In general, the meetings of the BoD and its committees arealso attended by the CEO and – as appropriate – by the CFO and the COO. Meetings are also attended by the Corporate Secretary. The BoD consults external experts when necessary in connection with specific topics.
All meetings of the BoD were attended by the CEO, CFO, and COO in the Reporting Period.

45

KLINGELNBERG GROUP
Corporate Governance

The two meetings of the NCC in the Reporting Period were held in the presence of the CEO withregards to his requests. The two meetings of the AC in the Reporting Period were attended by the
CEO and the CFO, one meeting was also attended by the Head of Finance and the auditors.

5.7.5 Areas of responsibility
The BoD is entrusted with the ultimate direction of the Company and its subsidiaries and has ultimate responsibility for the business and affairs of the Company and its subsidiaries. Such responsibilities include the duty to carefully select, to properly instruct, and to supervise the persons
entrusted with the Company’s management. It represents the Company to third parties and attends to all matters that have not been delegated to or reserved for another corporate body of
the Company by law, the Articles, the Organizational Regulations, or by other internal regulations.
In accordance with Article 16 of the Articles
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf, the BoD may delegate
the executive management of the Company in full or in part.
Its non-transferable and irrevocable duties are set out in the CO and Article 17 of the Articles
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf, they include: (i) theultimate direction of the Company and the power to issue the necessary directives; (ii) determining the organization of the Company; (iii) the organization of its accounting, its internal control
system (ICS), its financial control and its financial planning as well as the performance of a risk assessment; (iv) the appointment and removal of the persons entrusted with the executive management and representation of the Company, as well as the determination of their signatory power;(v) the ultimate supervision of the persons entrusted with the management of the Company, inparticular with respect to their compliance with the law, the Articles of Association, regulations
and directives; (vi) the preparation of financial reports and the AGM, including the implementation of the resolutions adopted by the AGM; (vii) the preparation of the compensation report; (viii)
the notification of the judge in case of over-indebtedness; (ix) the passing of resolutions regarding the subsequent payment of capital with respect to non-fully-paid-in shares and the respective
amendments of Articles of Association; (x) the passing of resolutions concerning an increase of theshare capital and regarding the preparation of capital increase reports as well as the respective
amendments to the Articles of Association; (xi) the examination of compliance with the legal requirements regarding the appointment, election and professional qualifications of the Company’s
auditors; and (xii) the non-transferable and inalienable duties and powers of the Board of Directors pursuant to the Swiss Federal Merger Act on Merger, Demerger, Transformation and Transfer
of Assets of 01 July 2004, as amended.
In addition, Swiss law and the Organizational Regulations reserve the Board’s powers, inter alia,(i) to approve the annual budget of the Company and the Group as well as any budget overrun of
EUR 1 million or more per fiscal year, (ii) to approve certain major transactions exceeding specified

46

KLINGELNBERG GROUP
Corporate Governancethresholds, (iii) to appoint and remove the CEO and the other members of the EM of the Company
and (iv) to adopt or amend the Company’s compensation and benefits strategy upon proposal by
the NCC.

5.7.6 Information and controlling instruments for supervising the EM
The EM reports to the BoD and its Committees. It informs the BoD of the status of business mattersand financial results, presents relevant strategic initiatives as well as major business transactions.
The BoD and the EM discuss the company’s strategy and the long term financial plan. Committees
receive information in the form of group reports relevant to their needs.
Telephone conferences are held as required between BoD members and the CEO and/or CFO.
Furthermore, each member of the BoD may request information on all matters concerning theCompany.

5.7.7 Risk and compliance
In order to identify and manage its risks, the KLINGELNBERG Group has implemented a holistic risk
management system to identify and assess strategic, operational, financial, legal and compliancerisks related to its activities. The risk management directive has been rolled out throughout theentire Group.
The risks identified by the risk owners in the different business units and administrative departments are summarized in a Group wide risk map. The risk map contains the probability of occurrence and possible extent of damage. The risks are assessed in detail by the Risk Management
Board and measures are defined to reduce the risk. The members of the Risk Management Board
are the CFO, the COO, and the Head of Controlling. They ensure continuous monitoring of therisks. Risk status reports are regularly submitted to the AC and, after discussion with and assessment by the AC, to the BoD of the Company for review. For information about risks please refer tothe management report.
The Head of Finance assumes responsibility for the internal control system (ICS) for financial reporting risks. The AC and the BoD receive updates on compliance with the ICS guidelines.
The AC approves the annual work plans of the auditors and ensures that the relevant Group companies are adequately reviewed according to their risk scoring. The AC also reviews and discusses
the reports on completed audits.
The Group compliance program supports KLINGELNBERG’s core values of ethical behavior andunquestionable integrity. Compliance is overseen by both the CFO and the Head of Legal. Compliance reports are given to the AC as well as to the BoD. The Head of Legal reports to the Chairmanof the Board regarding compliance issues.

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KLINGELNBERG GROUP
Corporate Governance

6

The Group Executive Board

6.1

Members of the Group Executive Board

The BoD has delegated the operative management to the EM headed by the CEO, subject to theduties and powers reserved to the BoD under Swiss law, the Articles and the Organizational Regulations. The EM is responsible for implementing and achieving the Company’s corporate objectives
and for the management and control of all Group companies. The EM is supervised by the BoD and
its Committees.
The EM is responsible for the business of the Company and the preparation, implementation andmonitoring of the strategic roadmap and the preparation, implementation and delivery of the annual plan and budget. The EM also prepares for and executes decisions made by the BoD. The EM
is chaired by the CEO and comprises the CFO and the COO.
Pursuant to the Organizational Regulations and the charters of the NCC, the CEO is appointed andremoved by the BoD via a motion by the NCC. The other members of the EM are appointed andremoved by the BoD via a motion by the CEO and the NCC. All members of the EM are evaluatedon an annual basis by the NCC.

48

KLINGELNBERG GROUP
Corporate Governance

The members of the EM are as follows:

Jan Klingelnberg
is the CEO and a Swiss citizen born in 1971. Mr. Klingelnberg has been the CEO of the Groupsince 2004. From 2002 until 2004, he was the Director of the Cylindrical Gears business unit of
KLINGELNBERG GmbH, Germany. Between 2000 and 2002, Mr. Klingelnberg held various roles at
ZF Passau GmbH in Brazil and in the US. Before that, he was a manager for corporate strategy planning at SMS Demag AG in Germany. Since 2008, Mr. Klingelnberg has also been a member of theManaging Board of the VDMA for machine tools and production systems, a trade association for
the industrial sector in which the Company is active. Mr. Klingelnberg holds a degree in industrial
management from Carnegie Mellon University in Pittsburgh, USA.

Christoph Küster
is the CFO and a German citizen born in 1974. Mr. Küster has been the CFO of the Group since 2015,
after having been a managing director of KLINGELNBERG GmbH, Germany, since 2014. He serves
as a member of the Advisory Council of HDI Global. From 2003 until 2013, he occupied various positions in finance and controlling at the Salzgitter Group in Germany. Mr. Küster started his careerin 1995 at V+M Tubes in Germany, where he stayed until he left to study at university in 1998. Mr.
Küster holds a degree in business administration from Heinrich-Heine-University in Düsseldorf,
Germany.

Martin Boelter
is the COO and a German citizen born in 1961. Mr. Boelter has been the COO of the KLINGELNBERG
Group since 2015. From 2010 until 2015, he was COO and Managing Director at the Sterling SIHI
Group and between 2007 and 2009 he worked as Managing Director for the production of turning machines at Gildemeister AG, Germany (today: DMG Mori) and from 2005 until 2007 as overall
production manager at INDEX group in Germany. Mr. Boelter started his career at Heidelberger
Druckmaschinen AG, Germany, in 1989 where he rose to Head of Operations of a business unit by
the time of his departure in 2005. Mr. Boelter holds a degree in mechanical engineering from theTechnical University of Munich.

49

KLINGELNBERG GROUP
Corporate Governance

6.2

Other activities and functions

Except as disclosed in the biographies of the members of the EM, no member of the EM holds any
position in a governing or supervisory body of any important private or public sector organization,
institution or foundation; none holds any permanent management or consulting position with animportant interest group or any public or political office.

6.3

Mandates outside KLINGELNBERG AG

The Articles limit the number of functions in superior management or administrative bodies oflegal units other than the Company or its subsidiaries which members of the EM are allowed tohold at one time.
Pursuant to Article 23 of the Articles, members of the EM may hold up to two mandates in publicly
traded companies and, in addition, up to three mandates in other legal entities, subject to the approval of the BoD.
In addition, each member of the EM may have up to ten mandates in the superior management
or administrative bodies of legal entities obliged to register themselves in a Swiss commercial register or a foreign equivalent, which exclusively serve as entities for the private administration andmanagement of real estate and other assets of the respective member of the EM. For further details, in particular regarding mandates which are not subject to the above mentioned limitations
please see Article 23 of the Articles available at:https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf
All members of the EM adhere to the aforementioned limitations.

6.4

Management contracts

The BoD and the EM conduct business directly and have not delegated any management tasks tocompanies outside the Group.

7

Compensation, shares and loans

All details of compensation, shareholdings and loans are listed in the Compensation Report.

50

KLINGELNBERG GROUP
Corporate Governance8

Shareholders’ participation rights

8.1

Voting rights restrictions

Except for the limitation on voting rights described under 4.6 et seq. which concern Company’s
share register and Nominees there are no other voting rights restrictions in place. For rules regarding registration in the Company’s share register and Nominees, please see Article 5 of the Articles https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf and the detailed
explanations under clauses 4.6 et seq. above. As outlined above no exceptions to the above-listed
rules were granted, during the reporting period.

8.2

Rules on participation in the AGM

In AGMs, each share carries one vote and each shareholder has equal rights, including equal voting rights. Such voting rights and rights associated therewith are only exercisable with respect tothose shares for which a shareholder (or a usufructuary, as applicable) has been recorded in theshare register with voting rights until a specific qualifying day designated by the BoD. According
to the Articles, acquirers of shares will be recorded in the share register as shareholders with theright to vote, subject to certain conditions and restrictions (see 4.6 et seq. and 8.1 above).
Each shareholder may personally participate in the AGM and cast his/her vote(s), or be represented bya proxy appointed in writing. According to Article 11 of the Articles, such proxy needs not be a shareholder. Each shareholder also has got the possibility to be represented by the independent proxy.

8.3

Independent Proxy and electronic voting

The shareholders’ meeting held prior to the IPO on 09 June 2018, elected Ernst A. Widmer (Wiederkehr Rechtsanwälte) as the independent proxy for the term ending at the conclusion of thenext AGM. The AGM elects the independent proxy. His/her term of office always terminates at theconclusion of the next AGM. Re-election is possible. Should the Company have no independent
proxy, the BoD shall appoint a substitute for the time period until the conclusion of the next AGM.
Shareholders may issue their power of attorney and instructions to the independent proxy by mailor electronically.

8.4

Statutory quorums

According to Article 11 of the Articles, to the extent that neither the law nor the Articles provide
otherwise, the AGM passes its resolutions and carries out its elections with the absolute majorityof the votes cast, whereby abstentions, empty votes and invalid votes will not be taken into account for the calculation of the required majority. According to Article 12 of the Articles a resolution of the General Meeting passed by at least two thirds of the represented share votes and theabsolute majority of the nominal value of the represented shares is required for: (I) the cases listed
in Article 704 para. 1 CO and in Article 18 and Article 64 of the Federal Act on Merger, Demerger,

51

KLINGELNBERG GROUP
Corporate GovernanceTransformation and Transfer of Assets (Merger Act) dated 3 October 2003; (II) the easement or
abolition of the restriction of the transferability of the registered shares; (III) the amendment orcancellation of Article 31 (opting-out); and (IV) any change to Article 12.

8.5

Convening the AGM

The ordinary AGM shall be held annually within six months after the close of the business year.
The BoD determines the time and location of the AGM. The AGM is convened by the BoD or, if necessary, by the Company’s statutory auditors. Extraordinary Shareholders’ Meetings may be held
when deemed necessary by the BoD or the Company’s auditors. Liquidators may also call a shareholders’ meeting. Extraordinary Shareholders’ Meetings shall be called as often as necessary, inparticular, in all cases required by law. Extraordinary Shareholders’ Meetings shall be convenedby the BoD within 2 months if shareholders representing at least ten percent of the share capitalrequest such meeting in writing, setting forth the items to be discussed and the proposals to be
decided upon (Article 7 of the Articles).
An AGM is convened by publishing a notice of such meeting in the Swiss Official Gazette of Commerce (Schweizerisches Handelsamtsblatt, SHAB) at least 20 calendar days before the date of themeeting. Registered shareholders may be invited by letter and/or e-mail. Such publication and letters of invitation must indicate the date, time and place of the meeting, the items on the agenda,
the wording of any motions proposed by the BoD or by shareholders who have requested the convening of a shareholders’ meeting or the inclusion of an item on the meeting’s agenda.
For details regarding form of notice please see Article 8 of the Articles:
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf

8.6

AgendaAccording to Article 9 of the Articles, the BoD shall state the items on the agenda. Registeredshareholders with voting rights individually or jointly representing at least shares with a nominal
value of CHF 1.000.000 may demand that items be put on the agenda. Such demands have to besubmitted to the Chairman of the BoD at least 45 calendar days before the date of the AGM andshall be in writing, specifying the item and the proposals.

8.7

Entry in the share register

Only shareholders who are registered in the share register as shareholders with voting rights at a
specific qualifying date (record date) designated by the BoD are entitled to attend an AGM and to
exercise their voting rights.

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KLINGELNBERG GROUP
Corporate Governance

9

Changes of control and defense measures

9.1

Duty to make an offer

Article 31 of the Articles contains the following provision regarding opting-out:
The duty to submit a public takeover offer pursuant to Article 135 of the Federal Act on Financial
Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015
(FMIA) shall be excluded in accordance with Article 125 paragraph 2 FMIA.
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf

9.2

Change-of-control clauses

In case of a change of control the BoD shall determine the consequences regarding the bonus
plans of the EM (subject to the approval of the AGM, where applicable). For further provisions see
clause 1.4.3 of the Compensation Report.

10

Auditors

10.1

Duration of mandate and term of office of the auditor-in-charge

PricewaterhouseCoopers AG (hereinafter “PwC”) was elected auditor of KLINGELNBERG AG
and the KLINGELNBERG Group at the AGM on 04 June 2018. PwC has served as auditor for the
existing auditing mandate since fiscal year 2009/10. The lead auditor of PwC responsible forKlingelnberg changed in the fiscal year 2016/17.

10.2

Fees

PwC charged the following fees during fiscal year 2018/19
EUR

2018/19

Audit services

275.985

Audit-related services

264.982

Tax services

62.662

Non-audit services

120.423

Total

724.052

Audit services are defined as the standard audit work performed each year in order to issue an au-

53KLINGELNBERG GROUP
Corporate Governancedit opinion on the parent company and consolidated financial statements of the KLINGELNBERG
Group as well as opinions on the local statutory financial accounts or statements. Also included
is extra work within the audit that can only be provided by the KLINGELNBERG Group auditor inparticular with regards to support of the IPO, which constitutes a one-off cost.
Audit-related services consist of support to the audit such as providing advice on new accounting rules; this could be provided by sources other than the auditor who signs the audit report. Tax
services consist of services in connection with compliance with tax laws. Non-audit services mainly
consisted of consulting fees in connection with local regulatory requirements.
The values of audit, audit-related, tax and non-audit services are in line with ratios suggested bycommonly applied good practice standards that relate to the independence of auditors.

10.3 Information instruments pertaining to the external audit
The AC assesses the professional qualification, independence and expertise of the auditors (seeduties of the AC above in 5.7.2).
Prior to the audit, the auditors agree the proposed audit scope and approach, staffing and fees
for the audit with the AC.
The external auditors report their comprehensive findings in a detailed report to the BoD. The
findings are discussed in detail with the CFO and the AC. In the FY 2018/19, the external auditors
attended one out of the two AC meetings.
The AC reviews the performance, compensation and independence of the external auditors on aregular basis. The AC reports its findings to the BoD.
Additional services or consulting assignments are delegated to the auditors only if they are permitted by law and the auditor’s code of independence. PwC monitors its independence throughout the year and annually confirms its independence to the AC.

11

Information policy

The KLINGELNBERG Group pursues an open and active information policy. The company complies
with its obligations under the rules of the SIX Swiss Exchange, including the requirements on thedissemination of material and price-sensitive information.
The Group publishes an annual report that provides audited consolidated financial statements,
audited statutory financial statements and information about the Company including the busi-

54

KLINGELNBERG GROUP
Corporate Governanceness results, strategy, products and services, corporate governance and executive compensation.
The annual report is published within four months after the 31 March balance sheet date. The annual results are also summarized in the form of a press release. In addition the Company releases
results for the first half of each year within three months after the 30 September balance sheet
date. The published half year and annual consolidated financial statement comply with the requirement of Swiss company law, the listing rules of SIX Swiss Exchange and the Swiss GAAP FER.
The Company’s annual report and half year report are distributed pursuant to the rules and regulations of the SIX Swiss Exchange and are announced via press releases and investor conferencesin person or via telephone.
The Group reports in accordance with the disclosure requirements of Article 124 FMIA and the ad
hoc publication requirements of Article 53 of the listing rules of SIX Swiss Exchange. Ad-hoc announcements may be viewed at https://www.klingelnberg.com/en/investors/news at the sametime as notification to SIX Swiss Exchange and for two years thereafter.
All publications are made available to all shareholders, the media and the stock exchange at thesame time. All shareholders entered in the share register automatically receive an invitation to the
AGM and a copy of the annual report of KLINGELNBERG AG on request. Notices to shareholders
are made via publications in the Swiss Official Gazette of Commerce (SHAB).
KLINGELNBERG Group uses a news service that delivers finance related press releases to interested
stakeholders.
The website of the KLINGELNBERG Group contains information on the Company results and thefinancial calendar as well as current investor presentations: https://www.klingelnberg.com
On the KLINGELNBERG website https://www.klingelnberg.com/en/investors/financial-newsletter/,
it is possible to subscribe to news alerts about the KLINGELNBERG Group via e-mail.

55

Compensation Report

56

57

Introduction

57

Compensation policy/
guiding principles

58

Organization and competences

61

Compensation components

64

Compensation for fiscal
year under review

KLINGELNBERG GROUP
Compensation Report

1

Introduction

This Compensation Report provides a summary of the compensation structure and the compensation paid to the Executive Management (EM) and the Board of Directors (BoD).
This Compensation Report contains all information required under the Swiss Code of Obligations,
the Ordinance Against Excessive Compensation (VegüV) and the SIX Exchange Regulations. The
KLINGELNBERG Group has also observed the Swiss Code of Best Practice issued by economiesuisse,
the umbrella association for Swiss business and industry.

2

Compensation policy/guiding principles

The KLINGELNBERG Group’s compensation approach is based on the following principles: reward employees for their contribution to the successful development of the
KLINGELNBERG Group motivate and retain qualified and talented professionals
 be attractive in order to recruit professionals in the future strive to ensure that both employee and shareholder interests are aligned in a sustainable manner.
Pursuant to Article 25 of the Articles of Association of KLINGELNBERG AG, the members of the
BoD receive a fixed base fee and fixed fees for memberships in committees or for roles of the BoD,
subject to and within the limits of the aggregate maximum amounts approved by the Annual General Meeting (AGM). BoD compensation can be awarded in cash or shares. Mandate agreementswith members of the BoD have a fixed term until the conclusion of the next AGM (i.e. one year).
The total compensation for members of the EM consists of fixed compensation as well as variable
compensation (Article 26 of the Articles of Association). The fixed compensation comprises thebase compensation and additional compensation elements (pension, benefits in kind, etc.). Allelements of the fixed compensation are settled in cash. The variable compensation consists of ashort-term variable compensation in cash as well as a long-term variable compensation that canbe settled in cash or in the form of shares or a combination of both. The maximum annual compensation for members of the EM is subject to approval by the AGM.
The base compensation of the EM ensures a regular and predictable salary paid out in cash inregular installments. The salary level is based on the scope and complexity of the position, market
norms and benchmarks, and the individual’s profile in terms of experience and skills. Salary progression depends primarily on the individual’s performance, as well as market developments andthe economic environment.
The short-term variable compensation in cash (Short Term Incentive Plan; STIP) depends on the57

KLINGELNBERG GROUP
Compensation Reportfinancial result of the KLINGELNBERG Group as well as the achievement of certain individual targets. Such targets are set in advance by the BoD upon recommendation by the NCC, typically overthe course of a one-year performance period, which generally corresponds with the fiscal year of
KLINGELNBERG AG (the "Company"). The individual targets are determined for each member ofthe EM, taking into account his position, responsibilities, and tasks, as well as market conditions.
This determination process occurs prior to the start of the one-year performance period and is
performed by the BoD upon recommendation of the NCC, to the extent decision-making powerhas been delegated. The maximum total amount of the short-term variable compensation is limited to 130% of the participant's base compensation.
The long-term variable compensation in the form of a Long Term Incentive Plan (LTIP) for the Chief
Financial Officer (CFO) and the Chief Operating Officer (COO) takes into account the sustainable longterm performance of the KLINGELNBERG Group. The CEO does not participate in the LTIP as he is already a main shareholder of the Company. Upon recommendation by the NCC, the BoD defines thedesign of the LTIP as well as the grant to be made to eligible employees. The Company may procure any
required shares or other securities through purchases in the market or by using conditional share capital. The maximum total amount of the granted long-term variable compensation is limited to 100%of the base remuneration. Compensation may be paid by the Company or companies controlled by it.

3

Organization and competences

According to the Organizational Regulation of KLINGELNBERG AG, one of the currently two permanent committees of the BoD is the Nomination and Compensation Committee (NCC). The members of the NCC are nominated by the BoD and individually elected on an annual basis by the AGM.
Article 19 of the Articles of Association determines that the NCC shall consist of two or more members of the BoD. As required by Swiss Law, the term of office of the members of the NCC shall be
one year and shall end at the conclusion of the next AGM. Re-election is possible. The NCC constitutes itself and has the following main duties based on the Articles of Association with regards tocompensation matters:
 preparation and periodic review of the Company’s compensation policy and principles, andperformance criteria related to compensation, periodic review of their implementation, as wellas submission of proposals and recommendations to the BoD
 proposals to the BoD regarding the determination of compensation-related targets for the EM
 proposals to the BoD regarding the approval of the individual compensation of all members of
the BoD58KLINGELNBERG GROUP
Compensation Report proposals to the BoD regarding the individual maximum compensation (fixed and variable) as
well as further terms of employment of the members of the EM.
The main duty of the NCC is to support the BoD in the area of personnel and compensation policy.
The NCC has its own regulations that have been approved by the BoD (NCC Regulation) and thatprovide for further duties such as: submission of proposals to the BoD regarding the approval by the shareholders' meeting of the
maximum aggregate compensation for the members of the BoD until the next annual ordinary
shareholders' meeting as well as the maximum aggregate compensation of the members of the
EM for the then-next following fiscal year
 assessment of the performance of the members of the EM on an annual basis
 submission of proposals to the BoD regarding the mandate or employment agreements withthe members of the BoD and the EM submission of proposals to the BoD regarding the approval of, and any amendments to,compensation plans and other compensation regulations, persons eligible for participation incompensation plans, as well as assessment of such compensation plans review of the draft compensation report prepared by the EM and submission of thecompensation report to the BoD for approval issue of recommendations on BoD composition and balance, establishment of criteria forthe assessment of the independence of BoD members, submission of proposals to the BoD
regarding the criteria to be applied for the selection of the Chairman, other members of the
BoD and its committees as well as for the nomination of candidates for positions in the EM identification and assessment of candidates for membership in the BoD and for the position ofChief Executive Officer and submission of proposals to the BoD regarding the appointment andremoval of the Chief Executive Officer
 assessment of candidates proposed by the Chief Executive Officer for other positions in the EM
and submission of proposals to the Board regarding the appointment of such persons
 communication with the BoD at least annually on succession and contingency plans in relation
to the members of the EM and other key employees review of the acceptance of mandates outside the Group by members of the Board or the EM.

59

KLINGELNBERG GROUP
Compensation Report

The current members of the NCC are Dr. Jörg Wolle, Diether Klingelnberg and Dr. Hans-Martin
Schneeberger. The members of NCC have suitable experience in the areas of succession planning,
performance evaluation as well as the nomination and compensation of members of boards of
directors. Pursuant to the Organizational Regulations and NCC Regulation, meetings of the NCC
are held as often as required but always at least twice a year. In the fiscal year 2018/19, two NCC
meetings were held and attended by all NCC members.
Recommendations regarding compensation for the EM and the BoD must comply with theCompany´s regulations and must be approved by the BoD (and ultimately by the AGM). In any voteon the compensation to be determined for a particular member of the BoD, the Board member
concerned must observe the relevant general withdrawal/abstention procedures. The EM does
not participate in the determination of its own compensation. The CEO is, however, consulted on
the compensation proposed for the other members of the EM.
The NCC utilizes independent external consultants when required. External consultants are generally utilized to benchmark compensation and assist with the design of compensation plans. In
2018, a leading independent firm with expertise in the areas of compensation and value-based
management provided benchmark data for the LTIP.
At the AGM, the BoD submits to the shareholders the maximum amount of compensation of the
BoD and the EM for binding approval. The voting mechanism set forth by the Articles of Association provides for approval of the following items by the AGM:
 the maximum compensation of the BoD for the term of office until the next AGM
 the maximum compensation of the EM (fixed and variable components) that may be paid or
allocated in the subsequent fiscal year.
https://www.klingelnberg.com/Articles_of_Association_Klingelnberg.pdf
The following table illustrates the organization and competencies regarding the compensation of
the EM and the BoD:
Proposed

Approved

Ultimate
Approval- of BoD, annually from AGM to AGM

NCC

BoD2

AGM

- of EM, annually for subsequent fiscal year

NCC

BoD2

AGM

Decisions on maximum compensation

2 Approval for submission to AGM and subsequent submission to AGM

60

KLINGELNBERG GROUP
Compensation Report

4Compensation components

4.1

General description of compensation components/architecture

As described in 2 above (with references to the Articles of Association), the BoD members receivea fixed base fee. The maximum annual compensation of the Board is approved by the AGM. The
compensation of members of the BoD is subject to mandatory employee and employer social security contributions (AHV/ALV) or VAT, depending on the individual situation.
Further information regarding the planned total compensation of the BoD for the period fromthe 2019 to the 2020 AGM is provided in the invitation to the 2019 AGM and is also subject to thesay on pay vote.
The members of the EM receive fixed compensation as well as variable compensation in the formof the STIP and the CFO and the COO also in the form of an LTIP.
Further information regarding the planned total compensation of the EM for the subsequent fiscal year is provided in the invitation to the 2019 AGM and is also subject to the say on pay vote.
As outlined in 2 above, the STIP is paid out in cash only and depends on the achievement of personal targets as well as on the achievement of the financial results of the Group (% of the earnings
before taxes (EBT)). For the EM, annual percentages of the EBT achievement are defined for thedetermination of the amounts to be paid out under the STIP, taking into account the achievementof the personal targets.
Individual target achievement is typically measured over the course of a one-year performance
period, which generally corresponds with the fiscal year of the Company and taking into accountthe relevant member's position, responsibilities and tasks as well as market conditions. The maximum total amount of the short-term variable compensation is limited at 130% of the participant's
base compensation.
The aim of the STIP is to ensure participation of the EM in the respective results of the fiscal year
on the one hand via a certain percentage of the respective EBT and on the other hand via annual
individual targets that are selected based on relevant targets of the KLINGELNBERG Group to
ensure that the fulfilment of those targets supports the achievement of the Group’s overall aims
and targets. Individual targets are chosen in alignment with the Company’s general overall aims
and business targets and focus on the most relevant areas of development of the Company. As described above, payments are not made in full unless targets of the individuals are fully met.

61

KLINGELNBERG GROUP
Compensation Report

The above mentioned individual targets are generally considered sensitive information. Disclosing
those targets would allow confidential insight into the strategy of the KLINGELNBERG Group andtherefore create a competitive disadvantage to the KLINGELNBERG Group. Consequently, suchtargets are not communicated at the time they are set but their achievement or non- achievement
will be commented on in connection with the overall target achievement.
Individual targets are carefully chosen on an annual basis and in alignment with the Company’s
most relevant projects and targets in line with the Company’s ambitious plans. Setting three tofour demanding and ambitious targets helps the Company to deliver best-in-class performance.
Currently one member of the EM has one additional fixed target for covering one specific field in
addition to his normal duties.
As outlined in 2 above, the LTIP may be awarded in cash, shares or a combination of both. The
Company may procure any required shares or other securities through purchases in the market (ifpossible) or by using conditional share capital. The maximum total amount of the granted longterm variable compensation is limited at 100% of the participant's base compensation.
The LTIP shall take into account the sustainable long-term performance of the Group. The BoD
determines the detailed conditions of the LTIP. The LTIP was designed in cooperation with an external consultant, a leading independent firm with experience in the areas of compensation andvalue-based management. The original long term incentive agreement with the CFO and the COO
already demonstrated a long-term-view, the amendments made upon IPO are intended to reinforce and encourage this. In the future, the BoD may extend participation in the LTIP to further key
employees of the Group, excluding non-executive Board members.
The LTIP participant is granted a number of Performance Share Units (PSUs) on an annual basis.
The number of PSUs to be granted is calculated as follows: amount granted to the relevant participant under the LTIP divided by the volume-weighted average price of the shares for the last 20
trading days before the end of the fiscal year of the Company preceding the fiscal year for which
the grant is made. The amount granted to each participant will be determined on an annual basis
and at the discretion of the BoD before the start of the relevant LTIP period. The grant amount islimited to an amount equal to 100% of the participant's base compensation for the relevant fiscal
year. The PSUs are granted to each participant on the first day of the relevant fiscal year.
The LTIP period is three years and the PSUs vest on a cliff basis, i.e. the PSUs granted at the start ofa three-year period vest on the last day of the third fiscal year after the award was granted. The
vesting of the PSUs is calculated as follows: number of PSUs multiplied by the volume-weighted average price of the shares for the last 20 trading days before the end of the fiscal year at which the
PSUs have vested multiplied by an LTI factor. This LTI factor is determined by the BoD, who applies
the LTI factor table that is calculated for each plan before the start of the respective LTIP period

62

KLINGELNBERG GROUP
Compensation Report

and takes into account the long-term operating and share-price performance of the Group. The
vesting is approved by the BoD and may be settled in cash or shares or in a combination of cash
and shares at its discretion.
In general, all unvested PSUs will be forfeited in the event of a participant's termination of employment. However, if a participant has not given cause for the termination of the employment,
the BoD may approve an accelerated vesting of unvested PSUs on a pro-rated basis, but no participant can claim rights to such a vesting.
The first regular grant of PSUs under the LTIP was granted on 01 April 2019, with a vesting at theend of the fiscal year of the Company ending on 31 March 2022. As a transitional arrangement in
the context of the IPO and in order to guarantee a fair transition from the pre-IPO long term incentive plan, the current members of the EM (excluding the CEO) have been granted a number of
PSUs determined by the BoD, which will vest at the end of the fiscal year of the Company endingon 31 March 2021, subject to and in accordance with the principles set out above.
Further details with respect to the LTI targets, such as the applied LTI factor table, are consideredsensitive information. As in the case of the STIP targets, disclosing those targets would allow confidential insight into the strategy of the KLINGELNBERG Group and therefore create a competitive
disadvantage to the KLINGELNBERG Group. Please refer to the compensation table of the EM withrespect to the number of PSUs granted.

4.2

Loans/credits to the BoD/EM members

Article 28 of the Articles of Association stipulates that the Company shall refrain from granting
loans, credits, pension benefits (other than in the context of occupational pension) or securities
in favor of the members of the BoD or the EM. Therefore, no loans and credits were granted to or
are still outstanding with current and former members of the BoD, the EM, or their related parties.

4.3

Change of control clauses

Upon a change of control, it is at the discretion of the BoD to decide the effects on compensation.
It may decide in particular that payments under the STIP and the LTIP shall be made prematurely,that individual targets are amended or assessed as achieved despite non-achievement, or that certain parameters under both plans are altered.

4.4

Information on notice periods

According to Article 24 of the Articles of Association, mandate agreements of the members of the
BoD have a fixed term expiring at the conclusion of the next AGM. The Company reserves the right toearly termination or removal from office. The Articles of Association further provide that the employment agreements of the members of the EM shall in principle be concluded for an indefinite period.

63

KLINGELNBERG GROUP
Compensation Report

With respect to employment agreements entered into for an indefinite period, the maximum notice period shall not exceed 12 months. If the BoD considers a fixed term appropriate, such fixed
term shall not exceed one year. All individual agreements with the BoD and the EM comply withthe aforementioned rules.
The Company may enter into non-compete agreements with members of the BoD and the EM foran agreed period of time after termination of employment to the extent that is justified from abusiness perspective. Pursuant to Article 24 of the Articles of Association, the consideration paid
for a non-compete undertaking must not exceed the average total annual compensation of suchmember during the last three years.

5

Compensation for fiscal year under review

The IPO of the Company took place on the 20 June 2018 (first day of trading), which means it is alisted company as of that date that must comply with the obligations of the VegüV, which include
the publication of an annual compensation report among other obligations. Compensation of the
BoD and EM for the 2018/19 fiscal year is shown as of the first date of trading until the end of therespective fiscal year.

5.1

Compensation of the members of the Board of Directors (audited)

The pre-IPO General Meeting of 09 June 2018 voted for a maximum compensation of the BoD in
the amount of CHF 700.000 until the end of the next AGM.
As of the first day of trading, the compensation of the members of the BoD - with the exception of Diether Klingelnberg - comprised a fixed fee in the amount of CHF 60.000 per annum or
CHF 180.000 per annum in the case of the Chairman, plus an additional amount of CHF 10.000 per
annum for membership in a committee or CHF 20.000 per annum for the chairman of a committee.

64KLINGELNBERG GROUP
Compensation Report

The following table shows the compensation as of the date of the IPO (20 June 2018) until the endof the fiscal year (31 March 2019):
Committee Membership

Compensation in cash, CHF

Fixed base fee

Fixed fees formemberships incommittee/roles

Employersocial security
payments 3

Chair

140.500,00

15.611,148.859,37

9.366,67

not applicable

not applicable

Dr. Hans-Martin
Schneeberger

46.833,33

7.805,62

3.691,25

Hans-Georg Härter



46.833,33

not applicable

not applicable

Roger Baillod



Chair

46.833,33

15.611,144.808,22

Prof. Dr. Michael Hilb



46.833,33

7.805,62

4.207,20

337.199,99

46.833,52

21.566,04

CHF (as of IPO dated
20 June 2018)

Nomination &Compensation

Chair

Diether Klingelnberg

Dr. Jörg Wolle

Board
Membership

Audit

Total

No severance payments have been made. No compensations, loans, or credits that were not at market conditions - were paid to related persons.

5.2

Compensation of the members of the Executive Management (audited)

The pre-IPO AGM of 09 June 2018 voted for a maximum compensation of the EM in the amountof EUR 4.500.000 for the fiscal year 2018/19 (and EUR 4.500.000 for the fiscal year 2019/2020). The
following table shows the compensation as of the date of the IPO (20 June 2018) until the end of
the fiscal year (31 March 2019):
CHF (as of IPO dated 20 June 2018) 4

EMof which Jan Klingelnberg, CEO

Base compensation

853.538,45

390.280,90

STIP

726.470,46

292.637,99

LTIP 5308.571,96

not applicable

Other compensation 6

145.479,39

82.364,63

Employer social security

90.280,3739.854,21

2.124.340,63

805.137,73

Total

3 Any value added tax is treated as the employer contribution for social security
4 All conversions from EUR to CHF in the above tables have been made at the balance sheet exchange rate (EUR 1 : CHF 1,11835)
5 Fair value PSU CHF 34,49, date of grant 19 March 2019, number of PSUs granted: 8.948
6 Fringe benefits of all EM members and consultancy fees for consultation of subsidiaries by CEO

65

KLINGELNBERG GROUP
Compensation Report

The Company has no outstanding loan or guarantee commitments to members of the EM or
related parties.
No severance payments have been made. No compensations, loans, or credits that were not at market conditions - were paid to related persons.

5.3

Share ownership information [CO 663c]

Please see note 5.9 of the statutory financial statements.

5.4

Transactions with members of the Board of Directors or the Executive
Management

For information regarding related party transactions with members of the Board of Directors andExecutive Management, see note 6.2 of the consolidated financial statements.

66

KLINGELNBERG GROUP
Compensation Report

Klingelnberg AG
ZürichReport of thestatutory auditor to theGeneral Meetingon the remuneration report
2018/2019

67

KLINGELNBERG GROUP
Compensation Report

Report of the statutory auditor
to the General Meeting of Klingelnberg AG
ZürichWe have audited the accompanying remuneration report of Klingelnberg AG for the year ended 31 March
2019. The audit was limited to the information according to articles 14–16 of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance) contained in the tables in chapters
5.1 and 5.2 on page 65 of the remuneration report.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Auditor’s responsibility
Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our
audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14–16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of theOrdinance. The procedures selected depend on the auditor’s judgment, including the assessment of therisks of material misstatements in the remuneration report, whether due to fraud or error. This audit also
includes evaluating the reasonableness of the methods applied to value components of remuneration, as
well as assessing the overall presentation of the remuneration report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour opinion.

PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, CH-8050 Zürich, Switzerland
Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity.

68

KLINGELNBERG GROUP
Compensation Report

OpinionIn our opinion, the remuneration report of Klingelnberg AG for the year ended 31 March 2019 complies
with Swiss law and articles 14–16 of the Ordinance.
PricewaterhouseCoopers AGBlaženka Kovács-Vujevićć

Dano BollierA
Audit
expertAuditor in charge

Audit expert

Zürich, 8 July 20193

69

Consolidated Financial
Statements

70

71

Consolidated balance sheet

73

Consolidated income statement

74

Consolidated cash flow statement

75

Consolidated statementof changes in equity

76

Notes to the consolidated
financial statements

76

General information76

Accounting principles

84

Changes in the scopeof consolidation

85

Substantial information on the
consolidated balance sheet items

96

Substantial information on
the consolidated income
statement items

98

Additional Information

KLINGELNBERG GROUP
Consolidated Financial Statements

Consolidated balance sheet
EUR 000

Note

31.03.2019

31.03.2018

28.695

8.632

AssetsCurrent assets
Cash and cash equivalents
Receivables from goods and services

4.1

70.98172.183

Derivative financial instruments

4.2

81

191

Other short-term receivables

4.3

5.472

9.112

Inventories

4.4

82.87076.2481.264

879

189.363

167.245

Prepayments and accrued income
Total current assets

Non-current assets
Tangible fixed assets

4.5

52.87651.737Loans and other receivables

4.6

350

1.509

2.123

1.537

Investments in joint ventures
Deferred tax assets

4.7

8.159

10.779Other financial assets

4.8

796

540

Intangible assets

4.9

1.705

1.688

Total non-current assets

66.00967.790Total assets

255.372

235.035

The enclosed notes are part of the consolidated financial statements.

71

KLINGELNBERG GROUP
Consolidated Financial Statements

Consolidated balance sheet
Note

31.03.2019

31.03.2018

Short-term financial liabilities

4.10

1.735

22.035

Payables from goods and services

4.11

16.25915.805Derivative financial instruments

4.2

457

126

Other short-term liabilities

4.12

29.05529.62916.33514.735

7.757

7.846

71.59890.176

EUR 000
Liabilities
Current liabilities

Accrued liabilities and deferred income
Short-term provisions

4.13

Total current liabilities

Non-current (long-term) liabilities
Long-term financial liabilities

4.10

4.722

6.295

Deferred tax liabilities

4.13

1.703

2.657

Long-term provisions

4.13

14.38115.646

Total non-current (long-term) liabilities

20.80624.598

Total liabilities

92.404114.774

4.14/4.15

28.63926.726

4.14

51.26733.41083.06260.125

Total equity

162.968

120.261

Total liabilities and equity

255.372

235.035

EquityShare capital
Capital reserves
Retained earnings

The enclosed notes are part of the consolidated financial statements.

72

KLINGELNBERG GROUP
Consolidated Financial Statements

Consolidated income statementNote2018/192017/18

Net sales from goods and services

5.1/6.2

278.214257.027

Other operating income

5.2/6.2

7.424

2.917

-419

5.480

EUR 000

Change in inventory of finished and unfinishedgoods as well as unbilled goods and services
Raw material expense

6.2-108.330-100.873

Personnel expense

5.3-101.248-94.808

Depreciation on tangible fixed assets

4.5-5.902-6.106

Amortization on intangible assets

4.9

-472

-450

5.4/6.2-39.875-41.451587

322

29.97922.058-3.167-773

26.81221.285-7.596-7.05319.21614.232Other operating expense
Share of result from joint ventures
Operating result
Financial result

5.5/6.2

Profit before income taxes
Income taxes

5.6

Net profit

Earnings per share
EUR
Basic earnings per share

5.7

2,20

1,69

Diluted earnings per share

5.7

2,20

1,69

2.2

36.35328.614

Additional information – non-GAAP measures
EUR 000
EBITDAThe enclosed notes are part of the consolidated financial statements.

73

KLINGELNBERG GROUP
Consolidated Financial Statements

Consolidated cash flow statement
2018/192017/18

19.21614.232

4.5/4.9

6.374

6.556

4.13

-2.307-838

4.5/4.9-716

317

Decrease / increase of receivables from goods and services

4.1

3.083

-8.012

Increase of inventories

4.4-7.310-8.0384.3/4.6/4.7

6.202-2.826-586-322

EUR 000

Note

Net profit
Depreciation / amortization / write-up of
tangible fixed assets and intangible assets
Increase in provisions (including deferred taxes)
Profit / loss from the disposal of tangible
fixed assets and intangible assets

Decrease / increase of other receivables and prepayments
and accrued income (including deferred tax)
Share profits from the application of the equity method
Increase of payables from goods and services

4.11

454

1.596

Increase of other short-term liabilities andaccrued liabilities and deferred income

4.12

2.040

4.131

1.137

-387

27.587

6.409

815

236

Other non-cash items
Cash flow from operating activities

Inflows for investment in financial assets (includingloans, participations, securities, etc.)
Outflows for investment in tangible fixed assets

4.5-7.268-5.463

Inflows from the sale of tangible fixed assets

4.5

1.366

436

Outflows for investment in intangible assets

4.9

-500

-770

-5.587-5.5610-2.800Cash flow from investing activities

Distribution of profits
Repayment / issuance of short-term financial liabilities

4.10-21.949

4.402

Inflows from capital increase

4.14

19.7700-2.179

1.602

242

-487

20.063

1.963

Opening balance of cash and cash equivalents at 01.04.

8.632

6.669

Closing balance of cash and cash equivalents at 31.03.

28.695

8.632

Net change in cash

20.063

1.963

Cash flow from financing activities
Currency translation effects
Net change in cash

The enclosed notes are part of the consolidated financial statements.

74

KLINGELNBERG GROUP
Consolidated Financial Statements

Consolidated statement of changes in equity
Retained earnings
Goodwill
Capital offset withreserves
equityCumulative
Other
foreign
retainedcurrency
earnings differences

Total
retainedearnings

Total
equityEUR 000

Note

Share
capitalBalance as at 01.04.2017 - restated

4.15

26.72614.157-20.51764.6887.714

51.88592.768

Capital increase0

19.25300

0019.253Currency translation differences

0

0

0

0

-3.300-3.300-3.300

Net result from cash flow hedges

0

0

0

108

0

108

108

Dividends

000-2.8000-2.800-2.800Net profit

0

0

0

14.2320

14.232

14.23226.72633.410-20.51776.2284.414

60.125120.2611.913

17.85700

0019.770Currency translation differences

0

0

0

0

3.808

3.808

3.808

Net result from cash flow hedges

0

0

0

-87

0

-87

-87

Net profit

0

0

0

19.216019.21619.21628.63951.267-20.51795.3578.222

83.062

162.968

Balance as at 31.03./01.04.2018
Capital increase

Balance as at 31.03.2019

4.14

The enclosed notes are part of the consolidated financial statements.

75

KLINGELNBERG GROUP
Consolidated Financial Statements

Notes to the consolidated financial statements
1

General information

The KLINGELNBERG Group comprises KLINGELNBERG AG and its consolidated subsidiaries.
KLINGELNBERG AG is a limited company according to Swiss law, incorporated and domiciled in
Zürich, Switzerland. The shares of the KLINGELNBERG AG are listed in Switzerland in the Swiss Reporting Standard of the SIX Swiss Exchange.
The consolidated financial statements as at and for the year ended 31 March 2019 were authorized for release by the Chairman of the Board at 08 July 2019 and are subject to be approved by
the Annual General Meeting.

2

Accounting principles

2.1

Basis for the preparation of the financial statements

The consolidated financial statements of KLINGELNBERG Group have been prepared in accordance with Swiss GAAP FER as a whole and give a true and fair view of the assets, liabilities, earnings and cash flows of KLINGELNBERG Group. In addition, the provisions of the Listing Rules of
the SIX Swiss Exchange and Swiss accounting law were complied with. The consolidated financial
statements are prepared applying the principle of historical cost accounting, with the exceptionsof derivative financial instruments, which are measured at fair value. The preparation of the consolidated financial statements requires management to make estimates and assumptions. If in
the future such estimates and assumptions, which are based on management’s best judgement,change, the original estimates and assumptions will be modified as appropriate in the year inwhich the change occurred.

2.2

Definition of alternative performance measures

EBITDA:
Earnings before interest, income tax, depreciation and amortization (EBITDA) as a subtotal includes the operating result (EBIT) plus depreciation on tangible fixed assets and amortization on
intangible assets.
EBIT:
The operating result (Swiss GAAP FER) excluding non-operating and extraordinary results.

76

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Consolidated Financial Statements

2.3

Scope and principles of consolidation

The consolidated financial statements of KLINGELNBERG Group include KLINGELNBERG AG, aswell as all entities as at 31 March of the current financial year for which the parent company holds,
directly or indirectly, the majority of the voting rights or by having the power to govern their operating and financial policies in some other way. Consolidation ends when control by the parent
company ceases.
Capital consolidation is based on the purchase method. Companies acquired by the Group areincluded in the consolidated financial statements from the date of obtaining control. The net assets acquired are revalued at fair value at the acquisition date, using uniform Group accounting
principles. Companies sold are excluded from the scope of consolidation as at the date on which
control ceases, with any gain or loss recognized in the income statement.
All intragroup balances and transactions including accounts receivables, accounts payables, income, expenses, and any unrealized gains and losses resulting from transactions between Group
companies are eliminated.
Investments in joint ventures in which KLINGELNBERG Group exercises joint control together witha joint venture partner (e.g. with 50% voting rights) are recognized using the equity method.
The financial statements of the Group companies are prepared using the same accounting andvaluation methods and on the same balance sheet date as the parent company’s financial statements.
The KLINGELNBERG Group has no minority interests.

77

KLINGELNBERG GROUP
Consolidated Financial Statements

For a list of consolidated companies and investments see following table. Any change to the scopeof consolidation is outlined in note 3.
Share of capital andvoting rights

Company, head office

Currency

Capital31.03.2019

31.03.2018

Klingelnberg AG, Zürich, Switzerland

CHF

44.200.000

Klingelnberg GmbH, Hückeswagen, Germany

EUR

15.338.755

100%

100%

Klingelnberg (France) SAS, Saint Germain en Laye, France

EUR

215.000

100%

100%

Klingelnberg Imexma SA, Barcelona, Spain

EUR

750.000

100%

100%

Klingelnberg Italiana Srl., Milano, Italy

EUR

80.000100%

100%Klingelnberg Hungaria Kft., Györ, Hungary

HUF

12.200.000

100%

100%

Klingelnberg (Japan) Ltd., Yokohama, Japan

JPY

50.000.000

100%

100%

Klingelnberg Mexico S.A. de C.V., Queretaro, Mexico

MXP

500.000

100%

100%

Klingelnberg America Inc., Saline, USA

USD

200

100%

100%

The Klingelnberg Corporation, Cincinnati, Ohio, USA

USD

254

100%

100%

HMET Grundstücksverwaltungsgesellschaft mbH,
Hückeswagen, Germany

EUR

25.000100%

100%Klingelnberg India Private Ltd., Pune, India

INR

27.700.000

100%

100%

Höfler Yantai Service Co., Ltd., China

CNY

748.657

100%

100%

Klingelnberg do Brasil, Sao Paulo, Brazil

BRL

3.950.000

100%

100%

KLA Real Estate, LLC., Saline, USA

USD

0

100%

100%

Klingelnberg Hungaria Service Kft., Györ, Hungary

HUF

15.000.000

100%

100%

DKSH Klingelnberg Service Ltd., Shanghai, China *CNY

5.585.020

50%

50%

* Joint venture consolidated at equity

2.4

Business combinations

Net assets acquired are revalued at fair value at the acquisition date. Any unrecognized intangible
assets are not separated and identified and therefore allocated to goodwill. Goodwill is calculated
as the difference between the purchase price (incl. transaction costs) and the revalued net assets.
The positive or negative goodwill resulting from business combinations is offset against equity at
the date of acquisition. At the disposal of the company, the goodwill previously offset in equity
is transferred to the income statement. The consequences of the theoretical capitalization andamortization of goodwill are explained in note 4.9.

2.5

Segment reporting

Notwithstanding the additional recommendations for listed companies (Swiss GAAP FER 31), theBoard of Directors of the KLINGELNBERG Group decided not to publish any detailed segment re-78

KLINGELNBERG GROUP
Consolidated Financial Statements

sults in order to protect the interests of its shareholders.
As a globally active Group, Klingelnberg manages its activities on a business unit based approachon one side and a synergy optimization on the other. The reporting system reflects this structure
and the activities of KLINGELNBERG Group are split into four main business units:Bevel Gear
Cylindrical Gear
Measuring Centers
Drive Technology

Disclosing operating results by business unit would lead to competitive disadvantages in termsof the profitability and distribution margins as well as the cost calculations. The KLINGELNBERG
Group would be the only company in the industry showing detailed profitability information atbusiness unit level. Most of the relevant competitors are privately held companies which do nothave to follow international disclosure requirements and, therefore, do not publish any detailed
financial information. Some other competitors are large, international companies, which apply abroader definition of reporting segments in which specific data relevant of the core industry is notaccessible.
Therefore, the disclosure of business unit operating results would lead to significant competitive
disadvantages for the KLINGELNBERG Group. Moreover, such information would result in negative consequences in the KLINGELNBERG Group’s negotiating power with various stakeholders
such as clients, suppliers, etc. For all these reasons, the KLINGELNBERG Group firmly believes that
disclosing operating results by business units would have a significant negative impact on its overall performance.

2.6

Conversion of foreign currency items and transactions

Translation of financial statements to be consolidated
In light of the significant share of the business activities taking place in Germany, the consolidated
financial statements of KLINGELNBERG Group are presented in Euros (EUR). The financial statements of Group companies are prepared in their respective functional currencies and translated
into Euro as follows: assets and liabilities are converted at the year-end exchange rate
 income and expense are converted using the average exchange rate of the reporting year the conversion differences arising on the translation of the balance sheet items have no effecton the income statement and are recognized in the equity as cumulative foreign currency differences. When a subsidiary with a foreign currency is de-consolidated, the accumulated conversion differences recognized in the equity are reclassified to the income statement.

79

KLINGELNBERG GROUP
Consolidated Financial Statements

Foreign currency transactions in Group companies
Foreign currency effects on intragroup and equity-like loans, which are a significant part of thecompany’s net investments in foreign subsidiaries, are recognized in equity as cumulative foreign
currency differences until the disposal of the net investment. From this point in time, the foreign
currency differences are recognized in the income statement as a profit or loss on the sale of investments.
Transactions in foreign currencies are converted at the average exchange rate of the month of
the transaction. Exchange rate differences arising from financial transactions are recorded in theincome statement. All monetary assets and liabilities in a foreign currency are converted at theexchange rate as at the balance sheet date and the resulting gains/losses are recognized in theincome statement.
The table below outlines the main exchange rates used in the preparation of our consolidated financial statements as at and for the years ended 31 March 2019 and 31 March 2018.
Year-end exchange rate

Average exchange rate

31.03.2019

31.03.2018

2018/192017/18

CHF/EUR

1,11835

1,17875

1,14682

1,13548

USD/EUR

1,12305

1,23230

1,158121,17046

JPY/EUR

124,37215

131,32005

128,41348

129,68701

2.7

Cash and cash equivalents

Cash and cash equivalents are measured at nominal value and comprise cash on hand, deposits inbank accounts and with similar institutions and fixed-term deposits with an original term of up to
90 days.

2.8

Receivables from goods and services and other short-term receivables

Receivables are measured at nominal value less any value adjustments for doubtful accounts. Value adjustments are established for cases where the Group faces a risk of not collecting the outstanding amount.

2.9

Derivative financial instruments

The Group uses derivatives mainly as hedges against foreign currency risks. These derivatives areprimarily foreign exchange forwards. Derivatives are recognized initially at acquisition cost andsubsequently valued at fair value. Except for derivatives that are designated as hedging instruments for future cash flows, all changes in the fair values of derivatives are to be recognized in the
result of the period.

80

KLINGELNBERG GROUP
Consolidated Financial Statements

Instruments for hedging future cash flows are recognized at fair value. Changes in the fair valueof such cash flow hedges are recorded in equity. Changes in the fair value of hedges recorded inequity are recorded in the period in which the cash flows from the underlying hedged asset arerecognized.

2.10 Inventories
Inventories are measured at the lower of acquisition and manufacturing cost and net realizablevalue. Acquisition cost is measured net of cash discounts. Manufacturing cost includes direct laborand materials used, as well as a commensurate share of the related production overhead costs excluding any borrowing costs.
If the net realizable value of inventories is lower than the book value or if inventories have a low
turnover rate, the necessary value adjustments are recognized.

2.11 Tangible fixed assets
Tangible fixed assets are measured at acquisition cost excluding any borrowing costs less accumulated depreciation and impairment. Depreciation is recognized on a straight-line basis over thefollowing estimated useful life of the asset:Land: No depreciation
Buildings: 40 years
Machines and equipment: 10 years
Other tangible fixed assets: 3 to 10 years

Assets under construction are not depreciated until completion.
Expenditure on maintaining and repairing tangible fixed assets is charged to the income statement. Capital expenditure for existing tangible fixed assets is capitalized if classified as valueadding and depreciated over the useful life.

2.12

Loans and other receivables, other financial assets

Loans and other receivables as well as other financial assets are measured at nominal value less any
value adjustments required.

2.13 Investments in joint ventures
Investments are carried at historical cost less required impairments.

81

KLINGELNBERG GROUP
Consolidated Financial Statements

2.14 Taxes
Current and deferred taxes are accrued for all tax obligations, irrespective of their due date. Current
income taxes are calculated on the taxable profit for the financial year. Deferred taxes are calculated
by applying the balance sheet method for any temporary difference between the carrying amountand the tax basis of assets and liabilities. For that calculation the current tax rates applicable in each jurisdiction are used while already identified future changes in the tax rates are taken into consideration.
Deferred tax assets for tax loss carry-forwards are recognized to the extent that it is probable thatthey can be offset against future taxable profits.
Deferred taxes are calculated on the basis of the tax rates applicable in each country.
Current and deferred tax assets and liabilities are offset if they concern the same taxable entity
or group of entities and tax jurisdiction and if the Group has a legally enforceable right to offset
current tax assets and liabilities.
No deferred tax is provided for temporary differences on investments in subsidiaries where thetiming of the reversal of the temporary difference is controlled by the Group and it is not probablethat the temporary difference will be reversed in the foreseeable future.

2.15 Intangible assets
Acquired intangible assets are measured at acquisition cost less accumulated amortization and impairment. Intangible assets are amortized on a straight-line basis over their useful life as follows: Software: 3 to 5 years
 Licenses: 3 to 10 years
Internally generated intangible assets including research and development costs are recognized
as a cost in the income statement in the financial year in which they occurred.
Goodwill from the acquisition of consolidated entities is offset with equity at the date of the acquisition.
Goodwill is theoretically amortized on a straight-line basis over a useful life of 7 to 15 years.

2.16 Impairment of assets
Assets (especially tangible fixed assets, intangible assets and financial assets) are subject to an impairment test at each balance sheet date. If there is any indication of impairment, a detailed test is performed
immediately. If the carrying amount exceeds the recoverable amount (fair value less cost to sell), an impairment loss is recognized in the income statement. If, subsequently, an increase in the asset’s value canbe demonstrated, the impairment charge is reversed accordingly via the operating result.

82

KLINGELNBERG GROUP
Consolidated Financial Statements

As the goodwill is already offset with equity at the date of the acquisition, an impairment of the
goodwill does not affect the income statement but leads to a disclosure in the notes only.

2.17 Financial liabilities
Financial liabilities are measured at nominal values.

2.18 Payables from goods and services and other liabilities
Payables from goods and services and other liabilities are measured at nominal value.

2.19 Provisions
Provisions take into account all identifiable and measurable risks from warranties and penalties
for non-performance, expected losses from pending transactions and process risks which management deems likely to occur. Provisions are recognized when the Group has a present legal orconstructive obligation as a result of past events and if it is more likely than not that an outflow
of resources will be required to settle the obligation and the amount has been reliably estimated.

2.20 Revenue recognition
Revenue is recognized when the principal risks and rewards incidental to ownership are transferred to the customer, the amount of the proceeds can be reliably determined and when it is sufficiently probable that the economic benefits from the sale will flow to the Group.
Revenues are stated at the fair value of the consideration entitled to be received. This is after the
deduction of discounts, rebates and credits and before value-added and sales tax.

2.21 Off-balance sheet transactions
Contingent liabilities as well as other non-recognized obligations are assessed at each balance
sheet date and are disclosed in the notes to the financial statements. A provision is recorded if therelevant conditions are met.

2.22 Leases
Leases in which a significant portion of the risks and rewards of ownership are transferred fromthe lessor to the lessee are classified as finance leases. The leased assets are carried at cost nothigher than the minimum lease payments and depreciated along with other tangible fixed assets.
The corresponding leasing obligations are shown as liabilities.
Leasing payments are allocated accordingly as either capital repayments or interest expenses presented in the financial result.

83

KLINGELNBERG GROUP
Consolidated Financial Statements

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit
or loss on a straight-line basis over the period of the lease.

2.23 Share-based payments
Share-based payments are treated as a cash-settled plan. Provisions must be recognised as an expense over the vesting period. The fair value of the liability must be determined at each balance
sheet date and the provision adjusted to this fair value.

2.24 Pension benefit obligation
The employee benefit plans of the KLINGELNBERG Group comply with the legislation in force ineach country. Employee benefit plans are mostly institutions and foundations that are legally independent of KLINGELNBERG Group. They are usually financed by both employee and employer
contributions.
The economic impact of the employee benefit plans is assessed each year. Surpluses or deficits
are determined by means of the annual statements of each specific benefit plan, which are based
either on Swiss GAAP FER 26 (Swiss benefit plans) or on the accepted methods in each foreigncountry (foreign plans). An economic benefit is capitalized if it is permitted and intended to use
the surplus to reduce the employee contributions. If employer contribution reserves exist, they arealso capitalized. An economic obligation is recognized as a liability if the conditions for a provision are met. They are reported under “Provision for pension benefit obligation”. Changes in theeconomic benefit or economic obligation, as well as the contributions incurred for the period, arerecognized in “Personnel expense” in the income statement.

3

Changes in the scope of consolidation

There were no changes in the scope of consolidation in the current financial year under review. In
the previous financial year, on 20 December 2017 KLINGELNBERG Hungaria Service Kft. was founded
as a subsidiary of KLINGELNBERG AG with a share capital of HUF 15.000.000 (EUR 48 thousand).

84

KLINGELNBERG GROUP
Consolidated Financial Statements

4

Substantial information on the consolidated balance sheet items

4.1

Receivables from goods and services
31.03.2019

31.03.2018

Receivables from third parties

70.85272.330Receivables from joint ventures

426

197

Receivables from other related parties

101

185

Value adjustments

-398

-529

70.98172.183- Not due61.23960.725- Up to 90 days overdue

7.571

10.226- Over 90 days overdue

2.171

1.232

EUR 000

Receivables from goods and services
Thereof:

4.2

Derivative financial instruments
31.03.2019

EUR 000
Basic value:

31.03.2018

Asset

Liability

PurposeAsset

Liability

Purpose

Foreign exchange

81

457

Hedging

191

126

Hedging

Total

81

457

191

126

4.3

Other short-term receivables

This position includes mainly decreases in taxes other than income taxes of EUR 2,7 million andprepayments to suppliers of EUR 1,5 million. The value adjustments for the year under review
amounted to EUR 0,1 million (as at 31 March 2018: EUR 0,1 million).

85

KLINGELNBERG GROUP
Consolidated Financial Statements

4.4

Inventories
31.03.2019

31.03.2018

Finished products

8.150

8.244

Work in progress

38.93340.619Acquired parts

51.97346.998126

71

EUR 000

Supplies

99.18295.932

Value adjustments-16.312-19.684

Inventories

82.87076.248

4.5

Tangible fixed assets
2018/19

EUR 000

Other assets

Tangible fixed
assets underconstruction

Total

48.51522.278114

117.031

Undeveloped
property

Land andbuildings

Machines andequipment

2.167

43.957

Acquisition cost
Gross value as at 01.04.
Additions

0

184

5.189

1.797

98

7.268

Disposals

0-3-2.117-383-4-2.507

Foreign currency effects

0

412

188

214

-3

811

Reclassifications

0

0

9

24

-33

0

2.167

44.55051.78423.930172

122.603

Accumulated depreciation
as at 01.04.

011.67937.25516.360065.294

Depreciation

0

1.138

2.897

1.867

0

5.902

Gross value as at 31.03.

86

Disposals

0-1-1.490-376

0-1.867

Foreign currency effects

0

99

141

158

0

398

Accumulated depreciation
as at 31.03.

012.91538.80318.009069.727

Net carrying amountas at 01.04.

2.167

32.278

11.2605.918

11451.737

Net carrying amount as at 31.03.

2.167

31.63512.9815.921

17252.876KLINGELNBERG GROUP
Consolidated Financial Statements

2017/18

Other assets

Tangible fixed
assets underconstruction

Total

47.49921.5471.108

115.141

1.680

1.929

1.820

34

5.463

-5

0

-1.107-696

0-1.808

0

-593

-735

-431

-6

-1.765

Undeveloped
property

Land andbuildings

Machines andequipment

2.172

42.815Additions0

Disposals
Foreign currency effects

EUR 000
Acquisition cost
Gross value as at 01.04.

Reclassifications

0

55

929

38

-1.0220

2.167

43.95748.51522.278114

117.031

Accumulated depreciation
as at 01.04.

010.70935.15915.218061.086

Depreciation

0

1.135

3.124

1.847

0

6.106

Disposals

0

0

-647

-410

0

-1.057

Foreign currency effects

0

-165

-381

-295

0

-841

Accumulated depreciation
as at 31.03.

011.67937.25516.360065.294

Net carrying amount as at 01.04.

2.172

32.10612.340

6.329

1.108

54.055

Net carrying amount as at 31.03.

2.167

32.278

11.2605.918

11451.737Gross value as at 31.03.

87

KLINGELNBERG GROUP
Consolidated Financial Statements

4.6

Loans and other receivables

In the year under review, this item consists of agreements for the sale of machinery of
EUR 0,4 million (as at 31 March 2018: EUR 1,5 million) on long-term installment purchase.

4.7

Deferred tax assets

The deferred tax assets mainly result from divergent valuations of pension provisions as well as
provisions for partial retirement obligations, service anniversaries, taxes from loss carry forwards,
and provisions for warranties.
In the two consecutive financial years, the following tax loss carry forwards were capitalized:
EUR 000
Tax loss carry forwards as at 31.03.2019

Capitalized

Not capitalized

Total

No expiry

5.543

0

5.543

Total losses carried forward

5.543

0

5.543

Capitalized

Not capitalized

Total

No expiry

12.372012.372

Total losses carried forward

12.372012.372

Potential tax effect on non-capitalized losses
carried forward
Deferred taxes capitalized

Tax loss carry forwards as at 31.03.2018

Potential tax effect on non-capitalized
losses carried forward
Deferred taxes capitalized

4.8

0
1.399

0
3.641

Other financial assets

In the year under review, this item mainly comprises of insolvency-protected life insurance policy to cover pension liabilities in connection with partial-retirement obligations in the amount of
EUR 0,7 million (as at 31 March 2018: EUR 0,4 million). The amount is calculated in accordance withthe local legal requirements of the company that recognizes these assets.

88

KLINGELNBERG GROUP
Consolidated Financial Statements

4.9

Intangible assets
2018/192017/18

SoftwareOther
intangible
assets

Total

SoftwareOther
intangible
assets

Total

7.357

426

7.783

8.014

345

8.359

Additions

493

7

500

657

113

770

Disposals and derecognitions

-36

-12

-48

-1.195-1-1.196

Foreign currency effects

47

16

63

-119

-31

-150

Reclassifications

113

-113

0

0

0

0

Gross value as at 31.03.

7.974

324

8.298

7.357

426

7.783

Accumulated amortization
as at 01.04.

5.793

302

6.095

6.655

334

6.989

Amortization

472

0

472

450

0

450

Disposals and derecognitions

-36

-3

-39

-1.195-1-1.196

Foreign currency effects

48

17

65

-116

-31

-147

Accumulated amortization
as at 31.03.

6.277

316

6.593

5.793

302

6.095

Net carrying amount as at 01.04.

1.564

124

1.688

1.359

11

1.370

Net carrying amount as at 31.03.

1.697

8

1.705

1.564

124

1.688

EUR 000
Acquisition cost
Gross value as at 01.04.

89

KLINGELNBERG GROUP
Consolidated Financial Statements

A theoretical capitalization of goodwill would have the following effects on the consolidated
financial statements.
2018/192017/18

Gross value as at 01.04.

20.51720.517Gross value as at 31.03.

20.51720.517

Accumulated amortization at 01.04.

13.48811.684

Amortization

1.804

1.804

Accumulated amortization at 31.03.

15.292

13.488

5.225

7.029

162.968

120.261

5.225

7.029

168.193127.290

Net profit

19.21614.232

Theoretical amortization of goodwill-1.804-1.804

Theoretical net profit

17.41212.428

EUR 000
Theoretical statement of changes in goodwill
Acquisition cost

Theoretical impact on equity
Theoretical net carrying amount at 31.03.
Effect on equity
Equity according to balance sheet
Theoretical net carrying amount goodwill
Theoretical equity incl. net carrying amount of goodwill

Theoretical impact on net income
Effect on income statement

90KLINGELNBERG GROUP
Consolidated Financial Statements

4.10 Financial liabilities
31.03.2019

31.03.2018

Short-term financial liabilities

1.735

22.035Long-term financial liabilities

4.722

6.295

Total financial liabilities

6.457

28.330

- EUR

5.352

27.174

- USD

840

839

- JPY

241

286

- INR

24

31

- 2 to 5 years

4.345

5.870

- > 5 years

377

425

Average interest rate

2,46%

1,37%

Unused credit facilities

53.26432.661

Carrying amount of property

33.80234.445- thereof pledged

12.603

12.571- thereof used

5.132

6.541

EUR 000

Thereof in:

Thereof matures in:Long-term financial liabilities include mortgages secured using mortgage notes

As part of the capital increase, funds amounting to CHF 22,7 million (EUR 19,8 million) were paid
into KLINGELNBERG AG, which was to be used for acquisitions. Since these acquisitions have not
yet taken place, the money will be used until further notice for internal financing and repaymentof short-term fixed advances (previous year: CHF 20,3 million or EUR 17,2 million). The remaining
amounts of EUR 1,7 million (previous year: EUR 1,7 million) are the current portion of long-termloans for property financing. The interest rate now only reflects the property financing.

91

KLINGELNBERG GROUP
Consolidated Financial Statements

4.11 Payables from goods and services
31.03.2019

31.03.2018- with third parties

16.10715.644- with joint ventures

3

144

149

17

16.25915.805- Payment terms up to 90 days

15.383

14.639- Payment terms over 90 days

876

1.166

EUR 000
Payables from goods and services- with other related parties
Payables from goods and services
Thereof:4.12 Other short-term liabilities
This position contains mainly advance payments from customers EUR 16,3 million (as at 31 March 2018:
EUR 15,6 million) and taxes and social insurance withholdings EUR 9,2 million (as at 31 March 2018:
EUR 9,3 million).

4.13

Provisions
2018/19
Provision forwarranties

Provision forpension benefit
obligation

Other provisions

Total provisions
excl. deferred tax

Deferred tax

Carrying amount as at 01.04.

8.299

11.6563.537

23.4922.657

Creation of provisions

3.801

597

1.311

5.709

12

Utilization of provisions-4.175-456-425-5.0560

Release of provision recognizedin the income statement-1.7190-481-2.200-1.040

136

0

57

193

74

Carrying amount as at 31.03.

6.342

11.797

3.999

22.1381.703

of which, short-term

5.445

456

1.856

7.757

0

of which, long-term

897

11.341

2.143

14.381

1.703

EUR 000

Foreign currency effects

92

KLINGELNBERG GROUP
Consolidated Financial Statements

2017/18
Provision forwarranties

Provision forpension benefit
obligation

Other provisions

Total provisions
excl. deferred tax

Deferred tax

Carrying amount as at 01.04.

7.589

12.0433.710

23.342

3.645

Creation of provisions

6.191

60

700

6.951

30

Utilization of provisions-4.219-447-505-5.1710

Release of provision recognizedin the income statement-1.0430-260-1.303

-802

-219

0

-108

-327

-216

Carrying amount as at 31.03.

8.299

11.6563.537

23.4922.657

of which, short-term

5.827

447

1.572

7.846

0

of which, long-term

2.472

11.2091.965

15.646

2.657

EUR 000

Foreign currency effects

The valuation of provisions in all categories is based on latest available data (e.g. claims that haveoccurred or been reported) or on the experience of recent years and management estimates.
Provisions for warranties
During the financial year 2018/19 management has revised the process by using an IT system supported approach, which resulted in more granulated information and a release of warranty provision of EUR 1,7 million. In the same event and for comparability reasons the gross disclosure in thewarranty movement table of the prior year has been amended accordingly.
Provision for pension benefit obligation
EUR 000
Economical benefit/
economical obligation andpension benefit expenses

Surplus/deficit

Economical part ofthe organization

Change to prioryear period orrecognized in thecurrent result of theperiod, respectively

31.03.2019

31.03.2019

31.03.2018

Pension funds without
deficit or surplus (1)

0

0

0

0

Pension funds without
own assets (2)0-11.797-11.656Total

0-11.797-11.656

Contributions
concerning thebusiness period

Pension benefit
expense as part ofpersonnel expense

2018/192017/18

-346

-346

-343

-141

-456*

-597

-60

-141

-802

-943

-403

*Pension payments according to pension plan in the current financial year.

93

KLINGELNBERG GROUP
Consolidated Financial Statements(1) The Swiss entity is affiliated to a collective pension plan where the surplus/deficit cannot be
determined on the basis of the individual contract but it can be stated that based on the audited
figures of the pension fund as per 31 December 2018 the coverage of the collective plan as a wholeamounts to 106,4% (as at 31.12.2017: 114,1%). The technical interest rate used amounted to 2,0%
(prior year: 2,0%). The underlying mortality table remained unchanged (BVG 2015 GT). Furthermore, a supplementary pension plan exists, which does not bear the risks due to full insurance aspart of a collective insurance contract.
(2) The economical obligation from pension funds without own funds contains primarily the obligation from employee benefit plans in Germany. The discount rate used in the calculation was 2,02%(2017/18: 2%). A provision for pension benefit obligation at the level of the economical obligation
has been recorded. Pension benefit expense as part of the personnel expense include the increase
and decrease of provisions recorded in the income statement including changes of discount rates. The
increase compared to prior year was mainly driven due to the application of the new mortality table(Richttafeln 2018 G, prior year: Richttafeln 2005 G) and the higher number of insured employees.
Other provisions
Other provisions include, among others, a provision for fire prevention measures of
EUR 0,4 million (as at 31 March 2018: EUR 0,4 million), part-time phased retirement obligations EUR 1,8 million (as at 31 March 2018: EUR 1,4 million) and provisions for longservice awards of EUR 0,3 million (as at 31 March 2018: EUR 0,3 million).
Since financial year 2018/19 there is a long-term incentive plan for the members of the executive
board (CFO/COO) in the form of Performance Share Units (PSU) in place. The first regular grant of
PSUs under the LTIP will be granted on 01 April 2019, with a vesting at the end of the fiscal yearof the Company ending on 31 March 2022. As a transitional arrangement in the context of the
IPO and in order to guarantee a fair transition from the pre-IPO long term incentive plan, the current members of the Executive Management (excluding the CEO) have been granted an extraordinary number of PSUs determined by the Board of Directors at the begining of the financial year
2018/19 which will vest at the end of the fiscal year of the Company ending on 31 March 2021.
In 2018/19, a total of 8.948 PSU at a fair value of CHF 34,49 per share were granted relating to
the extraordinary allocation. Personnel expenses in the current period for share-based payments
amounted to CHF 102.857.

4.14 Share capital and capital reserves
Share capital
The paid-in capital of KLINGELNBERG AG as at 31 March 2019 is composed of 8.840.000 registered shares(as at 31 March 2018: 42.000) with a nominal value of CHF 5 each (as at 31 March 2018: CHF 1.000). The
share split is shown in section 4.3 of the Corporate Governance report.

94

KLINGELNBERG GROUP
Consolidated Financial Statements

Capital reserves
Due to the capital increase, KLINGELNBERG AG received an additional amount of CHF 20,537 million(EUR 17,857 million), which is shown in the capital reserve.

4.15 Restatement financial year 2017/18
As part of the initial public offering management re-assessed the financial statements in orderto change the presentation of the financial statements and accounting policies to ensure better
comparability with listed peers applying Swiss GAAP FER.
Changes in accounting policies
Instead of capitalizing and amortizing, goodwill is offset against equity. Any unrecognized intangible assets are identified and allocated to goodwill, which is common practice under SwissGAAP FER. Refer to note 4.9 for further details regarding the effect of offsetting goodwill. Valueadjustments of receivables from goods and services changed from making a general provision of
the total outstanding amount to specific value adjustments established for cases where the Groupfaces a risk of not collecting the outstanding amount. In line with market practice this is a more
adequate and informative accounting policy within the options offered by Swiss GAAP FER.
For the calculation of pension liabilities in Germany in year 2017/18 the Group used the interest
rate specified by German law. The Group decided to use an interest rate as described in international accounting standards.
The change of the above accounting policies was applied retrospectively in accordance with theframework of Swiss GAAP FER. The impact of the changes on the previous financial year was asfollows:
Adjustments to equity
EUR 000
Equity before restatements

31.03.2017
99.920Adjustments due to accounting policy changes
Gross value-20.517

Accumulated amortization

11.684

Offset goodwill-8.833

Change value adjustment method for receivables

1.358

Change measurement method pension liability-3.126

Deferred tax assets and liabilities, net

3.449

Equity after restatements

92.76895

KLINGELNBERG GROUP
Consolidated Financial Statements

5

Substantial information on the consolidated income statement items

5.1

Net sales from goods and services
2018/19

EUR 000
Service location
Segments

Germany

Switzerland

Japan

USA

Rest ofthe world

Total

Bevel Gear

23.61370.8754.818

13.6599.509

122.474

Cylindrical Gear

31.036

3.099

6.917

9.120

2.947

53.119Measuring Centers53.226

4.699

9.962

6.365

6.136

80.388

Drive Technology

13.181

0

0

0

127

13.308

Other

425

0

125

0

8.375

8.925

Total

121.48178.67321.82229.14427.094278.2142017/18

EUR 000
Service location
Segments

Germany

Switzerland

Japan

USA

Rest ofthe world

Total

Bevel Gear

14.22479.0062.953

22.8045.834

124.821

Cylindrical Gear

23.959

913

7.637

3.730

2.207

38.446

Measuring Centers48.575

5.156

6.771

6.109

6.557

73.168

Drive Technology

12.880

0

0

0

271

13.151

Other

591

0

40

0

6.810

7.441

Total

100.22985.07517.40132.64321.679257.027For explanations regarding the segment reporting refer to note 2.5.

5.2

Other operating income

Other operating income includes in particular internally produced and capitalized assets, income from lease of machines and others, and gains on the disposal of fixed assets. The increaseis basically due to the increase in internally produced and capitalized assets by EUR 3,6 million to
EUR 4,1 million compared to the previous year and is attributable to the capitalization of demonstration machines (in particular measuring centers and Speed Viper).

96

KLINGELNBERG GROUP
Consolidated Financial Statements

5.3

Personnel expense

The increase in this position is primarily a result of the increase in the number of employees and thetariff increase of KLINGELNBERG GmbH (for more details see Management Report).

5.4

Other operating expense

Other operating expense includes mostly travel expense and representation, freight costs, commission, rent and related costs, warranty provisions, repair and maintenance of tangible fixed assets aswell as other expenses. The change comes mainly as a result of the creation and release of warranty
provisions (EUR -3,1 million), while at the same time the other positions were slightly higher. Also included are IPO costs in the amount of EUR 1,1 million (in previous year: EUR 0,7 million).

5.5

Financial result
2018/192017/18

Interest expense (-)-646-2.074

Financial expense-646-2.074

Interest income (+)

133

118

0

-7

133

111

Currency translation difference and hedging expense-8.039-7.437

Currency gains

5.385

8.627

Foreign currency (loss) gain

-2.654

1.190

Financial result-3.167-773

EUR 000

Other financial income
Financial income

Interest expenses were reduced due to internal financing (note 4.10). The negative foreign currency result is due to the currency fluctuations of the USD, CHF and JPY against the EUR (note 2.6).

5.6

Income taxes
2018/192017/18

Current tax expense-5.916-6.381

Deferred tax expense-1.680-672

Tax expense recognized on the income statement-7.596-7.053

EUR 000

97KLINGELNBERG GROUP
Consolidated Financial Statements

The expected tax rate for the Group is 27,40% (as at 31 March 2018: 27,67%) and is calculated on
the basis of the local tax rates of each local company weighted in proportion to the local company’s earnings before tax in the financial year. Deferred taxes are calculated on the basis of the tax
rates applicable in each country.
2018/192017/18

Profit before income taxes

26.81221.285

Expected income tax rate

27,40%

27,67%

7.346

5.890

250

1.163

7.596

7.053

28,33%

33,14%

EUR 000

Expected income tax expense
Other effects
Effective income tax expense
Effective income tax rate

In the previous year, the other effects included an additional tax payment on the basis of the tax
audit by KLINGELNBERG AG and KLINGELNBERG GmbH of EUR 0,8 million.

5.7

Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable
to ordinary equity holders of the parent company by the average number of ordinary shares outstanding during the year.
EUR 000

2018/192017/18

Net profit

19.21614.2328.744.767

8.400.000*

Basic earnings per share (EUR)

2,20

1,69

Diluted earnings per share (EUR)

2,20

1,69

Average number of outstanding shares* Due to the share split, the earnings per share as of 31 March 2018 were adjusted for comparability.
Our calculation took this into account with 1/200 of the earnings per share as of 31 March 2019.

6

Additional Information

6.1

Off-balance-sheet transactions

According to the takeover agreement of KLINGELNBERG GmbH / Klingelnberg Söhne GmbH& Co. Kommanditgesellschaft, KLINGELNBERG GmbH has an obligation to meet the expenseof adjustments to the pensions of the retired employees of Klingelnberg Söhne GmbH & Co.
Kommanditgesellschaft. In the financial year under review, this resulted in a reimbursement of98

KLINGELNBERG GROUP
Consolidated Financial Statements

EUR 0,1 million (as at 31 March 2018: payment of EUR 0,2 million) and is recognized in personnel
expense.
Obligations due to operating leases – KLINGELNBERG Group as the lessee:
31.03.2019

31.03.2018

3.234

3.308

1 to 5 years

8.741

9.464

More than 5 years

4.830

6.405

Total obligations from operating leasing

16.80519.177

EUR 000
Up to 1 year

This relates mainly to the leasing of buildings used for operational purposes, motor vehicle andmachine leasing, and the leasing (rental) of office equipment.
Guarantees:
31.03.2019

31.03.2018

Debt guarantees

041

Total debt guarantees and guarantee obligations

0

41

2018/192017/18

Net sales from goods and services

1.914

1.314

Other operating income

1.344

175

Raw material expense-4.188-3.955-19-2.3180-1.232-949-6.016

EUR 000
Debt guarantees and guarantee obligations in favor of third parties

6.2

Transactions with related parties

EUR 000

Other operating expense
Financial result
Total

Transactions with related parties include transactions with shareholders, joint ventures and otherrelated parties.

6.3

Events after the balance sheet dateNo significant events occurred after the balance sheet date. Events after the balance sheet datewere considered until 08 July 2019. On this date, the financial statements were authorized for release by the Chairman of the Board.

99

KLINGELNBERG GROUP
Consolidated Financial Statements

Klingelnberg AG
ZürichReport of thestatutory auditor to theGeneral Meetingon the consolidated financial
statements 2018/2019

100

KLINGELNBERG GROUP
Consolidated Financial Statements

Report of the statutory auditor
to the General Meeting of Klingelnberg AG
ZürichReport on the audit of the consolidated financial statements
OpinionWe have audited the consolidated financial statements of Klingelnberg AG and its subsidiaries (theGroup), which comprise the consolidated balance sheet as at 31 March 2019 and the consolidated income
statement, consolidated cash flow statement and consolidated statement of changes in equity for the year
then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements (pages 71 to 99) give a true and fairview of the consolidated financial position of the Group as at 31 March 2019 and its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with Swiss GAAP FER
and comply with Swiss law.
Basis for opinion
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities
under those provisions and standards are further described in the “Auditor’s responsibilities for the auditof the consolidated financial statements” section of our report.
We are independent of the Group in accordance with the provisions of Swiss law and the requirements of
the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit approach
Overview

Overall Group materiality: EUR 1'340'000
We concluded full scope audit work at 3 reporting units in 3 countries. Our audit scope addressed over 82% of the Group's revenue
and 82% of the Group’s assets.
As key audit matters the following areas of focus have been identified:
Revenue recognition of goods and services in the appropriate period
Valuation of inventories

PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, CH-8050 Zürich, Switzerland
Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
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101

KLINGELNBERG GROUP
Consolidated Financial Statements

Materiality
The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide
reasonable assurance that the consolidated financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in thetable below. These, together with qualitative considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements,
both individually and in aggregate, on the consolidated financial statements as a whole.
Overall Group materiality

EUR 1'340'000

How we determined it

5% of profit before tax

Rationale for the materiality
benchmark applied

We chose profit before tax as the benchmark because, in our view, itis the benchmark against which the performance of the Group ismost commonly measured, and it is a generally accepted benchmark.

We agreed with the Audit Committee that we would report to them misstatements above EUR 67'000
identified during our audit as well as any misstatements below that amount which, in our view, warranted
reporting for qualitative reasons.
Audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion
on the consolidated financial statements as a whole, taking into account the structure of the Group, theaccounting processes and controls, and the industry in which the Group operates.
The Group financial statements are a consolidation of 16 reporting units, each of which is considered to be
a component. Following our assessment of the risk of material misstatement, we identified 1 reporting
unit in Switzerland, Germany and the United States (US) each which, in our view, require a full scope audit due to their size or risk characteristics. The concluded full scope audit work addressed 82% of theGroup’s revenue and 82% of the Group’s total assets. The remaining 18% of the Group’s revenue and 18%of the Group’s total assets are contributed by smaller reporting units which are deemed insignificant.
Where the audit work was performed by component auditors, we determined the level of involvement
needed to review the audit procedures and results relating to significant audit areas. Senior members of
the Group audit team visited the component in Germany and discussed with the component auditor therisks identified, challenged the audit approach on significant risk areas, reviewed the audit documentation
as well as met with local management. Moreover, the Group audit team had regular calls during the entire
year with the US auditor and was involved in all phases of the audit. Furthermore, the Group audit teamperformed analytical procedures to address the smaller reporting units.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight
Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

3102

KLINGELNBERG GROUP
Consolidated Financial Statements

Revenue recognition of goods and services in the appropriate period
Key audit matter

How our audit addressed the key audit matter

Klingelnberg Group recognises revenue fromgoods and services in the period in which it transfers the risk and reward of ownership.

We performed the following audit procedures toassess whether revenue from goods and services
was recognised in the appropriate period:

A significant portion of the revenue is recognised
during the second half of the Group’s financial
year. We consider revenue recognition in the appropriate period to be a key audit matter becauseof the complexity involved when assessing and adhering to the contractually agreed incoterms aswell as due to standard intra-year seasonal trends,
which, in our view, increase the risk of material
misstatement in revenue recognition in the appropriate period.

– We identified transactions occurring close to thebalance sheet date and for the months of March
2019 and April 2019 tested, on a sample basis,
whether revenue was appropriately recognised in
the period in which the risk and reward of ownership were transferred. For the same sample, we
assessed whether the contractually agreed incoterms were in agreement with the revenue recognition;

Please refer to the company’s accounting principles in note 2.20 and to note 5.1 ‘Net sales fromgoods and services’ regarding the segment split.

– Furthermore, we enquired with Management regarding controls that address the risk of recording revenue from goods and services in the wrong
period.
We consider the risk of material misstatement inrevenue recognition in the appropriate period tobe adequately addressed.

Valuation of inventories
Key audit matter

How our audit addressed the key audit matterWe consider the valuation of inventories to be a
key audit matter because of its significance in thebalance sheet (EUR 82.9 million after value adjustments of EUR 16.3 million) as at 31 March
2019 (32.5% of total assets). In addition, the valuation of inventories involves significant judgement
by Management when determining the value adjustments for slow-moving products.

We performed the following audit procedures toassess the appropriateness of the valuation of inventories:

Inventories are carried at the lower of acquisitionor manufacturing cost or net realisable value(lower of cost or market principle). Value adjustments are made for goods with a low stock turnover.
Please refer to the company’s accounting principles in note 2.10 and see note 4.4 ‘Inventories’.

– We tested, on a sample basis, the acquisition
and manufacturing costs by comparing them withthe last purchase prices incurred;– By comparing the acquisition and manufacturing cost with sales prices realised during the year,
we tested, on a sample basis, whether the lower ofcost or market principle was respected;– For slow-moving inventories, we challenged
Management’s assumptions applied when calculating the write-downs by performing look-backprocedures and assessed whether the applied assumptions were within the range set in prioryears.
On the basis of the audit procedures performed,
we consider Management’s approach for the valuation of inventories to be reasonable.

4103

KLINGELNBERG GROUP
Consolidated Financial Statements

Responsibilities of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation of the consolidated financial statements thatgive a true and fair view in accordance with Swiss GAAP FER and the provisions of Swiss law, and forsuch internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing theGroup’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Board of Directors either intends to liquidate
the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guaranteethat an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect amaterial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies.
This description forms part of our auditor’s report.

Report on other legal and regulatory requirements
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm thatan internal control system exists which has been designed for the preparation of consolidated financial
statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
PricewaterhouseCoopers AGBlaženka Kovács-Vujevićć

Dano Bollier

Audit expert
Auditor in charge

Audit expert

Zürich, 8 July 2019

5104

KLINGELNBERG GROUP
Consolidated Financial Statements

105

Statutory Financial Statementsof KLINGELNBERG AG
107 Statutory balance sheet
109 Statutory income statement
110 Notes to the financial statements
110

General information

110

Accounting principles

112

Substantial information on
the balance sheet items

115

Substantial information on
the income statement items

116

Additional information

119

106

Appropriation of retained earnings

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Statutory balance sheet
CHF

Note

31.03.2019

31.03.2018

17.351.059

205.767

17.001.572

28.846.726

1.800.246

3.536.879

AssetsCurrent assets
Cash and cash equivalents
Receivables from goods and services from third parties

3.1

Receivables from goods and services from group companies
Other short-term receivables from third parties

3.2

1.640.127

4.862.643

Other short-term receivables from group companies

3.3

51.606.028

30.480.884

Inventories

3.4

1.010.927

914.393199.669

155.78190.609.628

69.003.073

Prepayments and accrued income
Total current assets

Non-current assets
Tangible fixed assets

3.5

1.244.701

1.421.500

Long-term loans to group companies

3.6

0458.925

Investments

3.7

93.645.083

93.645.083

45.2044.496

94.934.988

95.530.004

185.544.616

164.533.077

Intangible assets
Total non-current assets
Total assets

107

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Statutory balance sheet
Note

31.03.2019

31.03.2018

Short-term financial liabilities to third parties

3.8

262

4.577.438

Short-term financial liabilities to group companies

3.3

11.006.166

6.828.250

Payables from goods and services to third parties

3.9

1.170.691

1.487.937

11.310.448

20.777.776

96.526

6.922

CHF
Liabilities
Current liabilities

Payables from goods and services to group companies
Derivative financial instruments
Other short-term liabilities to third parties

3.10

8.212.345

7.973.638

Other short-term liabilities to group companies

3.11

574.0760Accrued liabilities and deferred income

3.12

8.553.234

7.707.542

Short-term provisions

3.13

759.100

1.917.776

41.682.848

51.277.279

963.683

652.292

963.683

652.292

42.646.531

51.929.571

Total current liabilities

Non-current (long-term) liabilities
Long-term provisions

3.13

Total non-current (long-term) liabilities
Total liabilities

EquityShare capital

3.14

44.200.000

42.000.000

Statutory capital reserves

3.15

64.371.150

43.834.150- thereof reserves from capital contributions

64.371.150

43.834.150

Statutory retained earnings

34.326.935

26.769.356- thereof amount brought forward from the previous year

26.769.356

16.734.524

7.557.579

10.034.832

Total equity

142.898.085

112.603.506

Total liabilities and equity

185.544.616

164.533.077- thereof net profit

108

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Statutory income statement
CHF

Note

Net sales from goods and services
Other operating income

4.1

Change in inventory of finished and unfinishedgoods as well as unbilled goods and services
Raw material expense
Personnel expense

4.2

Depreciation on tangible fixed assets
Amortization on intangible assets
Other operating expense

4.3

Operating result
Financial result

4.4

Profit before income taxes
Income taxes
Net profit

4.5

2018/192017/18

98.877.290

108.323.966

4.235.058

890.291-370.680

474.355-73.139.310-86.552.906-8.552.397-7.712.078-262.740-264.932-4.577-1.555-11.109.486-12.061.225

9.673.158

3.095.916-427.086

8.879.757

9.246.072

11.975.673-1.688.493-1.940.841

7.557.579

10.034.832

109

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Notes to the financial statements
1

General information

KLINGELNBERG AG is a limited company under Swiss law and is incorporated and domiciled in
Zürich, Switzerland. These financial statements were prepared according to the provisions of Swissaccounting law (Title 32 of the Swiss Code of Obligations). Where not already prescribed by law,
the significant accounting policies applied are described below.
KLINGELNBERG AG reports its consolidated financial statements based on the recognized standard (Swiss GAAP FER). In accordance with the legal provisions, it has decided not to provide noteson the audit fees, a cash flow statement or a report on the business situation.

2

Accounting principles

KLINGELNBERG AG’s financial statements were prepared in accordance with the provisions oncommercial accounting of the Swiss Code of Obligations. The main accounting principles are described below.

2.1

Foreign currency translation

All assets and liabilities denominated in foreign currencies are translated according to the exchange rates as at the balance sheet date. Income and expenses denominated in foreign currencies and all foreign exchange transactions are translated at the monthly average exchange rates
as at their respective transaction dates. Resulting foreign exchange differences are recognized in
the income statement (financial result).

2.2

Cash and cash equivalents

Cash and cash equivalents include cash and bank balances. These are valued at market value.

2.3

Receivables from goods and services from third parties

Receivables from goods and services are recognized at nominal value. Individual impairment
charges are applied to these items, while a general allowance of 20% (foreign) and 10% (domestic) is applied.

2.4

Other short-term receivables/liabilities from/to group companies

These positions contain euro cash-pool balances within the group. Participants of the euro cashpool are all group companies with a significant transaction volume in Euro. Interest rates are applied at the market rate.

110

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

2.5

Inventories

Inventories are measured at the lower of acquisition or manufacturing cost and net realizablevalue. Production costs comprise all directly attributable material and manufacturing costs as wellas indirect costs incurred to bring the inventories to their present location and get them into theircurrent state. Acquisition and production costs are determined using the weighted average cost
method. Net realizable value is the estimated proceeds from disposal minus estimated costs ofproduction and selling expenses. Value adjustments are applied in cases of unsaleable inventory
and inventory with low turnover rates.

2.6

Tangible fixed assets

Tangible fixed assets are measured at acquisition cost or production cost less accumulated depreciation. Depreciation is recognized on a straight-line basis over the following estimated useful lifeof the asset:
Machines and equipment:
Other tangible fixed assets:

2.7

10 years
3 to 10 years

Investments

Investments in subsidiaries are carried at historical cost less required impairments. An impairment
is considered as soon as the net asset value of all investments falls below total carrying value. In
order to evaluate the amount to be impaired, a recognized valuation method is used. Subsidiaries
are consolidated as a group for valuation purposes due to their high economical and operational
interdependence.

2.8

Revenue recognition

Revenue comprises all proceeds from the sale of the products of KLINGELNBERG AG. Revenue iscalculated on the basis of the services rendered to clients as at the balance sheet date. Revenue isrecognized when the amount of the proceeds can be reliably determined, when it is sufficiently
probable that the economic benefits from the sale will flow to the KLINGELNBERG AG and the risk
and reward of ownership is transferred.

2.9

Accrued expenses

Provisions are made when a legal or constructive obligation has arisen from past events as at thereporting date, the discharge of funds to fulfill this obligation is probable and a reliable estimateof the amount of the obligation is possible. The amount of the provision depends on the expectedcash outflow to cover the obligation.

111

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

2.10 Share capital
The paid-in capital of KLINGELNBERG AG as at 31 March 2019 is composed of 8.840.000 registered shares(as at 31 March 2018: 42.000) with a nominal value of CHF 5 each (as at 31 March 2018: CHF 1.000).

3

Substantial information on the balance sheet items

3.1

Receivables from goods and services from third parties

CHF

31.03.2019

31.03.2018

Receivables from goods and services (gross)21.250.372

36.058.526

Value adjustments-4.248.800-7.211.800

Receivables from goods and services

17.001.572

28.846.726

16.416.772

25.903.882- Up to 90 days overdue

584.800

2.934.024- Over 90 days overdue

0

8.820

Thereof:- Not due

3.2

Other short-term receivables from third parties

The position includes refunds from VAT declarations from Germany and Switzerland in the amountof CHF 1,3 million (as at 31 March 2018: CHF 4,4 million).

3.3

Other short-term receivables/financial liabilities from/to groupcompanies

The funds from the capital increase were used for internal financing. The cash pool account of
KLINGELNBERG GmbH essentially increased from CHF 30 million to CHF 51 million.

3.4

Inventories

CHF
Work in progress
Acquired parts

Value adjustments
Inventories

112

31.03.2019

31.03.2018

1.112.897

1.483.578

5.289

428.883

1.118.186

1.912.461-107.259-998.068

1.010.927

914.393KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

3.5

Tangible fixed assets

Assets in the amount of CHF 0,1 million (as at 31 March 2018: CHF 0,1 million) were acquired,
whereas depreciation amounts to CHF 0,3 million (as at 31 March 2018: CHF 0,3 million).

3.6

Long-term loans to group companies

The loan to KLINGELNBERG India Private Ltd. was paid back on 09 October 2018.

3.7

Investments

As at 31 March 2019 and the end of previous year, KLINGELNBERG AG held the following investments:













Klingelnberg GmbH, Hückeswagen, Germany (100%)Klingelnberg Imexma SA, Barcelona, Spain (100%)Klingelnberg France SAS, Saint German-en-Laye, France (100%)Klingelnberg Italiana S.R.L., Milano, Italy (100%)Klingelnberg (Japan) Ltd., Yokohama, Japan (100%)
The Klingelnberg Corporation, Cincinnati, Ohio, USA (100%)Klingelnberg Mexico S.A. de C.V., Queretaro, Mexico (100%)Klingelnberg Hungaria Kft., Györ, Hungary (100%)Klingelnberg India Private Ltd., Pune, India (99.99%)
DKSH Klingelnberg Service Ltd., Shanghai, China (joint venture/50%)
Klingelnberg do Brasil, Sao Paulo, Brazil (99%)
Klingelnberg Hungaria Service Kft., Györ, Hungary (100%)

3.8

Short-term financial liabilities to third parties

The use of the credit line as at 31 March 2019 was not required. As at 31 March 2018, this was
CHF 4,6 million.

113

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

3.9

Payables from goods and services to third parties
31.03.2019

31.03.2018

1.160.075

1.487.937

10.61601.170.691

1.487.937

1.170.217

1.475.813- Up to 90 days overdue

474

5.717

- Over 90 days overdue

0

6.407

CHF
Payables from goods and services
Payables from other related parties
Payables from goods and services to third parties
Thereof:- Not due

3.10 Other short-term liabilities to third parties
Other short-term liabilities include advance payments from customers, salaries and wages, commissions and taxes/social-insurance withholdings.

3.11 Other short-term liabilities to group companies
As at 31 March 2019 these are only down payments received.

3.12 Accrued liabilities and deferred income
The position essentially involves an increase in income tax in the amount of CHF 1,2 million.

3.13 Short-term and long-term provisions
The process of the warranty provision calculation has been revised. The new calculation is supportedby the SAP System. Due to the reduction in sales, utilization and updated process, the warranty
provision decreased from CHF 2,4 million to CHF 1,4 million (as at 31 March 2019 long-term:
CHF 0,7 million, as at 31 March 2018: CHF 0,6 million). In addition, for the first time the position
includes a long-term bonus provision (CHF 0,2 million) based on LTIP for the management andlong-term bonus for the extended executives.

3.14 Share capital
The paid-in capital of KLINGELNBERG AG as at 31 March 2019 is composed of 8.840.000 registeredshares (as at 31 March 2018: 42.000) with a nominal value of CHF 5 each (as at 31 March 2018:
CHF 1.000). The share split is shown in section 4.3 of the Corporate Governance report.

114

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

3.15 Statutory capital reserves
As at 31 March 2019, the Company had CHF 64,4 million of reserves from capital contributions, of which CHF 43,8 million has been recognized as such by the Swiss tax authorities. The
KLINGELNBERG AG plans to request the recognition of the remaining CHF 20,5 million fromthe Swiss tax authorities.

4

Substantial information on the income statement items

4.1

Other operating income

Due to lower receivables (note 3.1), general allowances decreased by CHF 3,0 million (as at
31 March 2018: increase CHF 2,4 million). Furthermore, two instances of transport damage in theamount of CHF 0,4 million (2017/18: CHF 0) were covered.

4.2

Personnel expense

The increase in personnel expense is due mainly to the change in the composition of the Board of
Directors (Corporate Gouvernance report, section 5.6) and the increase in the number of employees.

4.3

Other operating expense

Other operating expenses include in particular rent expense, legal and consulting expense, travel
and representation expense, freight charges, commissions, patent cost and other expenses.
The position includes expense from the IPO in the amount of CHF 1,3 million (2017/18:
CHF 0,8 million).

115

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

4.4

Financial result

CHF

2018/192017/18

Interest expense (-)-121.969-1.447.694

Interest income (+)

1.491.665

1.531.035

Financial income

1.369.696

83.341

Currency translation difference and hedging expense-7.239.280-6.520.782

Currency gains

4.722.818

11.228.140

Foreign currency loss/gain-2.516.462

4.707.358

Investment income

719.680

4.089.058

Financial result-427.086

8.879.757

The interest expense was reduced by using the funds for the repayment of short-term bank loans
from the capital increase. The floating of the currency rate EUR/CHF is responsible for the foreign
currency loss. Income from investments relates to dividends from subsidiaries.

4.5

Income taxes

The tax expense includes tax on profits. Capital tax is reported under other operating expenses(note 4.3) in the same way as in the consolidated financial statements.

5Additional information

5.1

Employees

The number of full-time equivalents (FTEs) did not exceed 50 as an annual average (no changes tothe prior year).

116

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

5.2

Lease liabilities

Operating leases apply mainly to vehicles and building rents.
CHF

31.03.2019

31.03.2018

Up to 1 year

1.405.942

1.413.559

1 to 5 years

5.405.750

5.461.692

More than 5 years

5.400.000

6.750.000

Total operating lease liabilities

12.211.692

13.625.251

5.3

Pension fund obligations

As at 31 March 2019, there are no liabilities to the occupational pension fund due (as at 31 March 2018:
CHF 0). Pension benefits are shown in note 4.13 of the consolidated financial statement.

5.4

Release of hidden reserves

During the period under review, hidden reserves of CHF 4,0 million were released (prior year: CHF 0)
mainly due to the reduction of the allowance of receivables from goods and services (note 3.1).

5.5

Guarantees

The KLINGELNBERG AG, as the parent company, has taken over joint liability for different subsidiaries and their bank contracts. The contracts are concluded in EUR, JPY and CHF. The conversion
into CHF takes place at the closing rate.
31.03.2019

31.03.2018

Guarantees and pledges to group companies in favor of third parties

72.421112.452

Guaranteed maximum amount

72.421112.452

Thereof utilized

13.71433.620

CHF 000

5.6

Contingent liabilities

At the end of the year under review, there were no contingent liabilities (no changes from theprevious year).

5.7

Significant shareholders

An overview can be found in section 3.1 of the Corporate Governance report.

117

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

5.8

Compensations

Compensations to the Board of Directors and to the Executive Committee are disclosed in section 5of the Compensation Report.

5.9

Shareholdings of members of the Board of Directors and Executive
Committee

Number of shares
31.03.2019
Jan Klingelnberg, CEO*0

Christoph Küster, CFO

1.000

Martin Boelter, COO

1.000

Dr. Jörg Wolle, Member of the Board of Directors/Chairman

45.000

Diether Klingelnberg, Member of the Board of Directors*

10.000Hans-Georg Härter, Member of the Board of Directors

430* Another 4.298.349 shares are held by KLINGELNBERG Luxembourg A.G. The shares of this company are directly and indirectly held by Jan and Diether Klingelnberg (section 3.1 of the Corporate
Governance report).

5.10 Events after the balance sheet dateNo significant events occurred after the balance sheet date. Events after the balance sheet datewere considered until 08 July 2019. On this date, the financial statements were authorized for release by the Board of Directors.

118

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Appropriation of retained earnings
Proposal by the Board of Directors for the appropriation of retained earnings:
CHF

31.03.2019

31.03.2018

Amount brought forward from prior year

26.769.356

16.734.524

7.557.579

10.034.832

Statutory retained earnings

34.326.935

26.769.356

To be carried forward

34.326.935

26.769.356

Net profit

Proposal of the Board of Directors for the appropriation of legal capital contribution reserves:
CHF

31.03.2019

31.03.2018

Capital contribution reserves

64.371.150

43.834.150

Capital contribution reserves (not yet approved by tax authorities)-20.537.000

0Available capital contribution reserves

43.834.150

43.834.150

Withholding tax free distribution-8.840.000

0To be carried forward

34.994.150

43.834.150

The Board of Directors will propose to the Annual General Meeting on 27 August 2019 to pay out
a dividend of CHF 1 per registered share out of legal capital contribution reserves. In addition,
the Board of Directors will propose that the retained earnings of CHF 34,3 million will be carriedforward.
In the previous year, no dividend was paid out according to the decision of the Annual Shareholders’ Meeting of 04 June 2018.

119

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Klingelnberg AG
ZürichReport of thestatutory auditor to theGeneral Meetingon the financial statements
2018/2019

120

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Report of the statutory auditor
to the General Meeting of Klingelnberg AG
ZürichReport on the audit of the financial statements
OpinionWe have audited the financial statements of Klingelnberg AG, which comprise the balance sheet as at 31
March 2019, income statement and notes for the year then ended, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements (pages 107 to 119) as at 31 March 2019 comply
with Swiss law and the company’s articles of incorporation.
Basis for opinion
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities
under those provisions and standards are further described in the “Auditor’s responsibilities for the auditof the financial statements” section of our report.
We are independent of the entity in accordance with the provisions of Swiss law and the requirements of
the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit approach
Overview

Overall materiality: CHF 462'000
We tailored the scope of our audit in order to perform sufficient
work to enable us to provide an opinion on the financial statements
as a whole, taking into account the structure of the entity, the accounting processes and controls, and the industry in which the entity
operates.
As key audit matters the following areas of focus have been identified:
Valuation of investments in subsidiaries
Revenue recognition of goods and services in the appropriate period

PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, CH-8050 Zürich, Switzerland
Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity.

121

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Materiality
The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide
reasonable assurance that the financial statements are free from material misstatement. Misstatements
may arise due to fraud or error. They are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature,timing and extent of our audit procedures and to evaluate the effect of misstatements, both individuallyand in aggregate, on the financial statements as a whole.
Overall materiality

CHF 462'000

How we determined it

5% of profit before tax

Rationale for the materiality
benchmark applied

We chose profit before tax as the benchmark because, in our view, itis the benchmark against which the performance of the Group ismost commonly measured, and it is a generally accepted benchmark.

We agreed with the Audit Committee that we would report to them misstatements above CHF 23'000
identified during our audit as well as any misstatements below that amount which, in our view, warranted
reporting for qualitative reasons.
Audit scope
We designed our audit by determining materiality and assessing the risks of material misstatement in thefinancial statements. In particular, we considered where subjective judgements were made; for example,
in respect of significant accounting estimates that involved making assumptions and considering future
events that are inherently uncertain. As in all of our audits, we also addressed the risk of management
override of internal controls, including among other matters consideration of whether there was evidenceof bias that represented a risk of material misstatement due to fraud.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight
Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period. These matters were addressed in the context of ouraudit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide aseparate opinion on these matters.
Valuation of investments in subsidiaries
Key audit matter

How our audit addressed the key audit matter

The balance sheet item ‘Investments’ includes anumber of investments in subsidiaries andamounts to CHF 93.6 million as of 31 March 2019.
We consider the valuation of investments in subsidiaries to be a key audit matter due to the significance of the balance (50.5% of total assets). An
impairment of investments in subsidiaries could
have a significant impact on the equity of the company.

With regard to the valuation of investments in
subsidiaries, our audit consisted principally of thefollowing procedures:– We assessed the appropriateness of Management’s applied valuation approach (comparison ofcarrying values against the respective net asset
value);

3

122

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Investments in subsidiaries are carried at historical cost less required impairments. Management
considers an impairment as soon as the total net
asset value falls below total carrying value. In order to evaluate the amount to be impaired, a recognised valuation method is used.
Due to the high economic and operational interdependence of subsidiaries, Management deemedthe consolidation of the investments in subsidiaries as a group for valuation purposes to be appropriate.
Please refer to the accounting principles for ‘Investments’ in note 2.7 as well as the details of investments held in note 3.7.

– We challenged Management’s considerations for
applying portfolio valuation;– We tested the mathematical accuracy of the impairment assessment prepared by Management;– We compared the current year’s business resultswith Management’s prior period forecasts in order
to assess in retrospect the accuracy of Management’s forecasting process.
On the basis of the work performed, we gained
sufficient evidence to address the risk of material
misstatement of the valuation of investments in
subsidiaries. We consider the valuation of investments in subsidiaries to be appropriately assessedby Management.

Revenue recognition of goods and services in the appropriate period
Key audit matter

How our audit addressed the key audit matter

Klingelnberg AG recognises revenue from goods
and services in the period in which it transfers therisk and reward of ownership.

We performed the following audit procedures toassess whether revenue from goods and services
was recognised in the appropriate period:

A significant portion of the revenue is recognised
during the second half of the Company’s financial
year. We consider revenue recognition in the appropriate period to be a key audit matter becauseof the complexity involved when assessing and adhering to the contractually agreed incoterms aswell as due to standard intra-year seasonal trends,
which, in our view, increase the risk of material
misstatement in revenue recognition in the appropriate period.

– We identified transactions occurring close to thebalance sheet date and for the months of March
2019 and April 2019 tested, on a sample basis,
whether revenue was appropriately recognised in
the period in which the risk and reward of ownership were transferred. For the same sample, we
assessed whether the contractually agreed incoterms were in agreement with the revenue recognition;

Please refer to the company’s accounting principles in note 2.8.

– Furthermore, we enquired with Management regarding controls that address the risk of recording
revenue from goods and services in the wrong period.
We consider the risk of material misstatement inrevenue recognition in the appropriate period tobe adequately addressed.

Responsibilities of the Board of Directors for the financial statements
The Board of Directors is responsible for the preparation of the financial statements in accordance withthe provisions of Swiss law and the company’s articles of incorporation, and for such internal control as
the Board of Directors determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity
or to cease operations, or has no realistic alternative but to do so.

4123KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located at the website of EXPERTsuisse: http://expertsuisse.ch/en/audit-report-for-public-companies. This description
forms part of our auditor’s report.

Report on other legal and regulatory requirements
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm thatan internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We further confirm that the proposed appropriation of reserves complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AGBlaženka Kovács-Vujevićć

Dano Bollier

Audit expert
Auditor in charge

Audit expert

Zürich, 8 July 2019

5124

KLINGELNBERG GROUP
Statutory Financial Statements of KLINGELNBERG AG

125

Alternative Performance
Measures126

KLINGELNBERG GROUP
Alternative Performance Measures

Alternative Performance Measures
In addition to the key figures defined or specified in the SWISS GAAP FER financial reporting
framework, Klingelnberg also provides key financial ratios derived from or based on the preparedfinancial statements. These are known as Alternative Performance Measures (APM).
Klingelnberg considers these key financial ratios to be important supplemental information forinvestors and other readers of the financial reports. The key financial ratios should therefore beseen as an addition to and not a replacement of the information prepared in accordance with
SWISS GAAP FER.
With regard to the requirements of the SIX Swiss Exchange guidelines on Alternative Performance
Measures (APM), Klingelnberg provides an overview of the Alternative Performance Measuresused, their definition and their compilation:

EBITDA:
Earnings before interest, income tax, depreciation and amortization (EBITDA) as a subtotal includes the operating result plus depreciation on tangible fixed assets and amortization on intangible assets.
2018/192017/18(1) Operating result

29.97922.058(2) Depreciation on tangible fixed assets-5.902-6.106-472-450

36.35328.614

EUR 000(3) Amortization on intangible assets
EBITDA (1) - (2) - (3)EBIT:
The operating result (Swiss GAAP FER) excluding non-operating and extraordinary results.
EUR 000
Operating result

2018/192017/18

29.97922.058127

KLINGELNBERG GROUP
Alternative Performance Measures

Operating Result (adjusted, without IPO costs):
The operating result (EBIT) is increased by all IPO costs incurred, such as bank charges, consulting,travel expenses, etc.
2018/192017/18(1) Operating result

29.97922.058(2) IPO costs-1.126-747

Operating result (adjusted, without IPO costs) (1) - (2)31.10522.805

EUR 000

Total Operating Performance:
Total operating performance is the sum of net sales from goods and services and change in inventory of finished and unfinished goods as well as unbilled goods and services.
EUR 000

2018/192017/18(1) Net sales from goods and services

278.214257.027

-419

5.480

277.795

262.507(2) Change in inventory of finished and unfinishedgoods as well as unbilled goods and services
Total operating performance (1) + (2)Gross Profit:
Gross profit is the sum of total operating performance and raw material expense.
EUR 000

2018/192017/18(1) Total operating performance

277.795

262.507(2) Raw material expense-108.330-100.873

Gross profit (1) + (2)169.465

161.634

Materials Ratio:
The materials ratio is derived from the division of raw material expense by total operating
performance.

128

EUR 000

2018/192017/18(1) Total operating performance

277.795

262.507(2) Raw material expense-108.330-100.873

Materials ratio (-2) / (1)

39,0%

38,4%

KLINGELNBERG GROUP
Alternative Performance Measures

Personnel Expense Ratio:
The personnel expense ratio is derived from the division of personnel expense by total operating
performance.
EUR 000

2018/192017/18(1) Total operating performance

277.795

262.507(2) Personnel expense-101.248-94.808

36,4%

36,1%

EUR 000

2018/192017/18(1) Other operating expense-39.875-41.451-1.126-747-38.749-40.704

Personnel expense ratio (-2) / (1)Adjusted Other Operating Expense:
Other operating expense adjusted by all IPO costs.

(2) IPO costs
Adjusted other operating expense (1) - (2)Adjusted Other Operating Expense Ratio:
The adjusted other operating expense ratio is derived from the division of other operating expense without all IPO costs by total operating performance.
EUR 000

2018/192017/18(1) Total operating performance

277.795

262.507(2) Adjusted other operating expense-38.749-40.704

Adjusted other operating expense ratio (-2) / (1)

13,9%

15,5%

Ratio of Research and Development Expenses:
Research and development expenses divided by net sales from goods and services.
EUR 000

2018/192017/18(1) Net sales from goods and services

278.214257.027(2) Research and development expenses-24.433-21.924

8,8%

8,5%

Ratio of research and development expenses (-2) / (1)129KLINGELNBERG GROUP
Alternative Performance Measures

Net Debt:
The sum of financial liabilities (long- and short-term) less cash and cash equivalents.
31.03.2019

31.03.2018(1) Short-term financial liabilities

1.735

22.035(2) Long-term financial liabilities

4.722

6.295

(3) Cash and cash equivalents

28.695

8.632

Net debt (1) + (2) - (3)-22.238

19.698

EUR 000

Free Cash Flow:
Cash flow from operating activities plus cash flow from investing activities.
31.03.2019

31.03.2018(1) Cash flow from operating activities

27.5876.409(2) Cash flow from investing activities-5.587-5.561

Free cash flow (1) + (2)22.000848

EUR 000

130KLINGELNBERG GROUP
Alternative Performance Measures

131Financial Calendar

132

KLINGELNBERG GROUP
Financial Calendar

Dates in the coming financial year

09.07.2019

Publication of figures for the fiscal year ending
31 March 201927.08.2019

Annual General Meeting

12.11.2019

Publication of results for the half-year ending
30 September 2019

133

KLINGELNBERG AG
Binzmühlestrasse 1718050 Zürich, SwitzerlandFon:+41 44 278 7940
Mail: investorrelations@klingelnberg.com
Web: www.klingelnberg.com

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