Annual Report 2011/12

Schaffner GroupAnnual Report

2011/12

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Structure of the reportThis integrated report comprises the business review and fi-nancial reporting of the Schaffner Group as well as the cor-porate governance report, which includes the compensation report.

The information on the financial position, results of opera-tions and cash flows of the Schaffner Group is based on the requirements of the International Financial Reporting Stand-ards (IFRS) and, where applicable, of Swiss law.

In this publication the Schaffner Group reports to its stake-holder groups on its economic performance and corporate social responsibility. The scope and content of the sustainabil-ity reporting is based on the current report of the Schaffner Group in its capacity as an active member of the UN Global Compact.

External audit and opinionParts of the reporting of the Schaffner Group are audited by third parties. Auditors Ernst & Young AG have audited the consolidated and parent company financial statements and is-sued an unqualified audit opinion.

About the cover photoIn the world’s largest oceanarium at the new Resorts World Sentosa in southern Singapore, more than 30 ECOsineTM Active power quality filters ensure the efficient and reliable functioning of the electrical grid. On an area of 8 hectares – about the size of 13 football fields – the oceanarium has space for more than 100,000 marine animals representing over 800 species. It is expected to attract up to 16 million visitors a year.

This English version of the Schaffner Group Annual Report 2011/12 is a translation from the German and is provided solely for readers‘ convenience. Only the German version is binding.

Contents

4 Fiscal year 2011/12 6 The Schaffner universe – Markets of the Schaffner Group 8 EMC division 12 Power Magnetics division 18 Automotive division20 Global footprint22 Leadership and values27 Corporate governance50 Financial report 95 Addresses of the Schaffner Group

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The Schaffner Group is a global leader in the development and production of solutions that ensure the efficient and reliable op-eration of power electronic systems. The company’s portfolio ranges from EMC filters, power quality filters and power mag-netic components to the development and implementation of customized solutions.

Schaffner components are deployed in energy-efficient drive sys-tems and electronic motor controls, in wind power and photo-voltaic systems, in rail technology applications, machine tools and robotics as well as in electrical infrastructure and in power supplies for a wide range of electronic devices used in sectors such as medical technology. For the automobile industry, Schaffner develops and manufactures components for convenience and safety features in cars and, in the promising electromobility mar-ket, solutions both for electric drive systems in vehicles and for their charging infrastructure.

Schaffner provides on-site service to customers around the world through its global application centers and distribution organi-zation, and invests heavily in research and development in order to expand its position as international market leader.

The EMC division develops and manufactures standard and customized components that ensure immunity of power elec-tronic systems to line interference (electromagnetic compatibil-ity), as well as power quality filters that assure the stability of electricity grids. Key sales markets range from energy-efficient drive systems, renewable energy and power supplies for elec-tronic devices, to machine tools, robotics and electrical infra-structure.

The Power Magnetics division develops and manufactures power magnetic components (chokes and transformers) that en-sure the reliable functioning of power electronic systems, as well as customized high-power transformers for demanding ap-plications. Power magnetic components are an integral part of high- and ultra-high-performance systems for power conversion. The main markets include energy-efficient drive systems, renew-able energy and rail technology.

The Automotive division develops and manufactures compo-nents for convenience and safety features in cars and for the drive trains of vehicles with hybrid or electric drive.

Schaffner profile

Energy efficiencyand reliability

Machine tools and robotics

Renewable energy

Power supplies for electronic devices

Energy-efficient drive systems

Rail technology

Automotive electronics

Electrical infrastructure

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Key share data

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2007 / 08 2008 / 09 2009 / 10 2010 / 11 2011 / 12

Number of shares (par value of CHF 32.50) 635,940 635,940 635,940 635,940 635,940Weighted average number of shares outstanding (entitled to dividend) 606,317 606,124 635,131 633,266 632,990Earnings per share (EPS) in CHF 15.43 – 18.04 18.87 16.03 6.17Shareholders’ equity per share in CHF 91.44 74.39 88.04 89.52 94.87Share capital reduction through partial repayment of nominal value and of excess share premium, per share in CHF 3.50 0.00 4.50 4.50 2.001

Free float in % 94.0 99.9 99.3 99.3 99.1

Share price2

High for year in CHF 271 233 220 350 271Low for year in CHF 214 118 148 216 204At end of year in CHF 230 170 219 235 235

Market capitalization2

12-month high in CHF million 172 148 140 223 17212-month low in CHF million 136 75 94 137 130At end of year in CHF million 146 108 139 149 149

1 Subject to approval by the Annual General Meeting on 14 January 2013 2 Period: Fiscal year from 1 October to 30 September (Source: Bloomberg)

1 Source: Thomson Reuters Datastream

Trading of the Company’s securitiesThe registered shares of Schaffner Holding AG are traded on the SIX Swiss Exchange under Securities No. 906209.

Ticker symbolRegistered shares: SAHN

Schaffner registered shares

Swiss Performance Index (adjusted)

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15007 08 09 10 11 12 Oct. Nov. Dec. Jan. Feb. Mar. April May June July Aug. Sept. Oct.

Share price performance 1 October 2007 to 30 September 20121 Share price performance 1 October 2011 to 30 September 20121

In CHF In CHF

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In CHF million

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Key financials of the Schaffner Group

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Net sales in 2011/12 by region Net sales in 2011/12 by market

18% North America 47% Europe 35% Asia 23% Energy-efficient drive systems

15% Renewable energy

9% Rail technology14% Automotive electronics

16% Power supplies for electronic devices

13% Machine tools and robotics

8% Electrical infrastructure

2% Other markets

In CHF '000 2007 / 08 2008 / 09 2009 / 10 2010 / 111 2011 / 12

Net sales 182,445 133,363 188,939 182,603 176,942Net sales, EMC division n/a n/a n/a 128,932 105,784

Segment profit, EMC division n/a n/a n/a 20,174 12,552

Net sales, Power Magnetics division n/a n/a n/a 36,046 46,495

Segment (loss), Power Magnetics division n/a n/a n/a – 331 – 284

Net sales, Automotive division n/a n/a n/a 17,625 24,663

Segment (loss)/profit, Automotive division n/a n/a n/a – 395 563

Operating profit/(loss) [EBIT] 13,892 – 9,193 15,000 12,810 7,243In % of net sales 7.6 – 6.9 7.9 7.0 4.1

Net profit/(loss) for the period 9,355 – 10,935 11,983 10,150 3,909In % of net sales 5.1 – 8.2 6.3 5.6 2.2

Total assets 148,078 126,883 126,643 136,822 140,843Shareholders’ equity 58,149 47,305 55,985 56,929 60,333In % of total assets 39.3 37.3 44.2 41.6 42.8

Number of employees 2,318 1,808 2,393 2,702 2,569

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Fiscal year 2011/12

Sales and earnings recover in second half After a difficult first quarter, the Schaffner Group passed the bottom of the cycle in the first half of 2011/12, with orders growing since the beginning of 2012. All strategic growth mar-kets stabilized: In the rail market, a gradual recovery emerged in China; the renewable energy sector benefited from orders placed by China’s and Japan’s photovoltaic industry; the market for en-ergy-efficient drive systems trended better again thanks in part to the strong demand for power quality filters in the Asia-Pacific region; and sales of components for automotive electronics saw a significant growth contribution from convenience and safety systems for production starts of new vehicle series. As well, the integration of Schaffner MTC LLC, acquired in the prior year, was successfully completed.

The Schaffner Group generated net sales of CHF 176.9 million in fiscal year 2011/12 (2010/11 restated: CHF 182.6 million). The sales reduction of 3.1% (or 4.7% in local currencies) was in line with expectations and resulted from the economic uncer-tainty in the euro countries, a cyclical low in traditional markets such as machines tools and robotics, and a sales slump in the re-newable energy and rail markets in the first quarter of 2011/12. Schaffner MTC, which the Group acquired at the beginning of September 2011, contributed CHF 16.8 million to sales in the reporting period (prior year for one month: CHF 1.2 mil-lion). Through savings in material and production costs, Schaffner largely offset the increase in staff costs in Thailand and China and further reduced its fixed costs. The shift in the geo-graphic sales mix toward the more intensely competitive Asia-Pa-cific region drove up price pressure; this and the volume-induced underutilization of plants led to an operating (EBIT) margin of 4.1% (prior year: 7.0%), at the lower end of the expected range of 4% to 6%. Operating profit (EBIT) eased to CHF 7.2 million (from CHF 12.8 million) and net profit for the year declined to CHF 3.9 million (prior year: CHF 10.2 million).

Significant improvement over the course of the yearThe first half of 2011/12 was characterized by a very poor busi-ness trend in China’s railway market and problems in the Euro-

pean renewable energy market. Schaffner responded by launch-ing a sweeping cost reduction drive. In the second half of the year, sales and earnings improved in all three divisions, helped not just by the rail market upturn but also by growth in the Chi-nese and Japanese photovoltaic industry, the market success of active harmonic filters and new project starts in the Automotive division. From the first to the second half of the year, net sales thus expanded sequentially by 18.4% and the EBIT operating margin rose from 1.7% to 6.1%.

Adjustments to regional market strategyGiven the growing general overcapacity in the Chinese domes-tic market and the associated narrowing of margins, Schaffner significantly stepped up export activities from Shanghai into the Asia-Pacific region. These efforts were particularly effective in Ja-pan, Australia and India. In the Chinese market itself, going for-ward, Schaffner will focus on products featuring sophisticated technology, which will be supplied both to the leading domestic customers and the local subsidiaries of international groups.

The North American market continues to be viewed positively, and since the integration of Schaffner MTC a good starting position has been created to capture some of the investment in infrastructure renewal in the United States.

Divisional organization in placeAt the beginning of fiscal 2011/12 the Schaffner Group changed over to a divisional organizational structure, with the three divi-sions EMC, Power Magnetics and Automotive. The power qual-ity filters product group, previously integrated in the former Power Quality segment, is now part of the EMC division. The re-mainder of the old Power Quality segment forms the new Power Magnetics division. The Automotive division represents the for-mer Automotive segment. In this annual report the prior-year re-sults are presented on the basis of the new divisional structure. The EMC division closed the year below expectations with a de-crease in sales to CHF 105.8 million (prior year: CHF 128.9 mil-lion) and a segment profit of CHF 12.6 million (prior year: profit of CHF 20.2 million). The Power Magnetics division, with sales

Solid business performance in difficult market environment

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From left to right: Daniel Hirschi, Alexander Hagemann.

Fiscal year 2011/12

He holds a degree in electrical engineering from Klagenfurt Technical College.

Distribution proposalThe Board of Directors of Schaffner Holding AG will propose to the Annual General Meeting on 14 January 2013 a distribu-tion of CHF 2.00 (prior year: CHF 4.50) per share in the form of a tax-free repayment of capital to shareholders, in line with the target payout ratio of 25% of net profit.

OutlookAll three divisions delivered positive results in the second half of the year under review and have had a strong start to the new, 2012/13 fiscal year. The macroeconomic outlook has deterio-rated visibly, however, leading to a decline in the book-to-bill ratio (new orders to sales) from 1.10 in the first six months to 0.95 in the latter half of 2011/12. Despite the difficult environ-ment, the Schaffner Group is cautiously optimistic about the fu-ture, as further sales growth is expected in the automotive busi-ness and as the cost reduction measures in the EMC division and structural adjustments in the Power Magnetics division have been bearing fruit. Provided the global economic situation does not worsen further, and assuming stable key currencies, Schaffner expects an increase in sales and in EBIT margin, especially in the first half of the new fiscal year relative to the 2011/12 compara-tive period. In the growth regions of Asia-Pacific and North Amer-ica, and with new products and market share wins, Schaffner is well positioned both to grow structurally and to benefit dispro-portionately from a cyclical recovery in the markets.

Thank youSchaffner had another eventful year in 2011/12. The positive over-all trajectory of our results was only possible through the confi-dence of our customers, the loyalty of our shareholders and the true dedication of our staff. We sincerely thank every one of them.

Daniel Hirschi Alexander HagemannChairman of the Board of Directors Chief Executive Officer

of CHF 46.5 million (prior year: CHF 36.0 million) and a seg-ment loss of CHF 0.3 million (prior year: loss of 0.3 million), slightly missed expectations, while Automotive exceeded its tar-gets with sales of CHF 24.7 million (prior year: CHF 17.6 mil-lion) and a segment profit of CHF 0.6 million (prior year: loss of CHF 0.4 million).

Sound financing structureThe Schaffner Group possesses a sound financing structure. As a result of the higher business volume at the end of the fiscal year, net working capital rose to CHF 37.8 million (from CHF 33.0 million at the prior year-end). Free cash flow consequently fell to CHF 1.5 million (prior year: CHF 9.7 million). Net debt therefore increased to CHF 25.9 million (prior year: CHF 20.3 million) and the gearing ratio of net debt to equity rose somewhat to 43% (prior year: 36%). With shareholders’ equity of CHF 60.3 million (prior year: CHF 56.9 million), Schaffner’s equity ratio at the end of September 2012 was 42.8% (prior year: 41.6%).

Board changesMarkus Zenhäusern, a Board member of Schaffner Holding AG since 2008 and chairman of the Audit Committee, passed away on 1 July 2012 after a serious illness. The Board of Directors and Executive Committee are saddened by the loss of a well-liked and respected colleague and take this opportunity to again con-vey their profound sympathy to Mr. Zenhäuser’s family. The chairmanship of the Audit Committee was assumed by its ex-isting member Georg Wechsler. Hans Hess, a member of the Board of Directors since 2006, will retire for professional rea-sons upon the completion of his term at the 17th Annual Gen-eral Meeting of Schaffner Holding AG. The Board and Execu-tive Committee accept his decision with regret and thank Hans Hess sincerely for his valuable contributions to the Schaffner Group on the Board, the Audit Committee, as chairman of the Nomination and Compensation Committee and as the Group’s interim managing director from September 2006 to March 2007. The Board will recommend to the Annual General Meet-ing on 14 January 2013 to elect as his successor Gerhard Pegam, 50, an industrial manager with extensive experience in the com-ponents business. Pegam, an Austrian citizen, is a Board mem-ber of OC Oerlikon Corporation AG, among other roles. For eleven years he headed EPCOS AG, until the beginning of 2012.

The Schaffner Universe – Markets of the Schaffner Group

Antennas and sensors For convenience and safety applications in automobiles

Compact EMC filter solution For reliable electromobility

Innovative and versatile plug filter module FN 9280 For ensuring electromagneticcompatibility, e.g., in medicaltechnology

Sinusoidal filter FN 5040 For protecting electric motors and extending their service life

EMC filter FN 3280 Four-wire interfer-ence suppressionFor the most exacting requirements in advanced machine tool production

14% Automotive electronics

The Schaffner Group delivers innovative products to meet the growing demand for reliable, energy-efficient solutions for power electronics worldwide.

16% Power supplies for electronic devices

13%Machine tools and robotics

8 % Electrical infrastructure

Medium voltage transformerFor electrical infrastructure in demandingcommercial and industrial installations

Other markets: 2 %

AM

High-quality magnetic components DSC 9364 For use in drives and auxiliary systems in trains

DC filter FN 2200 For protection of solar modules

Combination of transformer and inductor DSC 9943 For compliant grid connection of photovoltaic systems

ECOsine harmonic filterFor improving power qualityand efficiency in electrical grids

EMC filter FN 3268 For ensuring electromagnetic compatibility

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9% Rail technologyEMC

PM

14%

26%

60%

23 % Energy-efficient drive systems

15% Renewable energy

division

division

division

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EMCdivision

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EMC division

The EMC division develops and manufactures standard and custom components that protect power electronic equipment from line interference (electromagnetic compatibility) as well as power quality filters to ensure the stability of power grids. The key sales markets include energy-efficient drive systems, renewable energy, power supplies for electronic devices, machine tools, robotics and telecommunications.

Power electronic systems must meet high standards of protec-tion against electromagnetic interference if they are to function reliably. The Schaffner Group is the world’s leading supplier of solutions and products for electromagnetic compatibility and serves customers worldwide with a network of application cen-ters, logistics centers and production plants. The EMC division has the expertise and the most complete product range for iden-tifying and isolating potential sources of EMC interference at an early stage, both in the development of new products and during subsequent system optimization. It offers customers a broad range of standard components, an efficient measurement service, expert technical consulting and the capacity to rapidly develop, build and deliver customized solutions directly or through a network of distribution partners in all markets world-wide. Compliance with European and international guidelines and standards governing power electronic systems is certified by Schaffner.

Sales and earnings impacted by market downturn in Europe In fiscal year 2011/12 the EMC division generated sales of CHF 105.8 million (prior year: CHF 128.9 million), contrib-uting 59.8% (prior year: 70.6%) to Group sales. In local cur-rencies this amounted to a reduction of 18.3% from the prior year. The decline in sales was primarily attributable to the dras-tic fall in demand from European manufacturers of capital goods and solar inverters compared with the previous year. Growth in the solar technology market in China, the USA and Japan and gains in market share, most notably in North Amer-ica, only partially cushioned this drop in sales.

EMC division

Machine tools and robotics

Renewable energy

Power supplies for electronic devices


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been further expanded, enabling the Group to offer innovative solutions that improve power quality and grid stability in an ever-increasing number of applications.

Process optimization throughout the value chainThe rollout of the SAP ERP system was completed on time andon budget. Having defined optimized business processes at the start of the project, the IT platform now in place will enable Schaffner to further enhance operational procedures and pro-cesses. A major focus of the project was on planning and logis-tics, where significant improvements have been achieved. Key milestones in the continual enhancement of operational excel-lence were the opening of the new logistics center in the French town of Wittelsheim in early 2012 and the introduction of end-to-end barcode systems.

While sales increased sequentially by 10.6% from the first to the second half, this was insufficient to rectify the underutili-zation of plant capacity. As a result, the EMC division closed the financial year with a lower-than-expected segment profit of CHF 12.6 million (prior year: CHF 20.2 million). However, thanks to cost savings and capacity adjustments, EMC was able despite this difficult environment to achieve a segment profit margin of 11.9%. The division also benefited from the fact thatthe Automotive division was able to make use of freed-up ca-pacity in the Thailand manufacturing plant. Since adopting lean production processes, Schaffner is able to make such shifts in production quickly and inexpensively.

EMC division aims to improve structural earnings potentialWhile the current earnings situation is heavily affected by a cy-clical weakness in demand, the Schaffner Group also foresees structural changes in the market. The production of capital goods, infrastructure facilities and installations for generating renewa-ble energy will see an even greater shift to the target markets for these products, most notably to China and other emerging econ-omies as well as North America. Costs will continue to rise una-bated, above all in Asia, and intense competition will limit the degree to which they can be passed through to customers in higher prices. Schaffner therefore decided to take measures for the structural improvement of the EMC division’s earnings. The main thrusts of this initiative are the lowering of material costs, further automation of manufacturing processes, and introduc-tion of new, cost-optimized product designs (design-to-cost). Schaffner management is confident that the implementation of these measures will enable the EMC division to achieve a target operating margin of 16% to 20% even under the current market conditions.

Product innovation to support sustained growthSchaffner is investing heavily in new product development in order to expand its market leadership in EMC filters and meet the growing demand for power quality filter solutions for an in-creasing number of applications.

Besides numerous customized solutions, the year under review also saw the completed development and market launch of sev-eral new standard products. The new IEC inlet filters are meet-ing with a very positive response and Schaffner thus expects to substantially grow its market share in this segment. The ECO-sineTM and ECOsine ActiveTM range of harmonic filters have

ECOsine harmonic filterFor improving power qualityand efficiency in electrical grids

Innovative and versatile plug filter module FN 9280 For ensuring electromagneticcompatibility, e.g., in medicaltechnology

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PM division

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Power Magnetics division

The division’s power magnetic components are integral to high and ultra-high performance systems used in power conversion. Schaffner solutions deployed in solar inverters and in wind tur-bine converters are highly efficient and assure the best possible adaptation to electricity grids. Schaffner components are used to implement compact, high-performance, energy-efficient lo-comotive drive systems and eliminate interference from pow-erful motors. They also safeguard a secure power supply in ap-plications requiring maximum reliability, such as mining.

Healthy sales growth in second half after disappointing startIn fiscal year 2011/12 the Power Magnetics division increased its sales by 29.2% (31.1% in local currencies) to CHF 46.5 mil-lion (prior year: CHF 36.0 million) and accounted for 26.3% (prior year: 19.7%) of Group sales. The sales figure includes the first-time consolidation of Schaffner MTC, which contributed CHF 16.8 million (prior year for one month: CHF 1.2 million). Adjusted for acquisition effects, sales contracted by 14.7%. Es-pecially in China, sales were down sharply year-on-year due to the suspension of rail projects amid the reorganization of the Ministry of Railways and a drop in demand for photovoltaic products. The resulting underutilization of capacity in the Shanghai plant in the first six months led to a significant loss at that facility. The production sites in Europe and the USA, on the other hand, achieved their earnings targets. The Power Magnetics division posted sequential growth of 32.5% in the second half, closing the latter half with a positive result. As it was not able to fully recoup the first-half operating losses, it reg-istered a small segment loss for the full year of CHF 0.3 million (prior year: loss of CHF 0.3 million).

Power Magnetics division

The Power Magnetics division develops and manufactures chokes that ensure the proper functioning of power electronic devices and systems, as well as customized high-performance transformers for demanding applications. The main sales markets include energy-efficient drive systems, renewable energy and rail technology.

Renewable energy


Rail technology

Electrical infrastructure

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Shift in growth marketsThe photovoltaic segment saw a further shift from the European market to China, Japan and North America, and hence to local manufacturers of solar inverters. Schaffner is responding to the overcapacity-induced price erosion for all photovoltaic system components by stepping up investment in the development of new, more cost-efficient systems. The wind turbine market also suffered from excess capacity and steeply falling prices, but the trend has stabilized in the last few months. Schaffner is support-ing new developments by the leading vendors in this market seg-ment and sees potential to achieve lasting wins in market share. The trend in the Japanese market for power magnetic compo-nents used in photovoltaic converters has been compellingly positive. Having successfully entered the market in fiscal 2011/12, Schaffner expects to see significant growth. The rail technology market in China has stabilized, and in Russia large contracts continue to be awarded to foreign manufacturers of trains and locomotives. Schaffner is superbly positioned in the rail technology market.

Meeting sales and earnings targets by leveraging operational excellence and synergiesAll production plants succeeded in cutting material costs while improving process quality during the year under review. More production volume was transferred from the German plant in Büren to Kecskemét, Hungary. Productivity was raised and fixed costs reduced. Schaffner MTC launched a number of pro-jects with international customers in the fields of motor con-trols, rail technology and renewable energy in order to be able to supply the North American market with locally manufac-tured power magnetic components and hence grow Schaffner’s market share. The initiative is already bearing fruit and initial small-scale orders have been received. Long qualification cycles

are customary in this business, however, so that a noticeable contribution to sales is not expected until the second half of the new fiscal year.

High innovation rate in Power Magnetics division is strengthening market positionThe need for power magnetic components that reconcile the de-mands for greater compactness, efficiency and reliability with the desire to also save costs, calls for a high level of investment in basic development. Headway was achieved in this area with the introduction of water-cooled components and new mechan-ical design concepts. Standardization across sites allows further cost savings to be achieved. This in combination with the meas-ures to hone operational excellence leaves the division well-placed to meet its targeted segment profit margin of between 8% and 10% in the medium term.

High-quality magnetic components For use in drives and auxil-iary systems in trains

Combination of transformer and inductor For compliant grid connection of photovoltaic systems

Medium voltage transformerFor electrical infrastructure in demanding commercial and industrial installations

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AM division

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Automotive division

The campaign to step up Automotive product development ac-tivities and globalize sales is proving very successful, and the Schaffner Group expects that strong demand from the global automobile industry will enable the Automotive division to meet its CHF 40 million sales target for fiscal year 2014/15 one year earlier than planned, in 2013/14. The first deliveries of com-ponents for keyless entry systems for a leading global automo-bile manufacturer are underway, and assuming full order draw-down by the customer over the project’s multi-year term, the division expects to achieve cumulative sales in the mid double-digit millions with this account alone. Schaffner is also making preparations for the series production of components for an-other auto manufacturer’s hybrid drive vehicles.

Automotive division

Expectations exceededReaping the benefits of its business strategy, the Automotive di-vision increased sales in fiscal year 2011/12 by 39.9% to CHF 24.7 million (prior year: CHF 17.6 million), or by 40.3% in lo-cal currencies. The Automotive division enlarged its share of Group sales to 13.9% (from 9.7%). Despite continuing high costs for the development and series production of new prod-ucts, the division reported a sooner-than-expected positive re-sult, with a segment profit of CHF 0.6 million (prior year: loss of CHF 0.4 million). The results of the second half of the year were especially impressive, with sales up 30.4% from the first six months and an operating margin of 6.5%, taking the division a big step closer to its target margin of 8% to 10%.

Global leader in components for convenience and safety electronicsSchaffner components for convenience and safety electronics in cars are chiefly found in keyless entry systems. Schaffner builds the antennas that enable communication between the driver and the vehicle at a distance. Every year, Schaffner products are in-stalled in millions of vehicles worldwide. Supplying a large cus-tomer base, Schaffner is one of the leading global vendors in this rapidly growing market segment, which is benefiting from a sub-stantial rise in the proportion of vehicles featuring keyless entry.

Provider of choice for EMC and power quality solutions in the high-potential market of electromobilityIn the highly promising market of electromobility as well, EMC and power quality play a vital role. With innovative solutions and concepts, Schaffner has successfully positioned itself as a partner to the international automobile industry. Schaffner en-gineers and technologies support leading automobile manufac-turers from the very development stage of new models, with specialized expertise in EMC and power quality and with prod-ucts for use in electric drive systems of all types of electric and hybrid vehicles (full hybrid, plug-in hybrid, electric vehicles

Automotive electronics

The Automotive division develops and manufactures components for convenience and safety features in cars and for the drive trains of hybrid and electric vehicles.

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with range extender, and pure electric vehicles). What is signif-icant for Schaffner is that, regardless of the drive concept, many of the power electronics components are identical and can be used in several vehicle models. The result is a growing demand for EMC and power quality components both on the supplier side and directly from global automobile manufacturers. Schaffner continues to expect only modest growth in sales of pure electric cars, but believes there is a very high potential in plug-in hybrids and range-extended electric vehicles.

Organization realigned to accommodate the strong growthThe market’s rapid growth, the need for closer direct collabora-tion with the auto manufacturers themselves, and rising prod-uct complexity necessitated a review and alignment of internal processes and structures in the Automotive division. To enable the division to respond rapidly to market trends and best man-

EMC filter applications for:Converter in hybrid applicationsConverter in electric vehiclesMotor management and turbo charger

Low frequency antennafor initiating tire pressuremeasuring cycle

Tire pressure sensorhousing with integratedRF antenna

Immobilizer antennaon key lock housing

Door handle antenna with touch sensor

Trunk antenna

age the international surge in growth, the Board of Directors of Schaffner Holding AG appointed Chief Executive Officer Alexander Hagemann as interim head of the Automotive divi-sion at the beginning of November 2012. The outgoing head of the division, Jean-Michel Calleri, left the Executive Commit-tee as part of the reorganization. The Board thanks him for his great dedication and commitment in successfully building up the Automotive division.

Global footprint

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The Schaffner Group is a global company with a localpresence in all key markets. Production facilities in Asia,Europe and North America as well as 18 customer ser-vice and application centers ensure rapid turnaroundtimes, relevant consulting and responsive customer- oriented engineering. The closeness to customers acce-lerates both customized application development andproduct delivery. Comprehensive testing services basedon the latest measuring systems are provided directly inthe customer’s development departments or from theSchaffner laboratories. Schaffner Group engineers andconsultants know their customers personally. They understand their individual requirements and are also at home with the cultural diversity of the world’s localmarkets.

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ChinaGermanyThailandHungaryUSA

Development and production centers

Headquarters

Switzerland

Customer service and application centers

ChinaGermanyFinlandFranceItalyJapanSweden

SwitzerlandSingaporeSpainTaiwanThailandUKUSA

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Board of DirectorsThe Board of Directors of Schaffner Holding AG is composed of three to seven members. During the three years prior to the reporting period (fiscal 2008/09, 2009/10 and 2010/11) the members of the Board of Directors were members neither of the Schaffner Group Executive Committee nor of the management of a subsidiary, and they maintain no material business relation-ships with the Schaffner Group. They are thus independent within the meaning of section 22 of the Swiss Code of Best Prac-tice for Corporate Governance issued by economiesuisse, the Swiss business federation.

Board committeesThe Board of Directors of Schaffner Holding AG maintains two Board committees. Their principal purpose is to provide de-cision support to the Board in special subject areas. The Board committees consist solely of non-executive members of the Board.

Audit CommitteeMember TenureMarkus Zenhäusern, Committee chairman, deceased 1 July 2012 2012 –2015Daniel Hirschi 2010 –2013Georg Wechsler, Committee chairman from 24 August 2012 2012 –2014

Nomination & Compensation CommitteeMember TenureHans Hess, Committee chairman 2010 –2013Daniel Hirschi 2010 –2013

Suzanne Thoma 2012 –2014

Corporate governance

Leadership and values

For the Schaffner Group, corporate governance is the entirety of the principles and practices aimed at the company’s responsible direction and control for the benefit of all stakeholders. While safeguarding management’s decision-making capability and efficiency, corporate governance at Schaffner seeks the right balance of entrepreneur-ial action and transparent reporting.

Detailed information on the Schaffner Group’s corporate gov-ernance policy can be found in the corporate governance section of the Schaffner financial report (page 28 to 49) and on our web-site at www.schaffner.com: www.schaffner.com/en/investor- relations/corporate-governance.html

Changes since publication of the Annual Report 2010/11At the 16th Annual General Meeting of the Schaffner Group on 12 January 2012, Suzanne Thoma, Executive Committee mem-ber and designated Chief Executive Officer of BKW AG, and Georg Wechsler, Executive Committee member and Chief Fi-nancial Officer of Model Holding AG, were elected to the Board of Directors for a term of two years. Markus Zenhäusern, who was a member of the Board of Directors from 2008 and Chair-man of the Audit Committee, died on 1 July 2012. The chair-manship of the Committee was assumed by its member Georg Wechsler. On 25 September 2012, Gerhard Pegam, an experi-enced industrial manager, was nominated for election to the Board of Directors to succeed Hans Hess, who has been a mem-ber since 2006 and will step down for professional reasons upon expiry of his term. On 9 November 2012 the Board of Direc-tors appointed Chief Executive Officer Alexander Hagemannas acting head of the Automotive division, in addition to his role as CEO. The existing division head, Jean-Michel Calleri, left the Group’s Executive Committee as part of the reorganization.

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Daniel Hirschi, Chairman, born 1956, Swiss citizenDegree in Engineering, Berne University of Applied Sciences, Biel.Member since 2010, elected until 2013. Hans Hess, Vice Chairman, born 1955, Swiss citizenDegree in Mechanical Engineering, Federal Institute of Technology, Zurich; MBA, University of Southern California.Member since 2006, elected until 2013. Herbert Bächler, born 1950, Swiss citizenPhD in Technical Sciences and MSc in Electrical Engineering, Federal Institute of Technology, Zurich.Member since 2009, elected until 2015. Suzanne Thoma, born 1955, Swiss citizenPhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich.Member since 2012, elected until 2014.

From left to right: Herbert Bächler, Daniel Hirschi, Suzanne Thoma, Hans Hess, Georg Wechsler

In fiscal year 2011/12 the Board of Directors of Schaffner Holding AG had the following members:

Georg Wechsler, born 1956, Swiss citizenDegree in Business Administration and Swiss Certified Accountant.Member since 2012, elected until 2014. Markus Zenhäusern, born 1962, deceased 1 July 2012, Swiss citizenDegree in Economics, University of St. Gallen; PhD in Political Science, University of Fribourg.Member since 2008, elected until 2015.

Kurt Ledermann, Chief Financial Officer of the Schaffner Group, served as Secretary to the Board.

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From left to right: Alexander Hagemann, Eduard Hadorn, Ah Bee Goh, Kurt Ledermann, Guido Schlegelmilch, Jean-Michel Calleri


Executive CommitteeIn the year under review the divisionally structured Executive Committee, led by the Chief Executive Officer, consisted of the CEO, the Chief Financial Officer, Chief Operating Officer, and three Executive Vice Presidents as heads of the three divi-sions, EMC, Power Magnetics and Automotive.

Alexander Hagemann1, born 1962, German citizenDegree in Engineering, RWTH Aachen University.Joined the Schaffner Group as Chief Executive Officer on 1 March 20071.

Kurt Ledermann, born 1968, Swiss citizenMSEE Degree in Electrical Engineering, Federal Institute of Technology, Zurich; Master of Arts HSG, University of St. Gallen.Joined the Schaffner Group as Chief Financial Officer on 1 June 2008.

Ah Bee Goh, born 1950, Singaporean citizen HBSc in Production Engineering, University of Strathclyde; MSc in Industrial Engineering, National University of Singapore; MSc in Finance, University of Leicester; MBA, University of Surrey.Joined the Schaffner Group on 1 July 2007. Vice President, Manufacturing, until 30 September 2011. Chief Operating Officer since 1 October 2011.

Jean-Michel Calleri2, born 1956, French citizenElectrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, Paris.Joined the Schaffner Group in 1999. Executive Vice President, Automotive division, since 1 October 2011.

Eduard Hadorn, born 1956, Swiss citizenDegree in Business Administration.Joined the Schaffner Group in 2003. Executive Vice President, Power Magnetics division, since 1 October 2011.

Guido Schlegelmilch, born 1964, German citizenDegree in Business Engineering and PhD, Darmstadt Univer-sity of Technology.Joined the Schaffner Group in 2009. Executive Vice President, EMC division, since 1 October 2011.

1 Acting Head of Automotive division since 9 November 2012.2 Left the Group Executive Committee at 9 November 2012.

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Quality policy of the Schaffner GroupAt the Schaffner Group we are proudly committed to offering customers high-quality products and services. Our quality prin-ciples set us apart from our competitors. We deliver our products and services on time, defect-free and at competitive prices.

› We exceed our customers’ expectations and win them over with our products, solutions and services. Through our ac-tivities we generate added value for our customers.

› We develop and implement stable, flexible, streamlined processes that can be adapted quickly to changing market requirements.

› We ensure ongoing business growth through innovation, employee training and continuous improvement of our processes.

› Our suppliers are a key link in our value chain. Together we add value for our customers.

› We pursue environmental protection goals with great dedication and diligence.

All of Schaffner’s production plants operate in accordance with an ISO 9001 certified quality management system. Schaffner also holds the ISO/TS 16949 quality certification relevant for the automotive industry, and the plant in Shanghai is certified in the IRIS quality management system developed for rail ap-plications. The plants in Shanghai and Büren are certified un-der EN 15085-2, which covers the welding of rail vehicles and components. The test laboratories in Luterbach are certified to Metas/SAS/STS for EMC/ONIR testing in accordance with ISO 1702.

All certifications are periodically reviewed and upgraded.

Quality principles

The management, employees and partners of the Schaffner Group are committed to working for the benefit of all its stakeholder groups and providing them with top- quality service.

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The Schaffner Group is known for being an ethical company and is committed to upholding this valuable reputation. Our oper-ating principle is to treat shareholders, customers, partners, sup-pliers, competitors and government agencies with professional-ism and honesty.

UN Global CompactSchaffner is a member of the UN Global Compact and under-takes to implement the Compact’s ten principles in the areas of human rights, labor, environment and anti-corruption (www.unglobalcompact.org). Schaffner seeks to continuously reduce its carbon footprint by optimizing material flows and to act as a role model in terms of energy efficiency. All Schaffner Group production sites operate under environmental management systems conforming to the international ISO 14001 standard. Schaffner production in Asian countries is also compliant with OHSAS 18001 (Occupational Health and Safety Assessment Series), a process that supports the systematic improvement of occupational health and safety for employees.www.unglobalcompact.org/participant/10379-Schaffner-Holding-AG

Electronic Industry Code of Conduct (EICC)The Schaffner Group has adopted the Electronic Industry Code of Conduct (EICC) and is committed to establishing the code in all Schaffner companies. This involves ensuring that working conditions in the whole Schaffner supply chain are safe, that em-ployees are treated with respect and dignity, and that manufac-turing operations are environmentally sound.www.eicc.info/EICC_CODE.shtml

EmployeesSchaffner is convinced that motivated employees and superior, innovative solutions are essential to meeting the exacting de-mands of customers and asserting the Schaffner Group’s claim to leadership. Our goal is therefore to become the sector’s pre-ferred employer worldwide. To this end, we have drawn up a host of measures designed to attract, retain and develop the best staff. These include healthy and safe workplaces, annual job-specific training and development of employees’ personal skills.

Corporate citizenship

The Schaffner name is synonymous with energy efficiency and reliability, both in innovative customer solutions and in the Group’s own activities.

Schaffner GroupFinancial Report and

Corporate Governance

Contents

27 Corporate governance, incl. compensation report51 Consolidated financial statements of the Schaffner Group89 Company financial statements of Schaffner Holding AG

201112

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Accountability and transparency for all stakeholders

Corporate governance forms a key element of Schaffner’s cor-porate strategy.

PrinciplesTransparency and well-defined responsibilities are the underpin-nings of Schaffner’s corporate governance policy: Transparency in financial reporting and clearly assigned duties and account-abilities in the interactions between shareholders, the Board of Directors and Executive Committee.

As a company listed on the SIX Swiss Exchange, Schaffner fulfils the requirements of the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange and of section 663b bis and 663c (3) of the Swiss Code of Obliga-tions. Schaffner also follows the applicable standards of the Swiss Code of Best Practice for Corporate Governance, including its Appendix 1 (recommendations for the compensation of boards of directors and executive committees).

All relevant corporate governance documents are available on the home page of the Schaffner Group’s website under “Corpo-rate Governance”: www.schaffner.com/en/investor-relations/ corporate-governance.html

In addition, Schaffner’s general principles of corporate govern-ance are described in the Organizational Regulations of Schaffner Holding AG and in the Articles of Association, which can be viewed at or requested from the Company’s head office.

As an active participant in the UN Global Compact, the Schaffner Group is committed in its strategy and activities to honoring the ten principles of the UN Global Compact regarding human rights, labor, the environment and anti-corruption. Schaffner ex-pects its employees to be accountable for their actions, to respect people, society and the environment, to follow applicable rules and act with integrity. The Group’s current relevant report (Com-munication on Progress) is available at www.unglobalcompact.org/participant/10379-Schaffner-Holding-AG.

The Schaffner Group has also adopted the Electronic Industry Code of Conduct (EICC) and is committed to introducing it in all Schaffner companies. This involves ensuring that working conditions in the whole Schaffner supply chain are safe, that employees are treated with respect and dignity, and that manu-facturing operations are environmentally sound.www.eicc.info/EICC_CODE.shtml

Governance-related changes in fiscal year 2011/12On 12 January 2012 the 16th Annual General Meeting of Schaffner Holding AG elected two new members to the Board of Directors for a term of two years (until 2014): Suzanne Thoma, member of the Executive Committee of BKW AG and its designated Chief Executive Officer; and Georg Wechsler, Chief Financial Officer and member of the Executive Commit-tee of Model Holding AG. Hans Hess, Vice Chairman of the Board of Directors and Board member since 2006, will retire from the Board of Schaffner Holding AG for professional rea-sons upon the expiry of his term of office at the 17th Annual Gen-eral Meeting on 14 January 2013. Markus Zenhäusern, a member of the Board of Directors since 2008 (elected until 2015), passed away on 1 July 2012. On 25 September 2012, Gerhard Pegam was nominated for election to the Board of Directors at the 17th Annual General Meeting on 14 January 2013.

1 Group structure and significant shareholders

1.1 Group structure

1.1.1 Group operating structureWith effect from 1 October 2011 the Schaffner Group con-verted from a functional to a divisional organizational structure consisting of the three divisions EMC, Power Magnetics and Automotive. In the course of this reorganization, the Harmonic Filters product group (which until 30 September 2011 belonged to the Power Quality segment) became part of the EMC divi-sion. The rest of the former Power Quality segment now oper-ates as the Power Magnetics division, while the former Elec-tromagnetic Compatibility (EMC) segment together with the Harmonic Filters product group makes up the EMC division. The Automotive division is the former Automotive segment. The reporting to the Executive Committee (the Group’s chief operating decision-maker) follows this organizational structure.

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The following chart shows the Group’s operating structure at 30 September 2012: General Meeting of shareholdersBoard of Directors Audit Committee, Nomination & Compensation CommitteeExecutive Committee Group functionsEMC division – Power Magnetics division – Automotive division

The Chief Executive Officer has responsibility for the opera-tional management of the Schaffner Group. He is also the head of the Executive Committee (the Group’s top level of executive management). The management of the Schaffner Group is pro-vided by the Board of Directors and (through the delegation of authority from the Board) by the Chief Executive Officer and the Executive Committee.

The division of responsibilities between the Board, Chief Execu-tive Officer and Executive Committee is described on page 37 of this corporate governance report in section 3.5.

The Executive Committee had the following structure at 30 Sep-tember 2012:

Executive Committee

Alexander Hagemann Chief Executive OfficerKurt Ledermann, Finance & IT Chief Financial OfficerAh Bee Goh, Manufacturing Chief Operating OfficerGuido Schlegelmilch, EMC division Executive Vice PresidentEduard Hadorn, Power Magnetics division Executive Vice PresidentJean-Michel Calleri, Automotive division Executive Vice President

More information about the Executive Committee is provided on page 38 of this corporate governance report in section 4.

1.1.2 Listed companiesThe Schaffner Group maintains an international presence through its own subsidiaries and a network of independent distributors. The parent company of the Schaffner Group is Schaffner Holding AG, whose shares are traded on the SIX Swiss Exchange.

Schaffner Holding AG is the only Group company listed on a stock exchange.

Schaffner Holding AG is a public limited company incorpo-rated in Switzerland and has its registered office in Luterbach. At 30 September 2012 the share capital consisted of 635,940 ordinary registered shares with a total nominal value of CHF 20,668,050.

Registered office 4542 Luterbach, SwitzerlandListing exchange and SIX Swiss Exchange, regulatory standard Main StandardSecurity number 906209ISIN CH 0 009 062 099Ticker symbol SAHNNominal value per share CHF 32.50

Key share data for Schaffner Holding AG is provided on page 2 of this annual report.

1.1.3 Non-listed companiesThe directly and indirectly held companies consolidated in the Group accounts of Schaffner Holding AG are shown on page 87 of this report in the notes to the consolidated financial state-ments.

1.2 Significant shareholdersAt 30 September 2012 there were 1,325 shareholders registered with voting rights in the share register of Schaffner Holding AG (prior year: 1,198). Of the issued shares, 99.1% represented free float (prior year: 99.3%). Schaffner Holding AG held the other 0.9% as treasury shares (prior year: 0.7%). At 30 September 2012, shares of unregistered owners amounted to 14.4% of the issued shares (prior year: 15.7%).

Under the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA, or Stock Exchange Act), any holder of shares of a company listed on the SIX Swiss Exchange must notify the issuer company and the SIX Swiss Exchange whenever the holder’s voting rights reach, rise above or fall below one of the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔%. This disclosure obligation exists regardless of whether the voting rights can be exercised or not. Therefore, cer-tain derivatives positions, such as options and similar financial instruments, are also notifiable. Upon receiving such notifica-tion, the issuer of the shares must relay the information to the public through an announcement on the electronic publication platform of the SIX Swiss Exchange. In the fiscal year under re-view, one disclosure notification was made, on 18 February 2012.

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Information on significant shareholders is also provided on page 91 in the notes to the parent company financial statements. A complete record of all notifications issued under section 20 of the Stock Exchange Act is available on the website of the SIX Swiss Exchange at www.six-swiss-exchange.com/shares/companies/major_shareholders_en.html?fromDate=19980101&issuer=10529.

1.3 Cross-shareholdingsThere were no cross-shareholdings between Schaffner and other publicly traded companies.

2 Capital structure

2.1 Issued share capitalThe company has issued share capital of CHF 20,668,050, con-sisting of 635,940 ordinary registered shares with a nominal value of CHF 32.50 per share. The issued shares are fully paid. Each share carries one vote at the General Meeting. All shares not held by the Company or by one of its subsidiaries attract dividends.

2.2 Authorized unissued capitalOn 12 January 2012 the 16th Annual General Meeting of Schaffner Holding AG approved the creation of authorized capi-tal for share option plans, up to a maximum amount of CHF 2,351,115 consisting of up to 72,342 fully payable registered shares with a nominal value of CHF 32.50 per share. Detailed information can be found on page 77 of this report in section 18 of the notes to the consolidated financial statements.

The Company had no other authorized unissued capital at 30 September 2012, i.e., no unissued capital authorized for pur-poses other than the share option plans.

2.3 Changes in equityBy a resolution of the Annual General Meeting on 14 Janu-ary 2009, CHF 3.50 per registered share was distributed as a partial repayment of nominal value, thus reducing the issued share capital of Schaffner Holding AG from CHF 36 per share to CHF 32.50 and from a total of CHF 22,893,840 to CHF 20,668,050. The authorized unissued capital was reduced ac-cordingly.

The Annual General Meeting on 12 January 2011 passed a reso-lution to distribute CHF 4.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2009/10.

The Annual General Meeting on 12 January 2012 passed a reso-lution to distribute CHF 4.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2010/11.

The changes in share capital, in share premium, in retained earn-ings and in the other components of consolidated equity are presented in detail on page 55 of this Annual Report 2011/12, in the consolidated financial statements. The comparative infor-mation for the three prior years is found on page 57 of the con-solidated financial statements in the Annual Report 2010/11, on page 21 in the Annual Report 2009/10 and page 17 in the Annual Report 2008/09.

2.4 Shares and participation certificates

2.4.1 SharesThe 635,940 issued shares of Schaffner Holding AG have a nominal value of CHF 32.50 per share. Each share carries one vote and attracts dividends.

Subject to provisions (i), (ii) and (iii) below, the shares are issued in uncertificated form and maintained as book-entry securities.

Transfers of or dispositions regarding book-entry securities, in-cluding the granting of interests therein as collateral, are subject to the Swiss Federal Act on Book-Entry Securities. If uncertifi-cated shares are transferred by assignment, such transfer is valid only if notified to the Company.

(i) Shares maintained as book-entry securities may be withdrawn from the custody system by the Company.

Shareholders that are registered in the share register may at any time request from the Company a certification of their owner-ship of their shares.

(ii) Shareholders do not have a right to the printing and de-livery of certificates (physical securities) or to the conversion of registered shares issued in one form into another form. The

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Company may, however, at any time print and deliver certifi-cates (single share certificates, collective certificates or global certificates) or convert uncertificated or certificated shares into another form and may cancel issued certificates that are returned to the Company.

(iii) By amending the Articles of Association, the General Meet-ing of shareholders may at any time convert registered shares into bearer shares or convert bearer shares into registered shares.

2.4.2 Participation certificatesThere were no participation certificates of Schaffner Holding AG at 30 September 2012 (participation certificates, or Partizipations-scheine in German, essentially are a type of preference share).

2.5 Dividend right certificatesSchaffner Holding AG had not issued any dividend right certifi-cates as of 30 September 2012 (in German: Genussscheine; these essentially are preference shares for related parties).

2.6 Restrictions on transferability and nominee registrationRegistered shares of Schaffner Holding AG may be acquired by all legal or natural persons. The purchase of Schaffner shares is subject to registration restrictions concerning the recogni-tion and registration of share purchasers, and of nominees, as voting shareholders. These restrictions are specified in detail in the Share Registration Regulation of Schaffner Holding AG. The Share Registration Regulation was issued by the Board of Directors in reliance on sections 685a and 685d et seq. of the Swiss Code of Obligations and section 6 of the Articles of As-sociation, and can be viewed at or requested from the Company’s head office.

2.6.1 Recognition of share purchasers as voting shareholdersShareholders or beneficial owners are deemed to be those per-sons registered in the Company’s share register. In accordance with section 6 (3) of the Articles of Association of Schaffner Holding AG, purchasers of shares are upon their request recorded as voting shareholders in the share register by the Board of Directors if the purchasers state expressly that they have acquired and will hold the shares for their own account. Recognition as a shareholder with voting rights thus requires both that the shareholder in question bears the economic risk incident to ownership of the shares to be registered, and that, in the application for registration, the shareholder expressly

declares to the Company that the shareholder has acquired and will hold the shares for the shareholder’s own account. In reliance on section 6 (3) of the Articles of Association and the requirements for recognition derived therefrom, applicants (purchasers holding legal title to the shares) are thus not rec-ognized as voting shareholders if they have acquired, and are holding, the shares as a result of a securities lending transaction or similar transaction that gives them legal ownership without the associated economic risk.

Registration of share purchasersFor each registration in the share register as a voting shareholder, a personally signed registration application or a registration au-thorization must be on file at the respective SIX SIS AG custo-dian bank, containing all of the following information:

› For individuals: last name, first name, nationality, and address

› For legal entities: entity name, registered office, and address.

Each registration in the share register requires evidence of the acquisition of full legal title to the stock or evidence of the es-tablishment of beneficial ownership, and always requires an ex-press declaration that the stock was acquired and is held by the applicant in the applicant’s own name and for the applicant’s own account.

In the case of registration applications by shareholders holding the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act (5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔% of votes), the registration is not performed until the Company has received a complete disclosure notification by the applicant pursuant to section 20 of the Stock Exchange Act. If the disclosure notifica-tion meets the legal requirements (i.e., if it contains the legally required information about the beneficial owner), the applicant (i.e., the acquired stock) is registered in the share register as hav-ing voting rights. If the disclosure notification is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations, or is incomplete, the application for registration with voting rights is denied and the shareholder (or the acquired stock) is registered in the share register as non-voting.

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Registration of nomineesPersons who do not expressly declare in their registration ap-plication that they hold the shares for their own account are classified as nominees. In accordance with section 6 (4) of the Articles of Association, by default any single nominee is regis-tered in the share register as holding voting shares only up to a maximum of 5% of the share capital recorded in the Swiss commercial register of companies. Above this limit of 5%, the Board of Directors registers shares of nominees in the share register as voting shares only if (i) the nominee discloses to the Company the names, addresses and Schaffner shareholdings of the persons for whose account the nominee holds 0.5% or more of the share capital registered in the commercial register, and (ii) an agreement exists between the nominee and the Com-pany which specifies the nominee’s position and the details of the nominee’s notification requirements. The company that is retained to operate the share register is responsible for sending the nominee agreement to the respective nominee and for col-lecting the information to be disclosed. If complete disclosure is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations, or if no nominee agreement is concluded between the Company and the nominee within this time period, the nominee is registered in the share register as non-voting for these shares. To the extent permitted by law, the Board of Directors is authorized to enter into agreements with nominees regarding notification obligations. On a case-by-case basis, the Board may approve exceptions to the nominee rules.

Where legal entities or groups with joint legal status are related to one another by capital, voting rights, management or in some other manner, they are deemed to constitute a single purchaser, as are all natural persons, legal entities or groups with joint legal status that by agreement, as a syndicate or in any other way act in a coordinated manner with a view to circumventing the nominee rules. The Company may void registrations in the share register with retroactive effect from the date of registration if they were based on false information given by the purchaser. The purchaser must be informed of this deletion immediately.

Registered non-voting shareholders and registered non-voting nominees cannot exercise the voting rights associated with the shares nor exercise other rights related to the voting rights. How-ever, they are not restricted in exercising any of their other rights as shareholders, including also pre-emptive rights. At the Gen-eral Meeting the shares registered as non-voting are treated as unrepresented (see section 685 f (2) and (3) of the Swiss Code of Obligations).

The registration restrictions described above also apply to shares bought or subscribed through the exercise of pre-emptive rights, options or conversion rights.

At the end of the fiscal year under review, 14.4% (prior year: 15.7%) of all issued shares were unregistered or were registered as non-voting shares.

2.7 Convertible bonds and options

2.7.1 Convertible bondsThere are no outstanding convertible bonds of Schaffner Holding AG.

2.7.2 Share option plansThe share option plans for executive management and mem-bers of the Board of Directors of the Schaffner Group (the Em-ployee Share Option Plan and the Performance Option Plan) are described in detail on page 77 in the consolidated financial statements.

3 Board of Directors

3.1 Members of the BoardThe Articles of Association require the Board of Directors of Schaffner Holding AG to have between three and seven members. In fiscal year 2011/12, the Board consisted of six, nonexecutive members. After the death of Markus Zenhäusern on 1 July 2012, the Board of Directors consisted of five, non-executive members at 30 September 2012. In the three years prior to the reporting period (the fiscal years 2008/09, 2009/10 and 2010/11), none of the Board members were members of Schaffner’s Executive Committee or of the management of a subsidiary. The Board members maintain no material business relationships with the Schaffner Group. They are thus independ-ent within the meaning of section 22 of the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse, the Swiss business federation.

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In fiscal year 2011/12 the Board of Directors of Schaffner Holding AG had the following members:

Daniel Hirschi, Chairman, born 1956, Swiss citizenBoard member since 2010, elected until 2013Degree in Engineering, Berne University of Applied Sciences, Biel.From 2006 to 2009 was Chief Executive Officer and Designated Representative of the Board of Directors of Benninger AG, Uzwil. From 1983 to 2005 served in various management functions at Saia-Burgess, Murten, including Chief Executive Officer from 2001 and Designated Representative of the Board from 2003.

Hans Hess, Vice Chairman, born 1955, Swiss citizenBoard member since 2006, elected until 2013MSc in Mechanical Engineering, Federal Institute of Technology, Zurich; MBA, University of Southern California.From 8 September 2006 to 31 March 2007 was Interim Des-ignated Representative of the Board of Directors of Schaffner Holding AG. Until 2005 held various management positions in the Leica Group, most recently ten years as Chief Executive Of-ficer and Designated Representative of the Board of Directors of Leica Geosystems, Heerbrugg.

Herbert Bächler, born 1950, Swiss citizenBoard member since 2009, elected until 2015PhD in Technical Sciences and MSc in Electrical Engineering, Federal Institute of Technology, Zurich.In charge of innovation management at ARfinanz Holding AG, Stäfa. From 2002 to 2008 was Chief Technology Officer at Sonova/Phonak AG and from 1981 to 2002 held various man-agement positions in its R&D department.

Suzanne Thoma, born 1955, Swiss citizenBoard member since 2012, elected until 2014PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich.From 1 January 2013: Chief Executive Officer of BKW AG, Berne. Previously member of the Group Executive Committee of BKW AG, Berne (formerly BKW FMB Energie AG) in charge of the Networks division. From 2007 to 2009 was head of the in-ternational automotive supply business of the WICOR Group, Rapperswil-Jona. Before that, was Chief Executive Officer of Rolic Technologies, Allschwil, and held management positions at Ciba Spezialitätenchemie AG, Basel (now BASF AG) in Switzerland and abroad. Member of the Executive Committee of the Swiss Academy of Engineering Sciences.

Georg Wechsler, born 1956, Swiss citizenBoard member since 2012, elected until 2014Degree in Business Administration and Swiss Certified Accountant.Since 1994 has been Chief Financial Officer and member of the Group Executive Committee of Model Holding AG, Weinfelden. Previous employers included Zurmont Finanz AG, Zurich; Zell-weger Uster AG, Uster; and KPMG Fides, Zurich.

Markus Zenhäusern, born 1962, deceased 1 July 2012, Swiss citizenBoard member since 2008, elected until 2015Degree in Economics, University of St. Gallen; PhD in Political Science, University of Fribourg.Until October 2011 was with Swiss Post, Berne: Staff role in Group management, Chief Financial Officer and member of the Group Executive Management. From 2005 to 2008 was Chief Financial Officer and member of the Group Executive Committee of Sika Group, Baar. Previous positions included Chief Financial Officer of Habasit Group, Reinach, and Corporate Controller of Hero Group, Lenzburg.

Kurt Ledermann, Secretary of the Board

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3.1.1 Nominated for election to the Board

Gerhard Pegam, born 1962, Austrian citizenNominated for election at the 17th Annual General Meeting on 14 January 2013Degree in Electrical Engineering, Klagenfurt Technical College, Austria.Until beginning of 2012 was Chief Executive Officer of EPCOS AG. From 2009 to 2012 was member of the Board of Directors of EPCOS parent company TDK-EPC Corp. From middle of 2011 to mid-2012 was a Corporate Officer of TDK Corporation, Japan, and from 2004 to 2012 was a member of the Board of ZVEI, the German Electrical and Electronic Manufacturers’ Association. Between 1982 and 2001 held various management positions at EPCOS, Siemens and Philips.

3.2 Activities and interests outside the Group

Herbert BächlerHerbert Bächler holds various positions on the boards of com-panies not significant within the meaning of the Corporate Governance Directive (appendix section 3.2) of the SIX Swiss Exchange.

Hans HessHans Hess is Chairman of the Board of Comet Holding AG, Flamatt, and of Reichle & De-Massari Holding AG, Wetzikon, member of the Board of Burckhardt Compression Holding AG, Winterthur, President of Swissmem (the trade association of the Swiss mechanical and electrical engineering industries), Vice President of economiesuisse (the Swiss business federation), and member of the ETH Board.

Daniel HirschiDaniel Hirschi is a member of the Board of Benninger AG, Uzwil; of Carlo Gavazzi Holding AG, Steinhausen; and of Komax Holding AG, Dierikon.

Suzanne ThomaSuzanne Thoma is Chairwoman of the Board of Arnold AG, Selzach, and of BKW ISP AG, Ostermundigen, as well as member of the Board of BKW Netz Schweiz AG, Berne, of swissgrid AG, Laufenburg, and AEK Energie AG, Solothurn.

Georg WechslerGeorg Wechsler holds various positions on the boards of compa-nies not significant within the meaning of the Corporate Govern-ance Directive (appendix section 3.2) of the SIX Swiss Exchange.

Markus Zenhäusern (deceased 1 July 2012)Markus Zenhäusern was a member of the Board of Swiss Post International Holding AG, Berne, and of Post Liechtenstein AG, Schaan. He was also Chairman of the Board of Swiss Post Insurance AG, Vaduz.

3.3 Board elections and termsThe members of the Board of Directors are elected individually by the General Meeting, for a term of up to three years, and may be re-elected for consecutive terms. The term of each member is determined at the time of election and ends on the date of an Annual General Meeting. Schaffner uses a staggered-board system, which means that in a given year of Board elections, only part of the Board retires (and, to the extent willing, submits itself for re-election). If elections are held during a term to replace or add Board members, the newly elected members serve for the remainder of the current term. Board members retire from the Board of Directors no later than at the first Annual General Meeting after reaching 70 years of age.

3.4 Internal organizationThe Board of Directors of Schaffner Holding AG constitutes itself. It appoints its Chairman and the Secretary, who does not need to be a member of the Board. A meeting of the Board of Directors is called by the Chairman or Vice Chairman or, if both are unavailable, by another Board member, as often as business requires or when a member requests it. Board meetings are called at least ten days before the meeting date.

The Board of Directors has a quorum when the majority of its members participate in oral discussions and votes. Members may also be present by telephone or via electronic media (e.g., video- conferencing). Resolutions are passed by a simple majority of votes. In the event of a tie, the meeting’s chairman has the casting vote. For the purpose of resolutions concerning capital increases, the Board has a quorum irrespective of the number of members present. The Board may also adopt resolutions by written ballot (by mail, fax or e-mail), unless a member requests an oral discus-sion. In a vote by written ballot, passage of a resolution requires the affirmative vote of the majority of all Board members.

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The Board of Directors of Schaffner Holding AG is responsi-ble for determining the Group’s strategy. It reviews the Group’s broad plans and objectives and identifies internal and external risks and opportunities. The tasks of the Board and the division of powers between the Board and the Executive Committee are defined in the Swiss Code of Obligations (Swiss corporation law), the Articles of Association of Schaffner Holding AG and its Organizational Regulations.

3.4.1 Division of responsibilities within the BoardDaniel Hirschi has been the Chairman of the Board of Directors since the 2010 Annual General Meeting. The Audit Committee was chaired by Markus Zenhäusern (deceased on 1 July 2012); since 24 August 2012 the Committee’s chairman is Georg Wechsler. The chairman of the Nomination & Compensation Committee is Hans Hess. The Board has no other standing com-mittees or designated positions.

3.4.2 Composition, purpose and responsibilities of Board committeesThe Board of Directors of Schaffner Holding AG maintains the Board committees detailed below. Their principal purpose is to provide decision support to the Board in special subject areas. The committees support the Board of Directors; the Board’s duties and powers always remain with the full Board.

The Board committees are made up solely of non-executive members of the Board. The committees meet as often as neces-sary and inform the Board of their findings and proposals at the ordinary Board meetings. In urgent cases they also inform the Chairman of the Board or the Chief Executive Officer at any time. Outside the ordinary Board meetings, the Board com-mittee members also work directly with members of the Ex-ecutive Committee (which is the Group’s top tier of executive management and is not a Board committee). The term of office of committee members normally coincides with their term as Board members. At any time, if required, new committees may be created or existing committees newly staffed or dissolved.

Audit CommitteeThe Audit Committee supports the full Board in exercising over-sight of accounting and financial reporting and in monitoring compliance with legal requirements. The roles and responsibili-ties of the Audit Committee are specified in the Organizational Regulations. It acts solely in an advisory capacity. The Audit Committee has the following responsibilities in particular:

› It evaluates the appropriateness and validity of the Group accounts.

› It assesses the effectiveness of the external auditors and internal controls.

› It monitors the effective coordination between external audit and internal controls, and reviews the performance and compensation of the external auditors.

› It assesses the effectiveness of risk management. › It evaluates the financial planning and its implementation. › It supports the financial reporting to shareholders, inves-

tors and the public. › It supports the Finance department in major and complex

tasks. › On behalf of the Board, it receives the audit reports of the

external independent auditors and presents them to the Board for review and comment.

The Audit Committee is composed of at least two non-executive members of the Board of Directors. The Committee chairman should have experience in finance and accounting. The chairman of the Audit Committee is appointed by the Board of Directors.

Audit Committee TenureMarkus Zenhäusern, Committee chairman, deceased 1 July 2012 2008 – 2015Daniel Hirschi 2010 – 2013Georg Wechsler, Committee chairman from 24 August 2012 2012 – 2014

The Audit Committee convenes as often as business requires, and not less than twice per year. It invites the Chief Executive Officer and Chief Financial Officer of the Schaffner Group to its meetings, as well as other staff members of the finance depart-ment as required. The external independent auditors are present at the meetings for the relevant agenda items.

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Nomination & Compensation CommitteeThe roles and responsibilities of the Nomination & Compensa-tion Committee are specified in the Organizational Regulations of Schaffner Holding AG; it acts solely in an advisory capacity. The Nomination & Compensation Committee supports and advises the Board of Directors in matters of the appointment, terms of service or employment, and compensation, of Board members, Executive Committee members and other key staff in the Group. In particular, the Committee recommends the principles relating to performance-based compensation. The Nomination & Compensation Committee has the following responsibilities in particular:

› It periodically submits proposals to the Board concerning the nature and amount of the Board members’ annual remuneration.

› It annually submits recommendations to the Board con-cerning the remuneration of each member of the Execu-tive Committee.

› It develops incentive plans. › It sets the targets for the Executive Committee, in consul-

tation with the Board of Directors. › It assesses the performance of the Executive Committee

against targets. › It submits a proposal to the Board for the variable com-

pensation of the Executive Committee.

The Nomination & Compensation Committee also submits recommendations to the Board regarding:

› Requests to evaluate and nominate candidates for elec-tion to the Board of Directors by the General Meeting of shareholders.

› Requests for the promotion of employees to the Executive Committee.

› Requests for the new hiring or removal of Executive Com-mittee members.

In the case of new hiring, members of the Nomination & Com-pensation Committee participate in the evaluation of prospec-tive staff as required.

The Nomination & Compensation Committee is composed of at least two non-executive members of the Board. In the year under review, the members of the Nomination & Compensa-tion Committee were Hans Hess (chairman), Daniel Hirschi and Suzanne Thoma.

Nomination & Compensation Committee TenureHans Hess, Committee chairman 2010 – 2013Daniel Hirschi 2010 – 2013Suzanne Thoma 2012 – 2014

The Audit Committee convenes as often as business requires, and not less than twice per year. The Committee may invite other Board members, Executive Committee members or specialists to its meetings as needed. The Chief Executive Officer participated in all of the five meetings held in the year.

3.4.3 Procedures of the Board and of Board committeesThe Board of Directors meets at the invitation of its Chairman or the member representing the Chairman, or of one of the other Board members. The deliberations and decisions of the Board are recorded in the meeting minutes, which are signed by the meeting’s chairman and the Secretary.

The Board convenes as often as business requires, and at least four times per year – usually once in every quarter – for a meet-ing that is about four hours in length.

In the reporting period the Board met nine times. The following overview shows the individual Board members’ attendance at Board and Board committee meetings, as well as the meetings’ average length:

BD AC NCCNumber of meetings in 2011/12 9 6 5Daniel Hirschi 9 6 5Herbert Bächler 8 – –Hans Hess 9 – 5Suzanne Thoma 4 – 2Georg Wechsler 4 3 –Markus Zenhäusern1 7 5 –Average meeting length in hours 4 1.5 2.51 Deceased on 1 July 2012.

BD Board of DirectorsAC Audit CommitteeNCC Nomination & Compensation Committee

Urgent business is discussed by telephone conference call. The Chief Executive Officer and Chief Financial Officer attend the ordinary meetings of the Board. For the discussion of specific matters, the Board requests members of the Executive Com-mittee, other management staff or external advisors to attend its meetings as required. In the year under review, no external

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advisors were called to any significant extent. In a timely manner before the meetings, the Board receives written information on the agenda items, which are set by the Chairman or at the request of the Executive Committee. The Board Chairman and the Chief Executive Officer of the Schaffner Group work closely together.

In addition to its inalienable statutory duties set out in section 716a of the Swiss Code of Obligations, the Board of Directors of Schaffner Holding AG has, in particular, the following respon-sibilities and powers:

› Strategic direction, organization and leadership of the Group

› Structuring of finance and accounting and provision of financial planning and control

› Appointment and removal of the Executive Committee and authorized signatories

› Regular review of business activities › Decisions on matters not reserved for or transferred to

another body by law, by the Articles of Association or by the Organizational Regulations

› Formulation and preparation of resolutions for considera-tion by the General Meeting.

3.5 Division of authorityThe Board of Directors of Schaffner Holding AG is the highest-level management and supervisory body of the Company and Group. It provides overall direction, supervision and control of the Group’s executive management (the Executive Commit-tee). The Board is responsible primarily for decisions on Group strategy and organizational structure and for setting corporate policy. The Board’s role includes the appointment and removal of members of the Executive Committee and the structuring of finance and accounting.

To an extent consistent with the applicable legal provisions and the Company’s Articles of Association, the Board of Directors has delegated the operational management of the Schaffner Group to the Executive Committee, led by the Chief Executive Officer. The Executive Committee is responsible for implement-ing the Group’s strategy within the framework set by the Board

of Directors. The responsibilities and powers of the Executive Committee are specified in the Organizational Regulations. Its main responsibilities are:

› Operational management › Optimization of internal organization and processes › External representation of the Schaffner Group › Internal and external communication.

The Chief Executive Officer has primary responsibility for for-mulating Group strategy for the approval of the Board of Direc-tors, for the operational management of the Group, its overall financial results and the implementation of the strategy and plans of action adopted by the Board. The Chief Financial Officer has responsibility for financial, tax and capital management and for ensuring the development and implementation of risk control principles, rules and limits. The Chief Financial Officer is also responsible for the transparency of the financial results and ensur-ing high-quality, timely financial reporting.

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3.6 Monitoring and control in respect of the Executive Committee

Board of DirectorsThe Executive Committee provides the Board with a monthly written report on the Group’s financial results. The reporting consists of the consolidated balance sheet, income statement, statement of comprehensive income, movement in provisions, and cash flow statement. The data are compared against the prior-year results. The Board of Directors regularly discusses the monthly reports at its meetings. The Chief Executive Officer and Chief Financial Officer attend the meetings. The Executive Committee carries out a risk assessment at least once per year and reports on the findings to the Board of Directors. In this assessment, general risks are analyzed and rated. Monitoring-and-control points and processes are defined based on the risk assessment and implemented by the respective process owner. The Board of Directors monitors the assessment of the Group’s risks and verifies the implementation of risk management. Other tools for the monitoring and control of the Executive Commit-tee are the following:

› Periodic communication of the Executive Committee’s forecasts for revenue and for the key earnings and financial position data

› Rolling forecast › Annual strategic analytical reviews of the Group and the

divisions › A multi-year year plan regularly updated by the Executive

Committee › Special reports by the Executive Committee on significant

investments, acquisitions and partnerships.

The Chief Executive Officer briefs the Chairman of the Board on significant events.

Chairman of the BoardThe Board Chairman regularly meets with the Chief Executive Officer and Chief Financial Officer to discuss current business performance and activities.

Audit CommitteeThe Audit Committee provides regular and comprehensive reports to the Board of Directors on matters of finance and ac-counting, financial reporting standards, compliance (with laws, regulations and procedures), and on external audit activities. It focuses especially on auditing the financial reporting processes.

Internal auditIn view of its size, the Schaffner Group elects not to maintain a dedicated internal audit function.

4 Executive Committee

The Executive Committee is the Group’s highest-level executive management team. In the year under review the divisionally structured Executive Committee, headed by the Chief Executive Officer, consisted of the CEO, the Chief Financial Officer, Chief Operating Officer and three Executive Vice Presidents as heads of the three divisions, EMC, Power Magnetics and Automotive.

The Executive Committee is responsible for implementing Group strategy within the framework set by the Board, and in particular for achieving the annual targets and medium- and long-term objectives. It is also responsible for process planning, for the controllership functions and for the implementation of Group-wide standards.

The Chief Executive Officer formulates Group strategy for the approval of the Board of Directors and is responsible for strategy implementation. He sets the business targets for all units of the Group. The Chief Financial Officer devises the framework for all strategic and operational controllership activities, ensures the Group’s financing, optimizes its financing and tax structure, and supports the Chief Executive Officer and the other Executive Committee members in all financial matters. The Executive Vice Presidents (the three division heads) are accountable for achiev-ing the objectives within their respective areas of responsibility. These targets and goals include, in particular, achieving a leading market position as well as continuous innovation to support lasting competitiveness.

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4.1 Members of the Executive CommitteeIn fiscal year 2011/12 the Executive Committee of the Schaffner Group had the following members:

Alexander Hagemann1, born 1962, German citizenDegree in Mechanical Engineering, RWTH Aachen University.Joined the Schaffner Group as Chief Executive Officer on 1 March 2007. Previously held a number of management positions at the Schott Group, including Executive Vice President, Optics for Devices; earlier, worked in management roles in production and logistics at BMW.

Kurt Ledermann, born 1968, Swiss citizenMSEE Degree in Electrical Engineering, Federal Institute of Tech-nology, Zurich; Master of Arts HSG, University of St. Gallen.Joined the Schaffner Group as Chief Financial Officer on 1 June 2008. Previous roles included Executive Vice President, Finance & IT, Ruag Aerospace; Head of Finance & Accounting, Schaffner Group; Chief Financial Officer, Medivision; Group Controller and Head of Investor Relations, Sika Group.

Ah Bee Goh, born 1950, Singaporean citizenHonours BSc degree in Production Engineering, University of Strathclyde; MSc in Industrial Engineering, National University of Singapore; MSc in Finance, University of Leicester; MBA, Uni-versity of Surrey.Joined the Schaffner Group on 1 July 2007. Was Vice President, Manufacturing until 30 September 2011; Chief Operating Of-ficer from 1 October 2011. Previously Managing Director at Leica Instruments, Singapore; various management roles at Maxtor Peripherals, Seagate Technology and Tandon/Western Digital.

Jean-Michel Calleri2, born 1956, French citizenElectrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, Paris.With the Schaffner Group since 1999; Vice President, Sales Eu-rope from 1 July 2007. General Manager, Schaffner EMC S.A.S., Argenteuil. Executive Vice President, Automotive division since 1 October 2011. Previously held a number of management posi-tions in Marketing & Sales at Thomson Passive Components.

Eduard Hadorn, born 1956, Swiss citizenDegree in Business Administration.With the Schaffner Group since 2003; Vice President, Business Development Asia from 1 March 2007. Managing Director, Schaffner EMC Ltd., Shanghai. Executive Vice President, Power Magnetics division since 1 October 2011. Previously was General Manager, Technology division at Diethelm & Co., and Head of Marketing & Sales at Beringer Hydraulik.

Guido Schlegelmilch, 1964, German citizenDegree in Business Engineering and PhD, Darmstadt University of Technology.Joined the Schaffner Group on 1 February 2009 as Managing Director, Schaffner Deutschland. Executive Vice President, EMC division since 1 October 2011. Previously held various manage-ment positions at Philips Semiconductors and NXP Semicon-ductors.

1 Interim Head of Automotive division since 9 November 2012.2 Left the Executive Committee at 9 November 2012.

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4.2 Activities and interests outside the Group

Alexander HagemannMember of the Board of Directors of WICOR Holding AG, Rap-perswil-Jona.

Kurt LedermannVice Chairman of the Board of Anlagestiftung Winterthur AWi, Zurich, and member of the Finance Committee of the city of Solothurn.

The other members of the Executive Committee do not hold any positions in governing or supervisory bodies of any significant organization, institution or foundation under private or public law, nor do they hold any permanent management or consul-tancy positions in significant interest groups or any public or political office.

4.3 Management contractsSchaffner Holding AG and its Group companies have no man-agement contracts with third parties.

5 Compensation report

5.1 Guiding principlesThe remuneration of the Board of Directors and Executive Com-mittee is linked to the generation of sustainable earnings for shareholders and creates incentives conducive to the Schaffner Group’s lasting financial success. Based on the conviction that the performance of the Schaffner Group depends in large measure on the quality and commitment of its people, the compensation policy is designed to attract, motivate and retain qualified em-ployees for the long term. The performance-related compensation is intended as an incentive for entrepreneurial thinking and ac-tion. The most important principles underlying the remuneration system are:

› Compensation includes a performance-related element and is competitive with market levels

› Promotion of the financial and business success of the Group

› Fairness and transparency in decisions on compensation › Appropriate balance of short-term and long-term com-

pensation.

The information below describes the compensation system and the compensation paid to the members of the Board of Direc-tors and of the Executive Committee of the Schaffner Group. The compensation report is explained every year at the Annual General Meeting. The information presented is consistent with section 5 of the Directive on Information Relating to Corpo-rate Governance issued by the SIX Swiss Exchange. Schaffner also observes the applicable standards of the Swiss Code of Best Practice for Corporate Governance, including its Appendix 1 (recommendations for the compensation of boards of directors and executive committees). The compensation and sharehold-ings within the meaning of section 663b bis and 663c (3) of the Swiss Code of Obligations are also disclosed and discussed in the consolidated financial statements of Schaffner Holding AG.

5.2 Responsibility and procedures for determining compensationThe Board of Directors maintains a Nomination & Compensa-tion Committee, which consists of at least two independent members of the Board.

The members of the Nomination & Compensation Committee at 30 September 2012 were:

Hans Hess, member of the Board of Directors, Committee chairmanDaniel Hirschi, Chairman of the Board of DirectorsSuzanne Thoma, member of the Board of Directors

The Nomination & Compensation Committee:

› Performs its duties generally without involving external advisors.

› At the beginning of each term of office, recommends to the Board the nature and amount of the Board members’ annual remuneration.

› Annually recommends to the Board the remuneration of each member of the Executive Committee.

› Determines incentive plans. › Sets the targets for the Executive Committee, in consulta-

tion with the Board of Directors. › Assesses the performance of the Executive Committee

against targets and submits a proposal to the Board for the variable compensation of the Executive Committee.

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The Board of Directors:

› Annually approves the fixed remuneration of each mem-ber of the Board based on recommendations of the Nomi-nation & Compensation Committee.

› Annually determines the variable compensation under the Schaffner share option plans for the individual mem-bers of the Board of Directors and executive management of the Schaffner Group (for further information on the Schaffner share option plans, see page 77 of this report in the notes to the consolidated financial statements).

› Annually determines the fixed and variable cash compen-sation of the Chief Executive Officer based on a recom-mendation of the Nomination & Compensation Com-mittee.

› Annually, together with the Chief Executive Officer, de-termines the fixed and variable cash compensation of the other members of the Executive Committee based on recommendations of the Nomination & Compensation Committee

› Approves the compensation system. › Sets the performance targets for the Executive Commit-

tee, in consultation with the Nomination & Compensa-tion Committee.

› Approves the actual award of variable compensation to the Executive Committee according to performance against targets, based on recommendations of the Nomination & Compensation Committee.

› Approves the introduction of new incentive systems, based on recommendations of the Nomination & Com-pensation Committee.

5.3 Compensation system

5.3.1 Board of Directors

5.3.1.1 Non-executive members of the BoardFor their service on the Board – primarily for preparing for and participating in Board meetings and working on the Board com-mittees – the non-executive members of the Board receive a fixed annual fee, a flat expense allowance, and (on a variable basis) op-tions over shares of Schaffner Holding AG under the Schaffner share option plans. The amount of the fixed fee and variable share award for each individual is set by the Board of Directors in its discretion, based on the amount of responsibility assigned, the complexity of the duties involved, the required professional and personal qualifications and the expected demands on the Board

member’s time. In determining compensation levels, the Board also considers publicly available information on remuneration at Swiss manufacturing companies of similar size listed on the SIX Swiss Exchange that have an international production and marketing organization. The annual base fee (excluding flat ex-pense allowances) for the Board Chairman is CHF 112,000 and that for each other member of the Board is CHF 47,000.00. No significant compensation in kind is provided. Detailed informa-tion on the compensation paid in the year under review and the prior year, including the share-based payments expense, is given on page 91 of this report in the notes to the parent company financial statements.

5.3.1.2 Executive members of the BoardThe Board of Directors of Schaffner Holding AG consists only of non-executive members.

5.3.2 Executive CommitteeThe compensation of the members of the Executive Committee consists of a fixed portion, a variable cash component related to individual and corporate performance, and options under the Schaffner share option plans. The Nomination & Compensation Committee annually reviews the compensation of the Execu-tive Committee members. The fixed component consists of the monthly salary, the extra month’s salary paid in most years at the end of the year, and flat expense allowances. A fixed contribution is also paid to the management pension plan. In individual cases, Executive Committee members receive benefits in kind and other fringe benefits, which are disclosed when they individually exceed CHF 50,000 in the fiscal year under review.

The fixed base salary is determined on a discretionary basis, taking into account the individual’s duties, amount of respon-sibility, formal qualifications and experience required, as well as the market environment. The process for determining base salaries includes taking into consideration market levels of pay relevant to the respective country, based on the latest Mercer Total Remuneration Survey.

The variable performance-related cash compensation is deter-mined on the basis of personal performance against individual targets and of the Group’s financial and business performance against the corporate targets set by the Board of Directors. At the beginning of the fiscal year, measurable personal perfor-mance targets are agreed between the Chairman of the Board and the Chief Executive Officer, and between the Chief Ex-ecutive Officer and the members of the Executive Committee.

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Performance relative to these targets is evaluated after the end of the fiscal year. In its performance target structure, Schaffner seeks an appropriate balance of financial performance and vol-ume productivity performance (such as turnover of product, for instance), taking into account the specific area of responsibility of the individual member of the Executive Committee. The additional targets, tailored to the particular position of the Ex-ecutive Committee member, represent a mix of financial and in some cases non-financial objectives.

The variable compensation depends on the financial results of the Schaffner Group and ranges from 33% to 40% of base salaries. For Executive Committee members, 80% of variable compensation is determined by the achievement of the budget targets of the business area for which they have responsibility, and 20% is dependent on performance against personal qualita-tive and quantitative targets.

Depending on the degree of target achievement, between 0% and 260% of the target variable compensation is paid.

The financial and business success of the Group is measured by the following financial value drivers:

› Organic growth › Operating profit (EBIT) › Free cash flow › Net profit for the period › Efficiency metrics related to net working capital and

production › Various metrics related to production, development and

marketing/sales.

The allotment of options over shares of Schaffner Holding AG under the Schaffner share option plans is variable and is per-formed annually based on the recommendation of the Nomina-tion & Compensation Committee and at the discretion of the Board of Directors. Detailed information on the compensation paid in the year under review and the prior year is provided on page 91 of this report in the notes to the parent company financial statements.

5.3.3 Share ownership plansShare ownership plans contribute to aligning the medium- and long-term interests of senior management with those of shareholders.

Since 1 October 1998, options to purchase registered shares of Schaffner Holding AG with a value of CHF 500,000 to CHF 900,000 have been granted annually under the Schaffner share option plans to executive management and members of the Board of Directors. The awarding of such options is based on the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) – before and after the changes to the ESOP on 13 November 2006 – and on the Schaffner Holding AG Perfor-mance Option Plan (POP). The shares allocated to satisfy the combined obligations under the ESOP and POP comprise both (i) authorized unissued share capital of CHF 2,351,115, consist-ing of 72,342 registered shares of Schaffner Holding AG with a nominal value of CHF 32.50 per share, and (ii) treasury shares.

Detailed information on the individual plans can be found on page 77 of this report in the notes to the consolidated financial statements.

5.3.3.1 Employee Share Option Plan (ESOP) options issued before the plan amendment of 13 November 2006Equity-settled share options granted under the pre-amendment ESOP ordinarily vested in five annual installments of 20%, be-ginning one year after the grant date. Five years after the grant date, all granted options are thus ordinarily vested. The options were granted over three years in equal annual tranches. This re-sulted in a different vesting period for each tranche. Unexercised options expire ten years after the grant date.

5.3.3.2 ESOP options issued after the plan amendment of 13 November 2006Equity-settled share options granted after the plan amendment become vested ordinarily in four annual installments of 25% each, beginning one year after the grant date. Four years after the grant date, all granted options are thus ordinarily vested. Unexercised options expire seven years after the grant date.

5.3.3.3 Performance Option Plan (POP)100% of equity-settled POP share options ordinarily vest (pro-vided that the non-vesting conditions are satisfied) if the per-formance target is reached at 30 September 2013. Under the non-vesting conditions, plan participants must, over the life of the plan, acquire a specified number of shares in Schaffner Holding AG that is proportionate to the number of options which they hold; restricted shares are counted towards the re-quired number of shares. The performance target is a clearly defined corporate financial target set by the Board of Directors.

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Participation in the Performance Option Plan is reserved for members of the Executive Committee. Unexercised options expire ten years after the grant date.

5.3.3.4 Restricted sharesThe members of the Executive Committee and other senior executive management are ordinarily entitled to subscribe for restricted shares, in a quantity determined by the Board of Di-rectors, at a discount of 20% to the quoted market price of the Company’s shares. These shares are subject to a holding period of four years; however, the grantee has the dividend rights and voting rights from the grant date.

5.3.4 Employment contracts and special benefitsThere are no employment contracts with notice periods of more than twelve months. Members of the Board or of the Executive Committee do not have a contractual entitlement to termina-tion benefits.

In the year under review, no termination benefits were paid to persons who ceased to be a member of the Board of Directors or Executive Committee in the year under review or in prior years. As well, no compensation was paid to persons related to them.

5.4 Compensation for the year under reviewBy decision of the Board of Directors, options over shares of Schaffner Holding AG were awarded for the year under review under the Schaffner share option plans. The Board decided at its meeting on 2 December 2011 to award 15,020 options over shares of Schaffner Holding AG at an exercise price of CHF 235.00. The basis for the exercise price was the closing price on the date of the grant. The Enhanced American Model used to estimate the fair value of the granted share options (a sophisti-cated binomial model) is explained in detail on page 79 of this report in the notes to the consolidated financial statements.

The compensation of the Board of Directors and Executive Committee disclosed below includes the compensation in respect of the full year under review, subject to the following qualifications and supplementary information:

› The variable compensation elements shown relate to the year under review. The variable compensation is ordinarily allotted and paid after the annual financial statements have been adopted by the Annual General Meeting.

› When new members join the Board of Directors or Ex-ecutive Committee, they are compensated in this capac-ity generally from the month in which they take up the position.

› Where members move from the Executive Committee to the Board of Directors or vice versa, the individual’s entire compensation for the year under review is reflected and disclosed under the new position.

› When a member leaves the Board of Directors, compensa-tion is paid until and including the month of departure. When a member leaves the Executive Committee, com-pensation is paid until the date of departure. Depend-ing on their specific position and country of residence, members of the Executive Committee are in some cases provided with a company car. Additional compensation is paid for postings to other countries (i.e., to expatriates). The value of any company car privileges and out-of-coun-try allowances is reported under “other compensation”.

› All payments to pension plans, contributions to man-agement pension plans and contributions in the form of premium reductions for insurance are reported within pension costs.

› Some members of the Executive Committee are also mem-bers of boards of directors of Group subsidiaries. To the extent that board member fees are paid by the subsidiaries for these board functions, the compensation is paid not to the members of the Executive Committee but to the Company, which remunerates these individuals in their capacity as Executive Committee members.

› In the year under review the Group did not provide any sureties or guarantees on behalf of members of the Board of Directors or Executive Committee.

› Neither Schaffner Holding AG nor another Group com-pany waived repayment of any debt outstanding from a member of the Board of Directors or Executive Com-mittee.

› In the year under review the members of the Board of Directors and Executive Committee did not receive any fees or compensation for any additional services rendered to Schaffner Holding AG or another Group company.

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5.4.1 Members of the Board of Directors and Executive Committee of Schaffner Holding AGA detailed analysis of the total compensation of the Board mem-bers and Executive Committee members including shares, share options and conversion rights, as well as their holdings of shares and share options, is provided on page 91 of this report in the notes to the parent company financial statements.

5.4.2 Members of the Executive Committee of Schaffner Holding AGIn the year under review the variable portion of the compensa-tion of the Executive Committee members on average repre-sented 9.25% (prior year: 28%) of their total compensation, with cash making up 100%-points (prior year: 50%-points) of the variable portion. In the prior year, 50%-points of the variable portion had been paid in the form of options or shares.

5.4.3 Former members of managementIn the year under review the total compensation of Markus Zenhäusern, who died on 1 July 2012, was CHF 35,250, plus expenses of CHF 3,750.

5.4.4 Related partiesIn the year under review, no fees or other compensation for services rendered to the Schaffner Group or to one of its sub-sidiaries were paid to or accrued by parties related to members of the Board or of the Executive Committee.

5.5 LoansIn fiscal year 2011/12 the Schaffner Group did not provide any sureties on behalf of, nor provide any loans, advances or other forms of credit to, former or current members of the Board of Directors or Executive Committee or parties related to them. As well, no such commitments or receivables were outstanding at the end of the fiscal year.

5.6 Management transactionsSince 1 July 2005, Schaffner Holding AG reports to the SIX Swiss Exchange the transactions in Schaffner shares and options concluded by members of the Board of Directors, Executive Committee, or by parties related to them, including the name and position of the persons concerned. Transactions exceeding the disclosure threshold of CHF 100,000 per reportable person per calendar month were published anonymously on the website of SIX Swiss Exchange. SIX Swiss Exchange did not publish any collective announcements of transactions below the disclosure threshold of CHF 100,000 in any calendar month. With effect

from 1 April 2011 the SIX Swiss Exchange’s rules on the disclo-sure of management transactions were revised to make them simpler and create greater transparency for market players. The revisions included the elimination of the disclosure threshold of CHF 100,000 for notification of management transactions. A compilation of the management transactions in the fiscal year under review is available on the website of the SIX Swiss Exchange at the following link: www.six-swiss-exchange.com/shares/companies/management_transactions_en.html?preloadResults=true&issuerId=10529&fromDate=20101128

An overview of the holdings of shares, options and conversion rights of the members of the Board of Directors and Executive Committee at 30 September 2012 and 2011 is provided on page 91 of this report in the company financial statements of Schaffner Holding AG.

6 Shareholder participation rights

6.1 Voting rights restrictions and proxy votingAt 30 September 2012 there were 1,325 shareholders registered in the share register. Each share of Schaffner Holding AG, with the exception of shares held by the Company (treasury shares), carries one vote at the General Meeting of shareholders. There are no restrictions on voting rights.

Upon presentation of a written proxy, shareholders may be rep-resented at the General Meeting by another shareholder having voting rights, by the Company-appointed proxy, the independ-ent proxy, or a custodian (a bank). Partnerships and legal entities may be represented by authorized signatories, and minors and wards by their legal representatives, even if these proxies are not shareholders. Shareholders represented by a proxy may is-sue instructions regarding each agenda item and also regarding motions not included in the invitation, stating whether they wish to vote for or against a motion or abstain. The proxy ap-pointed by the Company represents only shareholders who are approving the motions of the Board of Directors; proxy man-dates accompanied by other instructions are turned over to the independent proxy. Unless explicitly instructed otherwise, the independent proxy will vote in support of the motions of the Board of Directors.

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6.2 Quorums under the Articles of AssociationExcept as otherwise required by law or the Articles of Associa-tion, the General Meeting passes its resolutions and decides its elections by a majority of the valid votes represented. If an elec-tion is not completed in the first round and there is more than one candidate, a second round of voting is held, which is decided by a relative majority. The Articles of Association of Schaffner Holding AG do not provide for special quorums that go beyond the provisions of Swiss corporation law.

6.3 Calling of the General MeetingThe General Meeting is called by the Board of Directors no later than 20 days before the meeting date by issuing a notice in the Company’s official gazette for statutory notices. Notice of the meeting may additionally be sent by letter to all shareholders registered in the share register. In addition to the meeting date, hour and place, the notice must state the items of business to be discussed and the resolutions proposed by the Board of Direc-tors and by shareholders that have requested a General Meeting or have put forward an item for discussion at the meeting.

Resolutions cannot be passed on matters that have not been announced in this manner, except for motions to call an Extraor-dinary General Meeting or to conduct a special audit.

Shareholders representing at least one-tenth (10%) of the share capital may submit a request – binding on the Company – to call an Extraordinary General Meeting. Such a request must be in writing and state the business to be discussed and the proposed resolutions.

6.4 Placing business on the General Meeting agendaOne or more shareholders who together represent at least 5% of the share capital, or shares with a nominal value of at least CHF 1 million, whichever is less, may by their written request have business placed on the agenda of a General Meeting. Such a written request must be received by the Company at least 45 days before the General Meeting.

6.5 Registration in the share registerIn accordance with section 6 (1) of the Articles of Association, Schaffner Holding AG maintains a share register. The Com-pany may outsource the operation of the share register to an entity specializing in such services. At present the share register is operated by ShareComm Services AG, Opfikon. The manager of the share register is Schaffner’s Chief Financial Officer. The CFO reports to the Chairman of the Board concerning the share

register. The Chairman and the Chief Executive Officer receive regular reports on the shareholder structure (including share de-registrations above a certain size of shareholding). The Board of Directors annually receives a report on the shareholder structure.

The Share Registration Regulation of Schaffner Holding AG sets out in detail the rules governing registration in the share register, including particularly the responsibilities in relation to, and the maintenance of, the share register and the monitoring of the shareholdings recorded in the share register. The Registra-tion Regulation has been issued by the Board of Directors in reliance on sections 685a and 685d et seq. of the Swiss Code of Obligations and section 6 of the Articles of Association of Schaffner Holding AG, and can be viewed at or requested from the Company’s head office.

For the purposes of the legal relationship with the Company, shareholders or beneficial owners of shares are recognized as such only if they are registered in the Company’s share register. In accordance with section 6 (3) of the Articles of Association of Schaffner Holding AG, purchasers of shares are upon their request recorded as voting shareholders in the share register by the Board of Directors if the purchasers state expressly that they have acquired and will hold the shares for their own account. Recognition as a shareholder with voting rights thus requires both that the shareholder in question bears the economic risk in-cident to ownership of the shares to be registered, and that, in the application for registration, the shareholder expressly declares to the Company that the shareholder has acquired and will hold the shares for the shareholder’s own account. In reliance on section 6 (3) of the Articles of Association and the requirements for recognition derived from it, applicants (purchasers holding legal title to the shares) are thus not recognized as voting shareholders if they have acquired, and are holding, the shares as a result of a securities lending transaction or similar transaction that gives them legal ownership without the associated economic risk.

In the case of registration applications by shareholders holding the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act (5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔% of votes), the registration is not performed until the Company has received a complete disclosure notification by the applicant pursuant to section 20 of the Stock Exchange Act. If the disclosure no-tification meets the legal requirements (i.e., if it contains the legally required information about the beneficial owner), then

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the applicant (i.e., the acquired stock) is registered in the share register as having voting rights. If the disclosure notification is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations, or is incomplete, the application for registration with voting rights is denied and the shareholder (or the acquired stock) is registered in the share register as non-voting. The manager of the share register will promptly inform the company in charge of operating the share register about the disclosure notification made.

Persons who do not expressly declare in their registration ap-plication that they hold the shares for their own account are classified as nominees. In accordance with section 6 (4) of the Articles of Association, by default any single nominee is regis-tered in the share register as holding voting shares only up to a maximum of 5% of the share capital recorded in the Swiss commercial register of companies. Above this limit of 5%, the Board of Directors registers shares of nominees in the share register as voting shares only if (i) the nominee discloses to the Company the names, addresses and Schaffner shareholdings of the persons for whose account the nominee holds 0.5% or more of the share capital registered in the commercial register, and (ii) an agreement exists between the nominee and the Company which specifies the nominee’s position and the details of the nominee’s notification requirements. The registrar company retained to operate the share register is responsible for sending the nominee agreement to the respective nominee and for col-lecting the information to be disclosed. If complete disclosure is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations and no nominee agreement is concluded between the Company and the nominee within this time period, the nominee is registered in the share register as non-voting for these shares.

To the extent permitted by law, the Board of Directors is author-ized to enter into agreements with nominees regarding notifica-tion obligations. On a case-by-case basis, the Board may approve exceptions to the nominee rules.

Where legal entities or groups with joint legal status are related to one another by capital, voting rights, management or in some other manner, they are deemed to constitute a single purchaser, as are all natural persons, legal entities or groups with joint legal status that by agreement, as a syndicate or in any other way act in a coordinated manner with a view to circumventing the nominee rules. The Company may void registrations in the share register with retroactive effect from the date of registration if they were

based on false information given by the purchaser. The purchaser must be informed of this deletion immediately.

Shares for which the requirements (as set out in the Share Reg-istration Regulation or in any amendments thereto) for registra-tion as a voting shareholder are not, or no longer, fulfilled, are registered in the share register as non-voting shares.

Registered non-voting shareholders and registered non-voting nominees cannot exercise the voting rights associated with the shares nor other rights related to the voting rights. However, they are not restricted in exercising any of their other rights as shareholders, including also pre-emptive rights. At the General Meeting the shares registered as non-voting are treated as un-represented (see section 685 f (2) and (3) of the Swiss Code of Obligations).

These registration restrictions also apply to shares bought or subscribed through the exercise of pre-emptive rights, options or conversion rights.

The authority structure for the approval of registrations of share-holders in the share register is as follows:

› Registration applications for up to 5,000 shares per trans-action that either clearly meet or clearly do not meet the requirements for registration as a voting shareholder or nominee: Approval by the registrar company commis-sioned to operate the share register.

› Applications for registration as a nominee: Approval by the registrar company commissioned to operate the share register.

› Registration applications for more than 5,000 shares per transaction and all other transactions that do not clearly meet the requirements for registration as a voting share-holder or nominee, or in which there is uncertainty: Approval by the manager of the share register.

› All registration applications of shareholders or groups of shareholders that hold the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act (5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔% of votes): Approval by the manager of the share register.

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Exceptional cases can at any time be forwarded for approval to the Chairman or, if absent, to the Vice Chairman of the Board.

The Board may, after hearing the affected party, void the party’s registration in the share register as a voting shareholder, retro-actively to the date of registration, if the registration was the result of false information supplied by the purchaser, and in-stead register the affected party as a non-voting shareholder. Registrations can also be deleted (or reclassified as non-voting) when a registered shareholder refuses to provide the requested information or fails to provide requested evidence (regarding beneficial owners, etc.) despite prior warning. The authority to decide on deleting or reclassifying the registration of a voting shareholder or nominee or on terminating the relationship with a nominee rests with the Chairman of the Board of Directors. The purchaser must be informed of the deletion immediately.

Under section 13 (4) of the Articles of Association, in the notice of the General Meeting the Board of Directors announces the record date at which registration in the share register is required for participation in and voting at the meeting, and thus an-nounces the length of the period for which the share register will be closed. The record date for registration is generally the fifth trading day before the day of the General Meeting. Accord-ingly, the closure of the share register as a rule is in effect from the fourth trading day before the day of the General Meeting, until and including the day of the General Meeting.

Deletions from the share register can be made during the closure. Thus, despite the closure, a share seller is struck from the share register to the extent of the shares sold, if the sale is reported to the Company or to the manager of the share register during the closure. An admission ticket already issued in the seller’s name is automatically voided by the deletion from the share register. In the event of partial sale of a shareholding, the admission ticket previously sent to the seller must be exchanged on the meeting date at the registration desk. The invitation to the General Meet-ing should note this fact.

7 Changes in control and measures to prevent hostile takeovers

7.1 Requirement to make a public purchase offer for sharesThe Articles of Association of Schaffner Holding AG contain neither an opting-out clause nor an opting-up clause. This means that any person or entity acquiring one-third (33⅓%) or more of the voting rights of Schaffner Holding AG must, under section 32 of the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA, or Stock Exchange Act), make a public tender offer to purchase the remaining shares.

7.2 Provisions on changes in controlThe participants in the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) and Schaffner Holding AG Perfor-mance Option Plan (POP) have the right to exercise immedi-ately any portion or all of their options without regard to the holding periods, in either of the following two cases:

› If any person or entity directly or indirectly acquires a number of shares in the Company that, under section 32 of the Stock Exchange Act, triggers the acquirer’s obli-gation to make an offer to acquire all other outstanding shares of the Company, or

› If Schaffner Holding AG sells all or a substantial portion of the Company’s assets.

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8 Auditors

8.1 Duration of audit firm’s engagement and tenure of lead audit partner

8.1.1 Date of beginning of current audit engagementThe external independent auditor is appointed annually by the General Meeting. Ernst & Young AG, Berne, have been the external independent auditors of Schaffner Holding AG since the fiscal year 2002/03.

8.1.2 Date of first appointment of lead audit partnerThe lead audit partner at the external auditors (the person in charge of the audit engagement), Ms. Bernadette Koch, has held this position since the fiscal year 2009/10. By law, the lead audit partner’s tenure is limited to seven years.

8.2 Audit feesIn fiscal year 2011/12, Ernst & Young AG billed the Schaffner Group a total of CHF 358,000 for services in connection with the auditing of the company financial statements of Schaffner Holding AG and the consolidated financial statements of the Schaffner Group (prior year: CHF 389,000).

8.3 Additional feesIn addition, Ernst & Young AG invoiced the Schaffner Group CHF 18,000 (prior year: CHF 37,000) for other services, which had the following composition:

Tax consulting CHF 10,000 Prior year: CHF 17,000IT consulting CHF 2,000 Prior year: CHF 18,000Other CHF 6,000 Prior year: CHF 2,000

8.4 Monitoring the external independent auditorsThe Audit Committee, on behalf of the Board of Directors, annually reviews the license, performance, fees and independ-ence of the external auditors and recommends to the Board which external auditors to propose for election by the General Meeting. It also ensures compliance with the legal requirement for rotation of the lead audit partner. The external auditors in the course of their audit activities regularly communicate to the Audit Committee their findings and any suggestions for improvement. The results are reported through a management letter to the General Meeting (prepared after the audit of the annual financial statements) and through the other reports of the external auditors.

The Audit Committee meets with the external auditors at least two times per year, sets the scope and objectives of the audits, and annually assesses the work of the external audit firm through a performance evaluation process. This process takes into ac-count the Committee’s experience in working with the external audit firm and the audit firm’s own quality assurance measures in respect of the engagement. The Audit Committee obtains assurance that the lead audit partner has the necessary technical qualifications and fulfills the requirements as to independence. The Chief Executive Officer and Chief Financial Officer also attend these meetings with the external auditors. The Board of Directors is kept informed by the Audit Committee.

9 Communication policy

Schaffner follows a policy of open and active communication with the public and the financial markets. The communication policy also adheres to the rules of the SIX Swiss Exchange and the applicable legal requirements. The Schaffner Group’s finan-cial reporting complies with International Financial Reporting Standards (IFRS).

As a company listed on the SIX Swiss Exchange, Schaffner also publishes information (so-called “ad-hoc” disclosures) relevant to the share price in accordance with section 72 of the Listing Rules. In the course of its communications the Schaffner Group makes forward-looking statements. These statements are always based on management’s judgment, at the time the statement is made, regarding the current and future position and performance of the company. It is not the policy of Schaffner Holding AG to update information published in the past.

The Schaffner Group reports on its financial and business per-formance on a half-yearly basis. All publications are made avail-able in electronic format; the annual report is also available in hard copy. The half-year report is published on the Company’s website and printed on request.

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The investor relations activities of the Schaffner Group include the following events (among others), conducted in compli-ance with the ad-hoc-disclosure requirements of the SIX Swiss Exchange:

› Annual General Meeting › Presentation of the full-year results › Conference calls focusing on the publication of the half-

year results or other news › Meetings with shareholders, investors and analysts during

road shows › Themed investor days for shareholders, investors and

analysts.

Media releases remain available on the Schaffner website for at least two years after publication and can be accessed via the following link: www.schaffner.com/en/investor-relations/ad-hoc-mitteilungen.html

Annual and half-year reports remain available on the website for at least five years and are displayed at: www.schaffner.com/en/investor-relations/reports.html

The corporate governance and compensation report can be found at the following link: www.schaffner.com/en/investor-relations/corporate-governance.html

Annual and half-year reports, corporate governance and com-pensation reports, media releases and presentations for share-holders, investors and analysts are published on the Group’s website at www.schaffner.com and archived there by publication date. The latest ad-hoc disclosures of the Schaffner Group can also be received by e-mail, promptly and free of charge, by regis-tering for the news service at www.schaffner.com, specifically at:www.schaffner.com/en/news-service.html

Responsibility for corporate communications rests with the Chief Executive Officer. He is supported in investor relations by the Chief Financial Officer.

The Company’s official gazette for the publication of statutory and regulatory news is the Swiss Official Gazette of Commerce, or SOGC.

Publications in connection with maintaining the listing of the Company’s shares on the SIX Swiss Exchange are effected in ac-cordance with the Listing Rules of the SIX Swiss Exchange. The Listing Rules can be obtained at www.six-swiss-exchange.com.

A current source of in-depth information on the Group, prod-ucts and contact details is www.schaffner.com.

Investor relations contacts › Alexander Hagemann, Chief Executive Officer

[email protected], T +41 32 681 66 06

› Kurt Ledermann, Chief Financial Officer [email protected], T +41 32 681 66 08

Financial calendarThe fiscal year-end of Schaffner Holding AG is 30 September.

14 January 2013 17th Annual General Meeting13 May 2013 Publication of Half-Year Report 2012/13 (half-year results)10 December 2013 Publication of Annual Report 2012/13 (full-year results)14 January 2014 18th Annual General Meeting

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Financial report

Contents

Consolidated financial statements of the Schaffner Group52 Consolidated balance sheet53 Consolidated income statement53 Consolidated statement of comprehensive income54 Consolidated cash flow statement55 Consolidated statement of changes in equity56 Notes to the consolidated financial statements88 Report of the statutory auditor on the consolidated financial statements Company financial statements of Schaffner Holding AG89 Company balance sheet89 Company income statement90 Notes to the company financial statements of Schaffner Holding AG94 Proposal for the appropriation of retained earnings95 Report of the statutory auditor on the company financial statements

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In CHF '000 Note 30.9.2012 30.9.2011

Intangible assets 3 22,327 24,051Property, plant and equipment 4 21,109 18,202Other non-current assets 5, 21 13,327 11,817Deferred tax assets 16 2,864 2,683Non-current assets 59,627 56,753

Inventories 6 29,873 29,069Trade receivables 7, 21 34,766 32,426Income tax receivables 582 446Other receivables, prepaid expenses and accrued income 8, 21 3,674 3,680Other current financial assets 2,065 213Cash and cash equivalents 21 10,256 14,235Current assets 81,216 80,069

Total assets 140,843 136,822

Equity attributable to equity holders of Schaffner Holding AG 60,333 56,929Shareholders’ equity 60,333 56,929

Non-current provisions 9 6,091 6,556Deferred tax liabilities 16 2,194 1,935Non-current borrowings 10, 21 35,959 441Non-current liabilities 44,244 8,932

Current provisions 9 2,934 3,521Current borrowings 10, 21 194 34,559Income tax payables 966 1,928Trade and other payables 11, 21 32,172 30,953Current liabilities 36,266 70,961

Total liabilities 80,510 79,893

Total liabilities and shareholders’ equity 140,843 136,822

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated financial statements of the Schaffner Group

Consolidated balance sheet

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Consolidated income statement (year ended 30 September)

Consolidated statement of comprehensive income (year ended 30 September)

In CHF '000 Note 2011 / 12Restated2010 / 11

Net sales 17 176,942 182,603

Cost of sales – 128,037 – 126,175Gross profit 48,905 56,428

Other income 4 961 355Marketing and selling expense – 16,798 – 15,271Research, development and application expense – 14,185 – 14,100General and administrative expense – 10,785 – 14,033Operating profit before amortization of customer relationships 8,098 13,379

Amortization of customer relationships1 3 – 855 – 568Operating profit [EBIT] 7,243 12,810

Finance income 15 1,944 10,680Finance expense 15 – 4,152 – 12,613Profit before tax [EBT] 5,035 10,877

Income tax 16 – 1,126 – 727Net profit for the period 3,909 10,150

Earnings per share in CHF 19Basic 6.17 16.03Diluted 6.03 15.43

1 In a strict classification by function of expense, amortization of customer relationships would be presented under marketing and selling expense.

In CHF '000 2011/12 2010/11

Net profit for the period 3,909 10,150Exchange differences 1,795 – 4,028Movement in cash flow hedges 10 – 306Income tax 0 0Total comprehensive income for the period 5,714 5,816


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Consolidated financial statements of the Schaffner Group

Consolidated cash flow statement(year ended 30 September)

In CHF '000 Note 2011/12 2010/11

Net profit for the period 3,909 10,150Depreciation and impairment of property, plant and equipment 4 4,002 3,374Amortization and impairment of intangible assets 3 2,674 1,916Gain on disposal of property, plant and equipment and intangible assets 4 – 972 – 44Change in provisions 9 – 749 – 1,137Change in inventories 8 344Change in receivables – 3,515 6,406Change in current liabilities – 397 – 3,529Change in deferred tax 16 142 – 1,214Share-based payments expense 1,058 889Exchange differences on intra-Group items – 88 650Change in net defined benefit plan asset – 1,490 0Cash flow from operating activities 4,582 17,805

Purchase of property, plant and equipment 4 – 3,740 – 6,901Disposal of property, plant and equipment 1,366 176Purchase of intangible assets 3 – 671 – 1,434Acquisition of subsidiaries or businesses, and contingent consideration 2 – 361 – 10,558Change in loan receivables and non-current financial assets – 26 – 19Cash flow from investing activities – 3,432 – 18,736

Purchase of treasury shares 20 – 980 – 7,356Disposal of treasury shares 20 0 26Proceeds from exercise of share options and from purchase of restricted shares by staff 20 457 4,411Repayment of excess share premium – 2,845 – 2,842Proceeds from borrowings 0 13,360Repayment of borrowings – 1,823 0Amortization in connection with finance lease – 126 0Cash flow from financing activities – 5,317 7,599

Effect of exchange rates on cash and cash equivalents 188 – 494Change in cash and cash equivalents – 3,979 6,174

Cash and cash equivalents at 1 October 14,235 8,061Cash and cash equivalents at 30 September 10,256 14,235

Free cash flow1 1,537 9,646

Included in cash flow from operating activities:Interest paid – 1,404 – 872Interest received 30 82Income tax paid – 1,862 – 344

1 Cash flow from operating activities less net investment in property, plant and equipment and in intangible assets. The accompanying notes are an integral part of the consolidated financial statements.

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Consolidated statement of changes in equity

In CHF '000

Share capital Share premium

Translation reserve

Retained earnings

Treasury shares

Hedging reserve

Total shareholders’

equity

At 1 October 2010 20,668 60,202 – 12,067 – 11,824 – 879 – 115 55,985Exchange differences – 4,028 – 4,028Movement in cash flow hedges – 306 – 306Net profit for the period 10,150 10,150Total comprehensive income for the period 0 0 – 4,028 10,150 0 – 306 5,816Treasury shares – 2,034 – 1,181 – 3,215Repayment of excess share premium1 – 2,842 – 2,842Issue of restricted shares – 147 443 296Share option plans 889 889At 30 September 2011 20,668 58,249 – 16,095 – 3,855 – 1,617 – 421 56,929Exchange differences 1,795 1,795Movement in cash flow hedges 10 10Net profit for the period 3,909 3,909Total comprehensive income for the period 0 0 1,795 3,909 0 10 5,714Treasury shares – 713 148 – 565Repayment of excess share premium1 – 2,845 – 2,845Share option plans and restricted shares 1,058 42 1,100At 30 September 2012 20,668 56,462 – 14,300 – 617 – 1,469 – 411 60,333

1 CHF 4.50 per share.

Share capitalThe issued share capital of Schaffner Holding AG consists of 635,940 ordinary registered shares with a nominal value of CHF 32.50 per share. The issued shares are fully paid. Each share car-ries one vote at the General Meeting. All shares not held by the Company or by one of its subsidiaries attract dividends.

There is also authorized unissued capital of 72,342 shares with a total nominal value of CHF 2.4 million. This is reserved for the Schaffner share option plans (see note 18 on page 77).

Share premiumThe share premium (also known as additional paid-in capital) represents the excess of the issued share capital’s market value over its nominal value. The increase in share premium in the year under review resulted from the granting of conversion rights un-der the share option plans (see note 18 on page 77). In the re-porting period, share premium was reduced by CHF 2.8 mil-lion through the repayment of CHF 4.50 per dividend-bearing registered share from this capital reserve.

Translation reserveShareholders’ equity is carried at historical exchange rates. The resulting foreign exchange differences are recognized directly in shareholders’ equity as a separate line item until the disposal of the subsidiary in question.


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Notes to the consolidated financial statements

Accounting policies

Basis of preparationThe consolidated financial statements comprise the individual financial statements of Schaffner Holding AG (the “Company”) and its subsidiaries (together, “Schaffner”, the “Group” or the

“Schaffner Group”) as at 30 September 2012, drawn up in ac-cordance with the uniform accounting policies of the Group.

The consolidated financial statements have been prepared under the historical cost convention, except for certain items (such as derivatives or listed securities) that are stated at fair value, as fur-ther detailed in the accounting policies below. The consolidated financial statements comply with Swiss law and have been pre-pared in accordance with International Financial Reporting Standards (IFRS) and their interpretations (IFRIC) issued by the International Accounting Standards Board (IASB). The presentation currency of the consolidated financial statements is the Swiss franc.

The consolidated financial statements are prepared in German and translated into English. The English version is provided solely for readers’ convenience. Only the German version is de-finitive and legally binding.

Changes in accounting policiesThe Schaffner Group adopted the following changes with effect from 1 October 2011:

› IFRS 1 – Amendments – Severe Hyperinflation and Re-moval of Fixed Dates for First-time Adopters

› IFRS 7 – Amendments – Disclosures: Transfers of Fi-nancial Assets

› IAS 24 – Amendments – Related Party Disclosures › IFRIC 14 – Amendments – Prepayments of a Minimum

Funding Requirement › Annual Improvements to IFRSs 2008 – 2010

None of the IFRS changes and interpretations which became effective on 1 October 2011 have a material effect on the fi-nancial position, results of operations and cash flows of the Schaffner Group.

Change in presentation – net salesIn the prior years, volume-based discounts and commissions to distributors were erroneously presented in the item “marketing and selling expense”. In the income statement these are now rec-ognized as sales deductions. This change will provide users of the financial statements with a clearer picture of operating costs which are relatively fixed in na-ture. Discounts and commissions to distributors – which accrue in direct proportion to sales – are now deducted from gross sales in the same way as other discounts and rebates.

The prior year has been restated accordingly. As a result, net sales and the item “marketing and selling expense” each decreased by CHF 1.1 million. The change had no effect on net profit or on earnings per share.

IFRS standards becoming effective after the reporting period The following new or amended standards and interpretations have been issued, but are not effective until subsequent periods and have not been applied early in these consolidated financial statements. Their impact on the consolidated financial state-ments of the Schaffner Group has not yet been systematically analyzed. However, based on a preliminary assessment, the ex-pected impact of each standard and interpretation is presented in the table below.

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Assessment Effective date Planned adoption by Schaffner Group

IAS 1 – Amendments – Presentation of Items of Other Comprehensive Income ** 1.7.2012 2012/13IAS 12 – Amendments – Deferred Tax: Recovery of Underlying Assets * 1.1.2012 2012/13IAS 19 – Revised – Employee Benefits **** 1.1.2013 2013/14IAS 27 – Revised – Separate Financial Statements * 1.1.2013 2013/14IAS 28 – Revised – Investments in Associates and Joint Ventures * 1.1.2013 2013/14IAS 32 – Amendments – Offsetting Financial Assets and Financial Liabilities *** 1.1.2014 2014/15IFRS 1 – Amendments – Government Loans * 1.1.2013 2013/14IFRS 7 – Amendments – Disclosures – Offsetting Financial Assets and Financial Liabilities ** 1.1.2013 2013/14IFRS 9 – Financial Instruments *** 1.1.2015 2015/16IFRS 10 – Consolidated Financial Statements *** 1.1.2013 2013/14IFRS 11 – Joint Arrangements * 1.1.2013 2013/14IFRS 12 – Disclosure of Interests in Other Entities ** 1.1.2013 2013/14IFRS 13 – Fair Value Measurement *** 1.1.2013 2013/14IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine * 1.1.2013 2013/14Annual Improvements to IFRSs 2012 ** 1.1.2013 2013/14

* There is expected to be no, or no significant, impact on the consolidated financial statements. ** The impact on the consolidated financial statements is expected to take the form mainly of additional disclosures or of changes in presentation. *** The impact on the consolidated financial statements cannot yet be determined with sufficient reliability. **** IAS 19 is changing in two important respects. First, the expected return on plan assets and the interest costs on the defined benefit obliga-tions will be replaced by a single quantity – net interest – calculated by applying the discount rate to the reported net defined benefit asset or liability. Second, past service costs will be recognized in the period in which a plan amendment occurs, and unvested benefits will no longer be spread over future periods. These changes will have an impact both on profit for the period and on earnings per share, as pension cost will increa-se. The changes will also affect the amounts recognized in comprehensive income and the net employee benefit assets recognized in the balance sheet. The impact on the amounts in the financial statements could not yet be determined conclusively, due especially to the presence of risk-sharing features. At 30 September 2012 there were unrecognized actuarial losses of CHF 5.1 million. If the changes to IAS 19 were already applied, approximately CHF 4.1 million (after tax) of this amount would therefore have had to be recognized in equity.

EstimatesThe consolidated financial statements of the Schaffner Group contain assumptions and estimates which affect the reported fi-nancial position, results of operations and cash flows. These as-sumptions and estimates were made on the basis of manage-ment’s best knowledge at the time of preparation of the accounts. Actual results could differ from the values presented. The fol-lowing estimates have the largest effects on the consolidated fi-nancial statements:

› Intangible assets: For acquisitions, the fair value of the acquired net assets (including acquired intangible assets) is estimated. Any amount paid in excess of this estimate represents goodwill. Intangible assets with a finite life are written off over the expected period of use; those with an indefinite life (primarily goodwill) are not amortized, but tested annually for impairment. The initial measure-ment of intangible assets (including goodwill), the esti-mation of useful life and the assumptions involved in the impairment test can have an effect on the consolidated fi-nancial statements.

› Provisions: Provisions are recognized only if the specific criteria under IFRS for doing so are met. Provisions rep-resent obligations arising from a past event and are recog-nized only if settlement is likely to require an outflow of resources of unknown amount that can be estimated reli-ably. Nevertheless, provisions are based on assumptions, which may later prove to be incorrect.

› Pension obligations: The calculation of the pension obli-gations of the defined benefit plans is based on actuarial assumptions that may be adjusted in the subsequent year to reflect changed circumstances and that may thus have an impact on the financial position, results of operations and cash flows.

› Income tax: The Schaffner Group is subject to income tax in numerous jurisdictions. Significant judgment is re-quired in determining the provision for current and de-ferred income taxes. There are transactions and calcula-tions for which the ultimate effective tax assessment is

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uncertain at the time of preparation of these financial statements. The recognition of deferred tax assets is based on management’s judgment. Deferred tax assets for tax loss carry-forwards are only recognized to the extent that it is probable they can be utilized. Their utilization de-pends on the ability to generate future taxable profits against which existing loss carry-forwards can be applied. Judging the probability of future utilization requires esti-mates of various factors, such as the future earnings situ-ation. If the actual outcomes differ from the estimates, this can lead to changes in the assessed fair value of the deferred tax assets.

DefinitionsA subsidiary is a company over which Schaffner Holding AG, Luterbach, directly or indirectly exercises control.

The term “non-current liabilities” refers to all liabilities with re-maining maturities of more than one year; “current liabilities” refers to all liabilities with remaining maturities of one year or less. Current liabilities thus also include that portion of non-current borrowings maturing within one year. All interest-bear-ing liabilities are included under borrowings.

Methods of consolidationThe consolidated financial statements include the financial statements of Schaffner Holding AG and of its subsidiaries. Schaffner Holding AG and the subsidiaries are included by full consolidation. Under this method, these companies’ assets, li-abilities, income and expenses are fully included in the consol-idated financial statements.

All intra-Group balances, income and expenses are eliminated on consolidation (both among the subsidiaries and between the subsidiaries and Schaffner Holding AG). This also includes in-tra-Group profits on inventories and on non-current assets.

Companies acquired during the reporting period are included in the consolidated financial statements from the effective date of their acquisition. Companies divested during the reporting period remain included in the consolidated financial statements until the effective completion of the divestment transaction.

Translation of subsidiaries’ functional currencies into the Group’s presentation currencyAll assets and liabilities in the balance sheets of foreign subsidi-aries drawn up in foreign currencies are translated into Swiss

francs (CHF) at period-end exchange rates (i.e., at closing rates for the reporting period). Expenses, income and cash flows are translated into Swiss francs at weighted average exchange rates for the period, which approximate the actual transaction rates. Foreign exchange differences arising from the variation in appli-cable exchange rates are recognized directly in the consolidated statement of comprehensive income, where they are accumu-lated in the item “exchange differences”.

Foreign currency transactionsForeign currency transactions of subsidiaries are translated into the functional currency of the subsidiary at exchange rates pre-vailing at the transaction date (i.e., at transaction rates). Their foreign currency balances are translated at period-end exchange rates. Gains and losses arising from the recovery, settlement or translation of foreign currency monetary assets and liabilities are recognized as income or expense in the income statement.

Intangible assetsIntangible assets are stated at historical cost less any amortiza-tion and impairment. Intangible assets other than goodwill (which is not amortized) are amortized on a straight-line basis over the following estimated useful lives:

Trademarks, technology and rights 10 yearsSoftware 3 – 8 yearsCustomer relationships 10 years

Acquisitions and goodwillCompanies are consolidated from the date at which control is acquired. Business combinations are accounted for using the ac-quisition method. The cost of an acquisition is calculated as the aggregate of the consideration transferred – measured at fair value at the acquisition date – and the amount of any non-con-trolling interest in the acquired company. For each business com-bination, the non-controlling interest in the acquired entity is measured either at fair value or at the proportionate share of the acquired company’s identifiable net assets. Acquisition costs in-curred are recognized as an expense.

Any contingent consideration payable is recognized at the ac-quisition date at fair value. Subsequent changes to the fair value of a contingent consideration which is deemed to be an asset or liability are recognized either in the consolidated income state-ment or in other comprehensive income. If the contingent con-sideration is classified as equity, it is not remeasured and its even-tual settlement will be recognized in equity.


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If the acquisition cost of the company exceeds the market value of the acquired identifiable assets, liabilities, contingent liabili-ties and non-controlling interests, the difference is recognized as goodwill. Any negative goodwill is recognized in the income statement in the period of acquisition.

Goodwill is assessed for impairment annually and any impair-ment is charged to the consolidated income statement. When a subsidiary is sold, the difference between its sale price and its net assets, plus cumulative exchange differences, is reported as oper-ating income or expense in the consolidated income statement.

Research and development costsDevelopment costs for new products are not capitalized, as a fu-ture economic benefit can be demonstrated only after a success-ful market launch. Development costs for software are capital-ized as intangible assets, provided that the software will generate a future economic benefit through sale or through use within the Group and that its cost can be reliably estimated. Other con-ditions for capitalization are the technical feasibility of the as-set and the intention and ability to complete its development and either use or sell it.

Intangible assets recognized for development costs of software are amortized on a straight-line basis over their estimated use-ful life. The capitalized costs are tested annually for impairment for as long as the software is not yet in use, or when there are ob-jective indications of impairment.

Property, plant and equipmentItems of property, plant and equipment are stated at historical cost less depreciation and impairment. They are depreciated on a straight-line basis over their estimated useful life, which is as follows:

Land Not depreciatedBuildings 10 – 50 yearsMachinery and equipment 5 – 10 yearsFurniture and fixtures 5 – 10 yearsVehicles 3 – 6 yearsInformation technology hardware 3 – 5 yearsTools 1 – 5 years

Leases under which a Group company as lessee has substantially all the benefits and risks of ownership are classified as finance leases. The leased asset is capitalized at the lower of its fair value or the present value of the minimum lease payments, and a lia-bility of the same amount is recognized in borrowings. The in-

terest portion (the finance charge) of the lease payments is charged to the income statement. Payments made under oper-ating leases are recognized as an expense in the income state-ment in equal installments over the life of the lease.

Impairment of non-financial assetsThe recoverable amount of an asset is estimated whenever there is an indication of impairment. If the asset’s carrying amount ex-ceeds the recoverable amount, the difference is recorded as an impairment charge in the income statement. The recoverable amount is the higher of an asset’s net selling price and its value in use. An asset’s value in use is the present value of the estimated future cash flows from the asset.

InventoriesProducts purchased for resale, and raw materials, are measured at cost of purchase. Internally produced goods are measured at the cost of conversion, including related production overhead. Inventories in the balance sheet, and the charge to the income statement for the conversion cost of goods sold (cost of sales), are measured using the standard cost method. The standard costs are regularly reviewed and, when necessary, brought into line with current circumstances. Inventories that are slow-moving or have a lower market value are written down. Unsalable inven-tory is fully written off. Inventory is thus not measured at more than its net realizable value.

Trade receivablesThe carrying amount (also known as carrying value) of trade re-ceivables is their nominal value less a provision for doubtful debts, i.e., for impairment.

Securities held as current assetsSecurities held as current assets are divided into two categories: listed securities and other securities. Listed securities are shares quoted on a stock exchange and are measured at market value. Other securities held as current assets are measured at fair value where possible, or otherwise at cost. Treasury shares are pre-sented as a deduction from shareholders’ equity.

Cash and cash equivalentsCash and cash equivalents consist of cash in hand, bank depos-its in postal and other bank accounts, bankers’ acceptances, and short-term time deposits with original maturities of up to 90 days.

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ProvisionsProvisions are recognized when Schaffner has an obligation to a third party as a result of a past event, the amount of the obli-gation can be estimated reliably and it is probable that an out-flow of resources will be required to settle the obligation. If the outflow of resources is not probable or its amount cannot be de-termined with sufficient reliability, the obligation is reported in contingent liabilities. Provisions for warranty claims are as a rule determined and recognized based on historical experience.

Where the effect of the time value of money is material, provi-sions are measured at the present value of the expected future expenditures.

Restructuring provisions are recognized if the costs attributable to a restructuring plan can be determined reliably and represent a contractual obligation or a constructive obligation created by communication.

Revenue recognition and interest incomeNet sales represent the revenue from goods sold and services ren-dered to third parties, net of discounts and other price reduc-tions. Sales are recognized at the time that the benefits and risks of ownership of the products sold are transferred to the customer or that the service is rendered; this timing depends on the agreed shipment terms.

Revenue is recognized if an economic benefit is likely to accrue to the Group and the amount of revenue can be reliably deter-mined.

Interest income is recognized on a time-proportion basis by the effective interest method unless the claim to the interest is in doubt.

Pension obligationsThe Schaffner Group operates a number of pension plans in var-ious countries worldwide. The pension plans are generally fi-nanced by contributions from employees and the respective Group companies. The plans’ assets are as a rule held in legally separate trustee-administered funds, the management of which takes into account the recommendations of independent qual-ified actuaries. Where plan assets are not held in such segregated funds, those assets which serve to secure future pension obliga-tions are recognized as other non-current assets in the Group’s consolidated balance sheet and the corresponding pension ob-ligation is recorded in liabilities as a provision.

For defined benefit plans, the future pension costs are assessed using the projected unit credit method. Under this method, the cost of providing future pensions is charged to the income state-ment in such a way as to spread the regular cost over the expected service lives of employees. The amount of these costs and their distribution over employees’ service lives are determined in ac-cordance with the advice of independent qualified actuaries.

The Schaffner Group’s contributions to its pension plans are charged to the income statement in the year to which they re-late. Accumulated unrecognized actuarial gains or losses exceed-ing the 10% “corridor” (10% of the greater of the present value of the defined benefit obligation or the fair value of the plan’s assets) are amortized in the income statement over the average of the remaining working lives of the participating employees. This recognition begins in the year following the year in which the corridor is exceeded.

Borrowing costsBorrowing costs are recognized as an expense in the period in which they are incurred.

Segment reportingWith effect from 1 October 2011 the Schaffner Group con-verted from a functional to a divisional organizational structure consisting of the three divisions EMC, Power Magnetics and Automotive. This delineation of segments is consistent with the internal reporting on the basis of which the chief operating de-cision maker allocated resources to these segments and assessed their profitability.

The Schaffner Group has identified the Executive Committee as the chief operating decision maker. Segment profit or loss rep-resents the given segment’s operating profit or loss before amor-tization (if any) of customer relationships.

Income taxCurrent income tax is recognized on the basis of reported profits, in the period in which the profits arise. Tax is calculated in con-formity with the applicable tax laws in the individual countries.

Deferred income tax is recognized using the liability method. Under this approach, the income tax effects of temporary dif-ferences between carrying amounts in the financial statements and their tax bases used in the calculation of taxable income are recorded in non-current liabilities or non-current assets, using the tax rates that are expected to apply to the period when the


61

asset is recovered or the liability settled. The change in deferred tax assets and liabilities is recognized as deferred income tax ex-pense or benefit in the income statement, unless the temporary difference arises from a transaction not affecting profit or loss. In the latter case, the change in deferred tax is recognized in the statement of comprehensive income. Deferred tax liabilities are calculated on all taxable temporary differences.

Deferred tax assets, including assets for unused tax loss carry-forwards, are only recognized to the extent that it is probable that future taxable profits will be available against which the as-sets can be utilized. The determination of the amount of deferred tax assets to be recognized involves assumptions and estimates by management as to the likely timing and amounts of future taxable profits and as to future tax planning strategies. Financial assets and liabilitiesFinancial assets and liabilities are classified into the following five categories:

› Financial assets and liabilities at fair value through profit or loss (these are assets classified as held for trading, and certain financial assets and liabilities designated as at fair value through profit or loss)

› Financial investments held to maturity › Loans and receivables › Financial assets available for sale (this represents all finan-

cial assets not assignable to one of the categories above) › All other financial liabilities

Financial assets are initially measured at fair value (including transaction costs, except in the case of financial assets at fair value through profit or loss, which are measured net of transac-tion costs). All purchases and sales of financial assets are recog-nized at the transaction date. Financial assets at fair value through profit or loss are subsequently measured at their fair value. Changes in value are reported as finance income or ex-pense in the reporting period in which they occur.

Financial instruments held to maturity, loans and receivables are initially measured at cost and subsequently measured at amor-tized cost using the effective interest method.

Financial assets available for sale are subsequently measured at fair value, with changes in value (after income tax) recorded in shareholders’ equity. Upon sale, impairment or other disposal of the assets, the accumulated gains and losses recorded in share-

holders’ equity since the purchase are reported in finance in-come or expense in the current period.

Assets not measured at fair value are tested for impairment at every balance sheet date. Financial assets are derecognized when Schaffner ceases to control them, i.e., when the related rights have been sold or have lapsed. Financial liabilities are derecog-nized when the contractual obligation is discharged, canceled or expires.

Non-current financial liabilities are measured by the effective interest method. The interest expense therefore includes not only the actual interest payments but also the amounts for the unwinding of discount and for proportional transaction costs. Liabilities arising from trading activities and derivatives are measured at fair value.

Derivative financial instruments and hedging The Group uses derivative financial instruments to hedge its in-terest rate risks. Such derivatives are recognized at their fair value both at the date of the derivative contract’s inception and at every subsequent measurement. Derivatives with positive fair values are recorded as assets; derivatives with negative fair val-ues are recorded as liabilities.

Any gains or losses arising during the year from changes in fair value of derivatives positions that were not entered into for hedg-ing purposes are taken directly to the income statement.

Cash flow hedgesCash flow hedges are used to hedge exposure to variability in cash flows resulting from interest rate risks of a financial instru-ment. The effective portion of the gain or loss on the hedging instrument is recognized directly in the consolidated statement of comprehensive income, while any ineffective portion is re-corded immediately in the income statement.

Amounts recognized in the consolidated statement of compre-hensive income are transferred to the income statement in the period in which the transaction occurs or when it is no longer expected that the transaction will occur.

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At the inception of a hedge relationship, the Group formally designates and documents the relationship, including docu-menting the risk management objective and strategy. The doc-umentation also includes the identification of the hedge instru-ment, the hedged item or transaction, the nature of the risk being hedged and how the effectiveness of the hedge is to be assessed.

If the hedging instrument expires or is sold or cancelled or its designation as a hedge is revoked, amounts previously recog-nized in the consolidated statement of comprehensive income remain there until the forecast transaction occurs.

Share-based paymentsThe fair value of granted share options is calculated using the Enhanced American Model (a sophisticated binomial model) at the grant date. Their fair value is expensed over the relevant vesting periods and also recorded as an increase in equity.

The cumulative expenditure for share-based payment transac-tions from the balance sheet date to the vesting date represents the best estimate of the number of Schaffner shares which can then actually be purchased by employees. Expense adjustments for changes in expectations regarding the number of Schaffner shares which can be purchased are recognized in staff costs for the relevant reporting period.

All options can only be exercised through the purchase of shares and are not cash-settled.


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Balance sheet Income statement

Country or region Currency30.9.2012

in CHF30.9.2011

in CHF2011/12

in CHF2010/11

in CHF

China CNY 100 14.93 14.22 14.67 13.74EU EUR 100 120.96 121.75 120.69 125.23UK GBP 100 151.44 141.34 146.96 144.00Hungary HUF 100 0.42 0.41 0.41 0.46Japan JPY 100 1.21 1.18 1.18 1.11Sweden SEK 100 14.33 13.18 13.76 13.87Singapore SGD 100 76.42 69.68 73.73 71.18Thailand THB 100 3.04 2.91 2.98 2.98Taiwan TWD 100 3.20 2.98 3.12 3.05USA USD 100 93.80 90.83 92.78 89.71

2 Business combinationsAt 1 September 2011 the Group acquired the dry-type trans-former division of US company MTC Transformers, Inc. under an asset purchase agreement.

Last year the purchase price allocation was still subject to uncer-tainty and all its items were thus still designated as provisional

at the time. Since then, no further adjustments have been re-quired and thus the data published on a provisional basis last year are now definitive.

The fair values of the identified assets and liabilities were as follows.

Acquired net assets In CHF '000

Fair value recognized at acquisition date of 1.9.2011

Customer relationships 2,903Technology 2,258Software 34Property, plant and equipment 657Inventories 908Trade receivables 2,188Other receivables, prepaid expenses and accrued income 36Total assets 8,984

Trade and other payables – 2,043Total liabilities – 2,043

Net assets 6,941Goodwill 3,724Total consideration 10,665

Satisfied by:Cash paid 10,052Contingent consideration (present value at 30 September 2011) 613

Cash flow on acquisition:Net cash outflow in the reporting period 10,052

1 Foreign currenciesIn the consolidation of Group companies’ separate financial statements, the following exchange rates were applied in trans-lating foreign-currency-denominated accounts into Swiss francs:

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The transaction costs of CHF 591 thousand were recognized as an expense and are presented within general and administra-tive expense.

In the prior year, in the period from the acquisition to 30 Sep-tember 2011, the acquired company contributed CHF 1.2 mil-lion to net sales and CHF 52 thousand to net profit for the pe-riod. If the business combination had occurred at the first day of the fiscal year, the net sales of the Schaffner Group in the prior year would have been higher by CHF 12.6 million and net profit for the period would have been higher by CHF 799 thousand.

In addition to the cash component shown above, the purchase price included an earn-out component of up to USD 800 thou-sand (CHF 645 thousand), payable in two installments on 30 September 2012 and 30 September 2013. The actual annual earn-out component is determined based on the amount by

which EBITDA exceeds a fixed target of USD 1.2 million; the earn-out component is capped at a ceiling of USD 400 thou-sand per year.

The acquisition-date fair value of the contingent consideration was estimated at CHF 613 thousand (USD 760 thousand), which represented the present value of the maximum earn-out component. At 30 September 2012 the present value of the an-nual component for 2012/13 was adjusted to CHF 362 thou-sand (USD 386 thousand) and a liability of CHF 368 thousand (USD 392 thousand) was recognized for fiscal year 2011/12 (also see note 9 on page 69).

In the year under review, CHF 361 thousand (prior year: CHF 505 thousand) was paid as deferred consideration from the 2009 acquisition of BETEC-Engineering. All contractual payments arising from this acquisition have thus been made.

In CHF '000

Trademarks, technology

and rights

Software Goodwill Customerrelationships

Intangible assets under construction

Total

Cost at 1 October 2010 2,886 7,816 4,817 5,745 1,073 22,337 Additions purchased separately 430 689 1,119Additions acquired through business combinations 2,258 34 3,724 2,903 8,919Additions developed internally 315 315Reclassifications 25 1,578 – 1,603 0Exchange differences 216 – 40 471 – 133 514Cost at 30 September 2011 5,385 9,818 9,012 8,515 474 33,204Additions purchased separately 387 16 403Additions developed internally 268 268Disposals – 31 – 292 – 323Reclassifications 758 – 758 0Exchange differences 77 24 137 73 311Cost at 30 September 2012 5,431 10,695 9,149 8,588 0 33,863Accumulated amortization and impairment at 1 October 2010 – 1,069 – 4,239 0 – 2,256 0 – 7,564 Amortization – 228 – 1,120 – 568 – 1,916Exchange differences 62 54 211 327Accumulated amortization and impairment at 30 September 2011 – 1,235 – 5,305 0 – 2,613 0 – 9,153Amortization – 467 – 1,352 – 855 – 2,674Disposals 292 292Exchange differences 1 – 13 11 – 1Accumulated amortization and impairment at 30 September 2012 – 1,701 – 6,378 0 – 3,457 0 – 11,536Net book value at 30 September 2011 4,150 4,513 9,012 5,902 474 24,051Net book value at 30 September 2012 3,730 4,317 9,149 5,131 0 22,327

3 Intangible assets


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The change in goodwill in the PM segment resulted from US dollar exchange rate fluctuation. As the goodwill in the EMC segment is measured in Swiss francs, it is not subject to currency-induced variation.

The goodwill in the balance sheet was tested for impairment in the year under review, by comparing the carrying amount of the cash-generating units with their recoverable amount. Their re-coverable amount equals their value in use. The calculations were made for a five-year period on the basis of estimated cash flows used in the business plan approved by the Board of Directors.

Cash flows beyond this period were extrapolated using a growth rate of 0%. The cash flow projections are based on historical ex-perience and take into account potential variances from the un-derlying assumptions. The impairment test of goodwill carried in the balance sheet did not identify a need for an impairment charge.

The measurement of value in use is based on the following key assumptions:

Discount rate (WACC) before tax Discount rate (WACC) after tax Long-term growth rate

30.9.2012 30.9.2011 30.9.2012 30.9.2011 30.9.2012 30.9.2011

EMC 8.0% 9.4% 6.5% 7.0% 0% 0%PM 7.9% 9.3% 6.5% 7.0% 0% 0%

In CHF '000 30.9.2012 30.9.2011

Electromagnetic Compatibility (EMC) 4,817 4,817Power Magnetics (PM) 4,332 4,195Total 9,149 9,012

GoodwillConsistent with the internal organizational and reporting struc-ture, goodwill impairment testing is conducted on an operating segment basis. For the purposes of reviewing goodwill in the bal-ance sheet for impairment, the relevant cash-generating units are therefore defined as the segments.

in CHF million Reduction in cash flow by 10% Increase in discount rate by 10% Zero growth in cash flow from 2013/14

EMC 239 265 140PM 46 52 – 22Total 285 317 118

A sensitivity analysis showed that a reduction of 10% in cash flows or an increase of the discount rate by 10% would not lead to impairment of goodwill. Furthermore, using a zero growth rate for the projected cash flows from fiscal year 2013/14 would not lead to impairment of EMC goodwill. For PM goodwill, us-ing a zero growth rate for the cash flows from fiscal year 2013/14 would lead to impairment. As, in management's judgment – par-

ticularly on the basis of the positive trend in the second half of fiscal 2011/12 – the assumptions in the business plan are real-istic, Schaffner has elected not to adjust the calculation or to rec-ognize impairment on PM goodwill.

The sensitivity analysis shows the following safety margins:

At the balance sheet date, goodwill was allocated to cash-gener-ating units as follows:

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Customer relationshipsCustomer relationships (existing at acquisition at 3 November 2006) from the purchase price allocation of the former Jacke GmbH (now Schaffner Deutschland GmbH) were valued and remained capitalized at 30 September 2012. Existing customer relationships were also capitalized in the prior year in connec-

tion with the acquisition of the dry-type transformer division of US company MTC Transformers, Inc. at 1 September 2011.

At the balance sheet date the key information about customer relationships was as follows:

Carrying amount30.9.2012

in CHF '000


in CHF '000

Useful life Amortization method Remaininguseful life

Schaffner Deutschland GmbH 2,120 2,660 10 years Straight line 4 years 1 monthSchaffner MTC LLC 3,011 3,243 10 years Straight line 8 years 9 months

At the balance sheet date the dry-type transformer technology was associated with the PM segment and the active harmonic filter technology was associated with the EMC segment. The measurement at acquisition was performed using the relief-from-royalty method.

In the fiscal year under review the sales of active harmonic fil-ters did not fully meet management’s expectations. An impair-ment test was therefore performed at the balance sheet date. This

test showed no need for an impairment charge. Management believes that sales of active harmonic filters will increase in the next several years.

In the year under review, the business performance of Schaffner MTC was in line with expectations. For this reason there was no indication of a possible impairment of the dry-type trans-former technology at the balance sheet date.

At the balance sheet date, all customer relationships subject to amortization pertained to the PM segment. The measurement at acquisition was performed by the excess earnings method.

As the business performance of Schaffner Deutschland GmbH (es-pecially in the first half of the fiscal year under review) did not meet expectations, an impairment test was carried out at the balance sheet date. This test showed no need for an impairment charge, as management expects the situation to improve significantly in the next several years.

In the year under review, the business performance of Schaffner MTC LLC was in line with expectations. For this reason there was no indication of a possible impairment of customer relation-ships at the balance sheet date.

TechnologiesAt 30 September 2012 Schaffner measured the “active harmonic filter” technology acquired with the purchase of BETEC-En-gineering effective 5 January 2009 and the dry-type transformer technology acquired with the dry-type transformer division of US company MTC Transformers effective 1 September 2011.

At the balance sheet date the following information can be re-ported concerning the measured technologies:


in CHF '000


in CHF '000

Useful life Amortization method Remaininguseful life

Active harmonic filters 1,316 1,511 10 years Straight line 6 years 3 monthsDry-type transformers 2,342 2,522 10 years Straight line 8 years 9 months


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In fiscal year 2007/08 a project was launched to implement a Group-wide SAP system. Until the commissioning (the going live) of a given phase of the system, the external investment and internal development costs related to that phase are capitalized as intangible assets under construction and are not amortized. The first phase was commissioned in fiscal year 2008/09. The useful life of the core system is estimated at five years and that of the country-specific programming at eight years. In fiscal year 2011/12, one further phase of the project was commissioned.

In the consolidated income statement, amortization of intangi-ble assets is included within cost of sales, marketing and selling expense, research, development and application expense, gen-eral and administrative expense and amortization of customer relationships.

4 Property, plant and equipment

In CHF '000

Land and buildings

Plant and machinery

Information technology

hardware

Furniture and fixtures

Vehicles Assets under construction

Total

Cost at 1 October 2010 7,931 31,507 4,298 2,381 1,418 218 47,753Additions purchased separately 2,525 3,131 234 151 2 858 6,901Additions acquired through business combinations 544 33 62 18 657Disposals – 34 – 1,013 – 37 – 43 – 216 – 1,343Reclassifications 108 118 – 19 – 207 0Exchange differences – 656 – 1,904 – 114 – 205 – 106 199 – 2,786Cost at 30 September 2011 9,874 32,383 4,395 2,346 1,116 1,068 51,182Additions purchased separately 3,701 1,793 142 142 69 807 6,654Disposals – 1,519 – 1,255 – 124 – 942 – 36 – 3 – 3,879Reclassifications 139 931 8 – 15 – 1,063 0Exchange differences 404 971 60 38 15 – 9 1,479Cost at 30 September 2012 12,599 34,823 4,481 1,569 1,164 800 55,436

Accumulated depreciation and impairment at 1 October 2010 – 5,197 – 21,103 – 3,707 – 2,012 – 818 0 – 32,837Depreciation – 674 – 2,137 – 227 – 122 – 195 – 3,355Disposals 15 916 55 39 154 1,179Impairment – 14 – 5 – 19Exchange differences 408 1,315 88 177 64 2,052Accumulated depreciation and impairment at 30 September 2011 – 5,462 – 21,014 – 3,791 – 1,918 – 795 0 – 32,980Depreciation – 814 – 2,618 – 303 – 131 – 136 – 4,002Disposals 1,205 1,266 117 906 18 3,512Exchange differences – 194 – 621 – 47 16 – 11 – 857Accumulated depreciation and im-pairment at 30 September 2012 – 5,265 – 22,987 – 4,024 – 1,127 – 924 0 – 34,327Net book value at 30 September 2011 4,412 11,368 604 428 322 1,068 18,202 Of which finance leases 0Net book value at 30 September 2012 7,334 11,836 457 442 240 800 21,109 Of which finance leases 2,840 32 2,872

68

At 1 January 2012 the Group moved into the new logistics cen-tre in Wittelsheim, France. This facility is accounted for as a fi-nance lease with an acquisition cost of EUR 2.4 million (CHF 2.9 million) in the land and buildings category. The logistics center is being depreciated on a straight-line basis over a useful life of 25 years. From 1 January 2019 the Schaffner Group has the option of purchasing the building at the residual lease obli-gation plus administrative costs. At the end of the lease term (31 December 2023) the Schaffner Group also has the right to buy the building for EUR 240 thousand.

In the fiscal year a building was sold in Finland. This led to a book profit of CHF 1.0 million, which is recorded in other income.

Property, plant and equipment are covered by a Group-wide in-surance policy. The maximum insured amount is CHF 70 mil-lion per claim.

At the end of the fiscal year there were commitments to pur-chase property, plant and equipment in the amount of CHF 310 thousand (prior year: CHF 280 thousand).

Operating leasesThe future minimum payments under non-cancelable operating leases (mainly rent for office and manufacturing space), and fu-ture minimum sublease income under non-cancelable subleases, are presented in the table below:

In CHF '000 30.9.2012 30.9.2011

Operating leasesMinimum lease payments due:Within 1 year 4,203 2,976In more than 1 year and not more than 5 years 10,661 11,261Thereafter 396 2,812Total minimum payments 15,260 17,049

SubleasesTotal future minimum sublease income 1,308 1,194Total minimum income 1,308 1,194

In fiscal year 2011/12, total operating lease expenses were CHF 4.3 million (prior year: CHF 4.4 million).

Total sublease income in 2011/12 was CHF 507 thousand (prior year: CHF 308 thousand).

5 Other non-current assets

In CHF '000 30.9.2012 30.9.2011

Present value of defined benefit assets and IFRIC 14 asset1 11,980 10,378Rental/utility security deposits and guarantees 1,347 1,439Total other non-current assets 13,327 11,817

1 See note 14 on page 72.

6 Inventories

In CHF '000 30.9.2012 30.9.2011

Raw materials 11,930 14,026Work in process and semi-finished goods 3,800 3,274Finished goods 14,143 11,769Total inventories 29,873 29,069


69

Inventory provisions

In CHF '000 2010/12 2010/11

At 1 October 2,779 3,547Amounts created 1,064 1,674Amounts used – 241 – 1,840Reversal of unused amounts – 491 – 329Exchange differences 76 – 273At 30 September 3,187 2,779

7 Trade receivables

In CHF '000 30.9.2012 30.9.2011

Trade receivables, gross 35,141 32,748Provision for doubtful debts – 375 – 322Total trade receivables 34,766 32,426

8 Other receivables, prepaid expenses and accrued income

In CHF '000 30.9.2012 30.9.2011

Other receivables 2,819 2,877Prepaid expenses and accrued income 855 803Total other receivables, prepaid expenses and accrued income 3,674 3,680

The amount of expensed inventories in the reporting period was CHF 88.3 million (prior year: CHF 89.9 million).

9 Provisions

In CHF '000

Warranty provisions

Provisions for employee

benefits1

Restructuring provisions

Other provisions Total

At 1 October 2010 2,300 3,502 1,715 4,445 11,962Amounts created 1,413 519 1,287 3,219Amounts used – 630 – 179 – 545 – 1,010 – 2,364Reversal of unused amounts – 75 – 62 – 1,952 – 2,089Unwinding of discount 31 73 104Exchange differences – 163 – 275 – 317 – 755At 30 September 2011 2,845 3,505 1,201 2,526 10,077Amounts created 1,472 368 348 2,188Amounts used – 1,016 – 227 – 340 – 848 – 2,431Reversal of unused amounts – 414 – 17 – 29 – 453 – 913Unwinding of discount 20 26 46Exchange differences 40 18 58At 30 September 2012 2,927 3,629 852 1,617 9,025

Non-current provisions 1,825 3,460 861 410 6,556Current provisions 1,020 45 340 2,116 3,521Total provisions at 30 September 2011 2,845 3,505 1,201 2,526 10,077Non-current provisions 1,830 3,629 610 22 6,091Current provisions 1,097 242 1,595 2,934Total provisions at 30 September 2012 2,927 3,629 852 1,617 9,025

1 See note 14 on page 72.

70

Current provisions relate to cash outflows expected to occur within twelve months. Non-current provisions relate to outflows due after more than twelve months; where the time value of money is significant, the expected cash flows are discounted.

Warranty provisionsThe warranty provisions were created primarily for the warranty risks inherent in the nature of the business activities. Warranty provisions are measured based on historical experience regarding repairs and returns and adjusted to reflect current sales volumes. The outflows are expected to occur within one to three years.

Provisions for employee benefitsEmployee benefit provisions consist mainly of pension provi-sions for unfunded defined benefit plans in Germany, Thailand and France.

Restructuring provisionsThe restructuring provisions were created after the discontinua-tion of production at the Luterbach site, for resulting unused leased factory space that is not sublet. In the year under review, CHF 0.3 million of this provision was used. Schaffner believes

that, until the expiration of the current lease for this space, a con-siderable portion of it will not be successfully sublet. The provi-sion at the balance sheet date was CHF 0.9 million. The cash outflows are expected to occur within one to three years.

Other provisionsFrom the prior year’s acquisition of the dry-type transformer di-vision of US company MTC Transformers, Inc., there was a current provision at the end of fiscal year 2011/12 for contin-gent consideration of CHF 0.4 million. Also included in “other provisions” were provisions of CHF 0.6 million for tax risks and onerous contracts. For disputes under employment law with for-mer employees, a provision of CHF 0.4 million was raised. The components of other provisions are almost entirely current in nature and will involve cash outflows within one year.

10 BorrowingsThe average interest rate payable on borrowings in fiscal year 2011/12 was 3.4% (prior year: 3.0%).

The composition of borrowings is shown in the following table:

In CHF '000 Effective interest rate at 30.9.2012 30.9.2012 30.9.2011

Bank loans in Switzerland LIBOR + 2.25% 27,879 28,500Bank loan in China 5.27-7.99% 5,024 5,800Bank overdrafts 5.125% 6 259Interest rate swap 1.1575% 434 441Finance leases 4.514% 2,810 0Total borrowings 36,153 35,000Of which: Current borrowings 194 34,559Non-current borrowings 35,959 441

The debt financing of the Schaffner Group is assured through credit lines with four banks, with a credit limit of CHF 12.5 mil-lion per facility.

These credit agreements are tied to covenants, which were ful-filled at the balance sheet date.

The remaining maturities of the Group’s individual bank bor-rowings at the balance sheet date ranged from seven months to repayable on demand. Under the credit agreements, they can be rolled over continuously until at least 16 April 2015.


71

13 Staff costs and staff count

In CHF '000 2011/12 2010/11

Wages and salaries 43,224 39,165Share-based payments 1,100 889Social security and other costs 10,814 11,532Pension costs for defined benefit plans – 269 1,494Total staff costs 54,869 53,080

Number of employees in full-time equivalents (average for the year) 2,569 2,702

12 Contingent liabilities and pledged assetsThe Group operates internationally and therefore inherently in-curs tax risks (such as from transfer prices). As these tax risks currently cannot be estimated, no provision has been recognized for them.

As a company with worldwide operations, Schaffner is exposed to numerous legal risks. The outcome of currently pending legal proceedings cannot be predicted with certainty. Provisions are

11 Trade and other payables

In CHF '000 30.9.2012 30.9.2011

Trade payables 20,281 19,570Other payables 3,900 2,510Accrued expenses 7,991 8,873Total 32,172 30,953

established inasmuch as the financial consequences of a past event can be estimated reliably and the estimate can be con-firmed by independent expert opinion.

Assets of CHF 49 thousand (prior year: CHF 47 thousand) were pledged as collateral for electricity consumed. There are no other terms and conditions associated with the use of collateral.

72

14 Post-employment and other long-term employee benefitsIn addition to the statutory social insurance plans (which include pension plans), the Group maintains employee benefit plans that are defined benefit plans under IAS 19. The plan assets and de-fined benefit obligations are remeasured every year and were val-ued by independent actuaries at 30 September 2012. Accumu-lated unrecognized actuarial gains or losses exceeding the 10%

“corridor” (10% of the greater of the present value of the defined benefit obligation or the fair value of the plan’s assets) are amor-tized in the income statement over the average of the remaining

In CHF '000 30.9.2012 30.9.2011

Funded plansFair value of defined benefit assets 35,169 31,888Present value of defined benefit obligations – 30,429 – 28,623Unrecognized actuarial loss 5,138 5,123Net defined benefit plan assets 9,878 8,388

Unfunded plans and employee benefitsProvisions for pensions – 3,137 – 3,035Present value of pension obligations recognized in the balance sheet – 3,137 – 3,035

OtherProvisions for other employee benefits – 492 – 470Present value of other pension obligations recognized in the balance sheet – 492 – 470

In CHF '000 2011/12 2010/11

Movement in present value of defined benefit obligationsAt 1 October – 32,128 – 33,961Current service cost of employer – 1,195 – 1,102Employee contributions – 552 – 538Interest cost – 793 – 832Actuarial (loss)/gain – 2,283 3,008Effect of curtailment 1,283 0Benefits paid 1,472 955Insurance premiums 136Exchange differences 2 342At 30 September – 34,058 – 32,128

In CHF '000 2011/12 2010/11

Movement in fair value of defined benefit assetsAt 1 October 31,888 31,777Expected return on plan assets 1,165 1,079Actuarial gain/(loss) 2,052 – 1,581Employer contributions 937 914Employee contributions 552 538Benefits paid – 1,289 – 839Insurance premiums – 136 0At 30 September 35,169 31,888


working lives of the participating employees. A pension plan sur-plus is capitalized when there is an economic benefit to the Group from the overfunding of a pension plan under IAS 19. This eco-nomic benefit is calculated on the basis of future reductions in contributions, in accordance with IFRIC 14. The plan assets are largely held in separate funds external to the Group (referred to as “funded plans”). To the extent that plans are not held in such segregated funds (i.e., to the extent that they are “unfunded”), the plan assets and liabilities are recognized in the balance sheet.

73

In CHF '000 2011/12 2010/11

Amounts recognized in the balance sheetPresent value of defined benefit assets 2,102 1,990Net defined benefit plan assets 9,878 8,388Provisions for pensions – 3,137 – 3,035Other employee benefits – 492 – 470

In CHF '000 2011/12 2010/11

Amounts recognized in the income statementCurrent service cost of employer – 1,195 – 1,102Interest cost – 793 – 832Expected return on plan assets 1,165 1,079Effect of curtailment 1,283Recognized actuarial loss – 191 – 639Pension cost 269 – 1,494

2011/12 2010/11

Return on plan assets and actuarial assumptionsActual rate of return on plan assets 9.1% – 1.6%Discount rate 2.1% 2.5%Expected rate of return on plan assets 3.3% 3.6%Expected rate of salary increases 1.0% 1.0%Expected rate of increase in future pensions 0.0% 0.0%Rate of experience gain on defined benefit obligations 1.4% 0.8%

In CHF '000 2011/12 2010/11

Allocation of plan assetsEquities 10,621 8,992Bonds 14,208 12,819Property 4,713 4,879Other assets 5,627 5,198Fair value of defined benefit assets 35,169 31,888

The expected return on plan assets is based on the asset alloca-tion at the beginning of the year and the following expected rates of return for each asset class: liquid assets 0.25%, Swiss bonds 1.50%, foreign currency bonds 2.60%, mortgages 2.00%, prop-

erty 4.00%, Swiss equities 5.80%, foreign equities 6.00%, alter-native investments 4.00%. Returns in the subsequent year are expected to be in line with those of the year under review.

In total, the Group expects to contribute CHF 1.5 million to post-employment benefit plans in the subsequent year (year un-der review: CHF 1.5 million).

History of defined benefit plans and experience adjustments

In CHF '000 2011/12 2010/11 2009/10 2008/09 2007/08

Fair value of defined benefit assets 35,169 31,888 31,777 33,634 40,066Present value of defined benefit obligations – 34,058 – 32,128 – 33,961 – 32,816 – 39,494Plan surplus/(deficit) 1,111 – 240 – 2,184 818 572Experience (loss)/gain on plan assets 5.8% – 5.0% – 1.8% – 0.5% – 17.0%Experience loss on defined benefit obligations 1.4% 0.8% 1.9% 1.2% 3.5%

74

15 Finance income and expense

Finance income

In CHF '000 2011/12 2010/11

Interest income 31 80Foreign exchange gains 1,913 10,600Total finance income 1,944 10,680

16 Income tax

In CHF '000 2011/12 2010/11

Current tax in respect of the current year – 860 – 1,817Adjustments in respect of prior periods, net – 124 – 124Current tax – 984 – 1,941

Current tax – 984 – 1,941Deferred tax – 142 1,214Income tax – 1,126 – 727

Deferred tax consisted of i) deferred tax liabilities of CHF 212 thousand (prior year: deferred tax asset of CHF 1.2 mil-lion) from the origination and reversal of temporary differences and the resulting recognition of tax loss carryforwards, and ii) deferred tax assets of CHF 70 thousand (prior year: deferred tax liabilities of CHF 22 thousand) from changes in tax rates. Deferred tax liabilities of CHF 1.1 million (prior year: CHF

1.0 million) for temporary differences in connection with rein-vested profits in subsidiaries were not recognized at the end of the fiscal year, as the Group is able to control the timing of re-versal of these differences.

Unused tax losses for which no deferred tax asset was recognized in the balance sheet were as follows:

In CHF '000 2011/12 2010/11

Expiry in 1 year 0 0Expiry in 2 years 0 0Expiry in 3 years 1,129 0Expiry in 4 years 1,003 566Expiry in 5 years 4,440 146Expiry in more than 5 years 9,237 19,002Total unused tax loss carryforwards 15,809 19,714

Finance expense

In CHF '000 2011/12 2010/11

Interest expense – 1,457 – 826Foreign exchange losses – 2,405 – 11,543Other finance expense – 290 – 244Total finance expense – 4,152 – 12,613


75

In CHF '000 2011/12 2010/11

Profit before tax reported in the income statement 5,035 10,877Nominal tax rate 21% 17%Expected income tax at nominal tax rate – 1,064 – 1,811Effect of non-recognition of tax loss carryforwards – 396 – 487Effect of tax rates other than nominal tax rate 28 491Effect of expenses not deductible for tax purposes – 318 – 437Effect of non-taxable income 100 419Utilization of previously unrecognized tax losses or gains 85 426Adjustments in respect of prior periods – 124 – 124Non-refundable withholding taxes – 299 – 222Change in recognition of tax loss carryforwards1 805 983Effect of changes in tax rates or of new taxes 70 – 23Other – 13 58Income tax expense reported in the income statement – 1,126 – 727

1 Within this item, CHF 332 thousand in the prior year related to the acquisition of Schaffner EMC Inc., as existing tax loss carry-forwards of the acquired entity can be utilized against future earnings of the new Group company, Schaffner MTC LLC.

In CHF '000 30.9.2012 30.9.2011

Intangible assets – 485 – 643Property, plant and equipment – 503 – 263Other non-current assets – 1,849 – 1,543Inventories 935 936Trade receivables 32 13Provisions 514 521Trade and other payables 569 205Tax loss carryforwards 1,457 1,521Net deferred tax assets 670 748Of which:Reported in the balance sheet as deferred tax liabilities – 2,194 – 1,935Reported in the balance sheet as deferred tax assets 2,864 2,683

Reconciliation of earnings before tax to income tax expense:

The Group’s nominal tax rate for 2011/12 is 21.14% (prior year: 16.65%). It is calculated as the weighted average of the products from multiplying each Group company’s earnings before tax by the respective local statutory tax rate.

At the balance sheet date, the deferred tax liabilities and assets were attributable to items in the balance sheet as follows:

17 Operating segmentsWith effect from 1 October 2011 the Schaffner Group con-verted from a functional to a divisional organizational struc-ture consisting of the three divisions EMC, Power Magnetics and Automotive. In the course of this reorganization, the Har-monic Filters product group (which until 30 September 2011 belonged to the Power Quality segment) became part of the

EMC division. The rest of the former Power Quality segment now operates as the Power Magnetics division, while the for-mer Electromagnetic Compatibility (EMC) segment together with the Harmonic Filters product group now makes up the EMC division. The Automotive division is the former Auto-motive segment. The reporting to the Executive Committee

76

2011/12 In CHF '000

EMC PM AM Corporate Group

Net sales 105,784 46,495 24,663 0 176,942Segment profit/(loss) 12,552 – 284 563 – 4,733 8,098Amortization of customer relationships – 855Operating profit [EBIT] 7,243Finance income 1,944Finance expense – 4,152Profit before tax [EBT] 5,035Income tax – 1,126Net profit for the period 3,909

2010/11 Restated in CHF '000

EMC PM AM Corporate Group

Net sales 128,932 36,046 17,625 0 182,603Segment profit/(loss) 20,174 – 331 – 395 – 6,425 13,023Other income 355Amortization of customer relationships – 568Operating profit [EBIT] 12,810Finance income 10,680Finance expense – 12,613Profit before tax [EBT] 10,877Income tax – 727Net profit for the period 10,150

(the Group’s chief operating decision-maker) follows this or-ganizational structure.

The prior-year data have been restated accordingly.

Electromagnetic Compatibility (EMC) The EMC division develops and manufactures standard and cus-tomized components that ensure immunity of power electronic systems to line interference (electromagnetic compatibility), as well as power quality filters that assure the stability of electric-ity grids. Key sales markets include energy-efficient drive sys-tems, renewable energy, power supplies for electronic devices, machine tools, robotics and electrical infrastructure.

Power Magnetics (PM) The Power Magnetics division develops and manufactures power magnetic components (chokes and transformers) that ensure the reliable functioning of power electronic systems, as well as customized high-power transformers for demanding applica-tions. Power magnetic components are an integral part of high and ultra-high-performance systems for power conversion. Key sales markets include energy-efficient drive systems, renewableenergy and rail technology.

Automotive (AM)The Automotive division develops and manufactures compo-nents for convenience and safety features in cars and for the drive trains of hybrid and electric vehicles.

The “Corporate” column comprises all costs for Group func-tions that cannot be allocated to a particular segment. These are primarily the expenses of Schaffner Holding AG and, in the prior year, the acquisition costs. No operating segments have been aggregated to form these re-portable operating segments.

No reconciliation of the management reporting data to the fi-nancial reporting data is required or provided, as the internal and external reporting follow the same accounting and presen-tation policies.


77

Information by customerNo single external customer represented 10% or more of net sales.

18 Share option plans Since 1 October 1998, the Group has been granting options over ordinary registered shares of Schaffner Holding AG to key executive management and to members of the Board of Direc-tors. The awarding of such options is based on the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) – be-fore and after the changes to the ESOP on 13 November 2006

– and on the Schaffner Holding AG Performance Option Plan (POP). The shares allocated to satisfy the combined obligations under the ESOP and POP comprise both (i) authorized unis-sued share capital of CHF 2.4 million, consisting of 72,342 reg-istered shares of Schaffner Holding AG with a nominal value of CHF 32.50 per share, and (ii) treasury shares.

› Employee Share Option Plan (ESOP) options issued be-fore the plan amendment of 13 November 2006: Equity-settled share options granted under the pre-amendment ESOP ordinarily vested in five annual installments of 20%, beginning one year after the grant date. Five years after the grant date, all granted options are thus ordinari-ly vested. The options were granted over three years in equal annual tranches. This resulted in a different vesting period for each tranche. Unexercised options expire ten years after the grant date.

Information by regionIn the analysis below, net sales with external customers are allo-cated to regions according to the domicile of the Schaffner com-

pany which generated the revenue. The non-current assets con-sist of property, plant and equipment and intangible assets in the respective countries.

2011/12In CHF '000 Switzerland Rest of Europe Europe Asia North America Group

Net sales 4,776 88,494 93,270 52,356 31,316 176,942Non-current assets 6,423 13,652 20,075 12,226 11,135 43,436

2010/11 RestatedIn CHF '000 Switzerland Rest of Europe Europe Asia North America Group

Net sales 7,043 109,486 116,529 51,804 14,270 182,603Non-current assets 7,247 11,477 18,724 12,785 10,743 42,253

› ESOP options issued after the plan amendment of 13 No-vember 2006: Equity-settled share options granted after the plan amendment become vested ordinarily in four an-nual installments of 25% each, beginning one year after the grant date. Four years after the grant date, all granted options are thus ordinarily vested. Unexercised options expire seven years after the grant date.

› Performance Option Plan (POP): 100% of equity-settled POP share options ordinarily vest (when the non-vesting conditions are satisfied) provided that the performance target is reached at 30 September 2013. Unexercised op-tions expire ten years after the grant date.

78

In the year under review, share options were granted on 21 No-vember 2011 with an exercise price of CHF 235.00 (prior year: CHF 240.50). The earliest tranche of these option grants will vest on 21 November 2012. The expiry dates of the options issued in the year under review are 14 November 2018 and 21 November 2018.

The terms of the share options outstanding at the end of the fis-cal year were as follows:

30.9.2012 30.9.2011

Expiry dateNumber of

share optionsExercise price

in CHFNumber of

share optionsExercise price

in CHF

04.12.2011 0 295.50 5,300 295.5020.11.2012 1,166 159.00 1,229 159.0014.11.2013 1,400 212.00 1,400 212.0024.11.2013 1,617 192.00 1,767 192.0017.04.2014 500 250.00 500 250.0009.11.2014 3,799 260.00 3,899 260.0029.11.2014 2,118 180.00 2,218 180.0011.11.2015 2,071 180.00 2,071 180.0014.11.2015 4,525 153.50 5,450 153.5030.11.2016 7,513 159.90 8,288 159.9013.01.2017 1,000 157.00 1,000 157.0029.11.2017 8,030 240.50 8,300 240.5014.11.2018 25,000 153.50 25,000 153.5014.11.2018 1,500 235.0021.11.2018 9,780 235.00Total share options outstanding 70,019 66,422

30.9.2012 30.9.2011

Number of share options outstanding

Average exercise price

in CHFNumber of share

options outstanding

Average exercise price

in CHF

At 1 October 66,422 188 88,113 211Granted in the year 11,400 235 8,620 241Exercised in the year – 1,763 163 – 21,124 195Expired/cancelled in the year – 6,040 289 – 9,187 445At 30 September 70,019 188 66,422 188

Of which:Vested 20,905 197 20,442 233Covered by treasury shares 5,858 4,791Covered by authorized unissued share capital 64,161 21,340Uncovered 0 40,291

At the balance sheet date, 14,546 of the vested share options were in the money (prior year: 11,896). The number of treasury shares required to satisfy obligations under share options is monitored on an ongoing basis and the number of shares held available is adjusted accordingly.


79

2011/12 2010/11

ESOP grant date 21.11.2011

POP grant date 21.11.2011

ESOP grant date29.11.2010

Share price at grant date in CHF 235.00 235.00 240.50Expected volatility1 35.3% 34.1% 37.73%Expected dividend yield 1.5% 1.5% 0.47%Risk-free interest rate 0.34% 0.30% 0.96%Expected life of option 5.07 years 4.82 years 5.07 yearsExpected staff departure rate per year after vesting period 5.00% 5.00% 5.00%Exercise price in CHF 235.00 235.00 240.50Fair value in CHF 62.65 59.91 76.24

1 The expected volatility is calculated from historical long-term volatilities. These volatilities are based on daily returns from Schaffner’s IPO (June 1998) to the respective grant date. The annualization of the volatility assumes 252 trading days.

Restricted share plansAt 8 April 2008, key staff members in the then ongoing SAP project were granted restricted shares, subject to the vesting condition that the beneficiaries would still be employed at Schaffner at 30 June 2011. This plan was completed in the prior year in the ordinary course of its operation, and no further ex-pense was charged to the income statement in the year under review (prior year: CHF 37 thousand).

At 28 January 2009, key staff members of the acquired BETEC-Engineering were granted 620 restricted shares. These shares carry full voting and dividend rights. The award will vest provided that the grantees are still employed at Schaffner after four years.

The fair value of these restricted shares of CHF 145 per share is charged to the income statement over the term of four years. In the year under review, CHF 22 thousand (prior year: CHF 22 thousand) was charged to the income statement.

At 1 September 2011, key staff members of the acquired divi-sion of MTC Transformers, Inc. were granted 570 restricted shares. These shares carry full voting and dividend rights. The award will vest provided that the grantees are still employed at Schaffner after four years.

The Enhanced American Model (a sophisticated binomial model) used to determine the fair value of the options granted is based on the following parameters:

In the year under review, CHF 999 thousand (prior year: CHF 827 thousand) was charged to the income statement for share option plans.

The fair value of these restricted shares of CHF 258 per share is charged to the income statement over the term of four years. In the year under review, CHF 37 thousand (prior year: CHF 3 thousand) was charged to the income statement.

The members of the Executive Committee and other senior ex-ecutive management are ordinarily entitled to subscribe for re-stricted shares, in a quantity determined by the Board of Direc-tors, at a discount of 20% to the quoted market price of the Company’s shares. These shares are subject to a four-year holding period.

The difference between the fair value at the grant date and the amount paid by the staff member is recorded immediately in staff costs.

In the year under review the participants purchased 845 such shares (prior year: 933), at an aggregate discount of CHF 42 thou-sand (prior year: CHF 61 thousand).

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Basic earnings per shareBasic earnings per share are calculated by dividing the net profit for the period attributable to shareholders of Schaffner Holding AG by the weighted average number of ordinary

Diluted earnings per shareDiluted earnings per share are calculated by dividing the net profit for the period attributable to shareholders of Schaffner Holding AG by the weighted average number of ordinary shares

19 Earnings per share

2011/12 2010/11

Basic earnings per shareNet profit for the period, in CHF ’000 3,909 10,150Weighted average number of shares outstanding entitled to dividend 632,990 633,266Basic earnings per share in CHF 6.17 16.03

2011/12 2010/11

Diluted earnings per shareNet profit for the period, in CHF ’000 3,909 10,150Relevant share options outstanding, in number of shares 15,518 24,525Weighted average number of shares outstanding used in calculation of diluted earnings per share 648,508 657,791Diluted earnings per share in CHF 6.03 15.43

20 Treasury sharesNumber of shares Average share

price in CHF At average price

in CHF ’000

At 1 October 2010 4,391 200 879+ Purchase1 23,127 7,356– Disposal1 – 100 – 26– Shares utilized for Employee Share Option Plan2 – 21,124 – 4,115– Shares utilized for restricted share plans2 – 1,503 – 443Valuation differences – 2,034

At 30 September 2011 4,791 337 1,617+ Purchase1 4,420 980– Shares utilized for Employee Share Option Plan2 – 1,763 – 288– Shares utilized for restricted share plans2 – 1,590 – 169Valuation differences – 671

At 30 September 2012 5,858 251 1,469

1 At share prices quoted at transaction date. 2 At exercise price.

21 Financial instrumentsThe Schaffner Group has a variety of financial assets that arise directly from its own business operations (such as cash and cash equivalents, receivables, prepaid expenses and accrued income),

as well as other non-current assets. At the balance sheet date, the fair values of the Group’s financial assets did not differ from their carrying amounts.

outstanding during the reporting period, including all shares that would result from the exercise of all potentially dilutive out-standing share options.

shares outstanding during the reporting period, excluding or-dinary shares purchased by the Group and held as treasury shares.


81

Financial assetsCarrying amount Fair value

In CHF '000 30.9.2012 30.9.2011 30.9.2012 30.9.2011

Cash and cash equivalents2 10,256 14,235 10,256 14,235Receivables, prepaid expenses and accrued income2 38,441 36,106 38,441 36,106Other financial assets1,2 3,412 1,652 3,412 1,652Total financial assets 52,109 51,994 52,109 51,994

1 Excluding defined benefit assets and IFRIC 14 asset. 2 Classified to the loans and receivables category.

The main financial liabilities of the Schaffner Group are bank borrowings and trade payables. These financial liabilities are principally intended to ensure the financing of the Group’s day-to-day business operations. The fair values of the financial lia-bilities as a rule do not differ from their carrying amounts.

At 30 September 2012 Schaffner also had an open interest rate swap position with a negative fair value of CHF 434 thousand (prior year: CHF 441 thousand). The swap was designated as a cash flow hedge of future variable interest payments. The varia-ble interest payments relate to the Group’s debt financing.

The hedge was contracted on the following terms in July 2010:

› Notional principal amount: CHF 12 million › Maturity date: 26 July 2015 › Reference rate: CHF, 3-month-LIBOR › Fixed rate: 1.1575%

At the balance sheet date the management of the Schaffner Group considers that the credit facility will remain drawn in the amount of CHF 12 million until at least the expiry of the swap. In view of this circumstance and the matching other critical terms of the credit facility and the hedge, the Schaffner Group assesses this hedge as highly effective at the balance sheet date.

The variable interest rate payments are due every quarter; the fi-nal such payment under this hedge is expected to occur in July 2015. In the year under review, as the hedge relationship is deemed highly effective, an unrealized gain of CHF 10 thou-sand (prior year: unrealized loss of CHF 306 thousand) was rec-ognized in the statement of comprehensive income rather than in profit or loss. No hedging reserves had to be removed from equity and taken to profit or loss.

Financial liabilities (including derivatives)Carrying amount Fair value

In CHF '000 30.9.2012 30.9.2011 30.9.2012 30.9.2011

Non-current borrowings1 35,525 0 35,525 0Current borrowings1 194 34,559 194 34,559Trade and other payables1 32,172 30,953 32,172 30,953Derivative financial instruments2 434 441 434 441Total financial liabilities, including derivatives 68,325 65,953 68,325 65,953

1 Measured at amortized cost. 2 Classified as financial liabilities at fair value through profit or loss.

82

The financial assets and liabilities measured at fair value are cat-egorized into the following fair value hierarchy according to the valuation technique used:

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

› Level 2: Techniques for which all inputs that have a sig-nificant effect on the recorded fair value are based on di-rectly or indirectly observable market data.

› Level 3: Techniques using inputs that have a significant effect on the recorded fair value and are not based on ob-servable market data.

In the reporting period the Group had no financial assets or li-abilities that were classified as Level 1 or Level 3 in the fair value hierarchy. There were also no reclassifications between levels.

Analysis by level in the fair value hierarchy

2011/12 2010/11

In CHF '000 Level 2 Total Level 2 Total

Liabilities measured at fair valueDerivative financial instruments 434 434 441 441Total liabilities measured at fair value 434 434 441 441

Financial instruments

In CHF '000

Loans and receivables

Financial liabilities at

amortized cost

Financial liabilities at fair

value through profit or loss

Total

Carrying amount at 30 September 2012 52,109 67,891 434Interest income/(expense) 30 – 1,430 – 23 – 1,423Foreign exchange losses2 – 392 – 100 – 492Net other finance expense – 290 – 290Change in provision for doubtful debts – 92 – 92Net loss recognized in the income statement – 454 – 1,820 – 23 – 2,297Net loss recognized in equity1 92 92Total net loss in 2011/12 – 362 – 1,820 – 23 – 2,205

Carrying amount at 30 September 2011 51,994 65,512 441Interest income/(expense) 80 – 701 – 21 – 642Foreign exchange losses – 560 – 383 – 943Net other finance expense – 244 – 244Change in provision for doubtful debts 230 – 230Net loss recognized in the income statement – 710 – 1,328 – 21 – 2,059Net loss recognized in equity1 – 360 – 360Total net loss in 2010/11 – 1,070 – 1,328 – 21 – 2,419

1 From valuation of equity-like loans. 2 The foreign exchange gains/losses from intra-Group loans are as a rule classified to the loans and receivables category.


83

The most significant risks in connection with the Group’s finan-cial instruments are interest rate, foreign currency, credit and li-quidity risk. The Audit Committee approves and reviews the guidelines for the monitoring, reporting and control of all these risks, which are summarized below.

Interest rate riskThe Schaffner Group’s exposure to risk from fluctuations in in-terest rates was related primarily to short-term interest-bearing financial assets and financial liabilities such as bank loans.

In the reporting period the Group entered into hedges in the form of interest rate swaps in order to reduce the interest rate risk on bank loans, which is tied to 3-month LIBOR.

The table below presents the sensitivity of profit before tax (EBT) to a reasonably possible change in interest rates when all other variables are held constant. The change in interest rates, expressed in basis points, is based on the actual range of fluctu-ation observed during the respective fiscal year.

2011/12 2010/11

Decrease in basis points

Effect on EBTin CHF '000

Decrease in basis points

Effect on EBTin CHF '000

CHF 5 3 9 5CNY 104 35 122 53EUR 51 – 12 29 – 11USD 14 12 10 9

An increase in interest rates by the same number of basis points as that shown in the preceding table produces an effect equal and opposite to that shown.

Foreign exchange riskIts worldwide activities and focus on exports expose the Schaffner Group to currency risks arising from the purchase and sale of goods in foreign currencies which are not invoiced in the func-tional currency of the respective subsidiary. This foreign exchange risk resulting from business operations can be reduced by buying and selling primarily in the subsidiary’s own foreign currency (nat-ural hedging). As well, on a monthly basis, Schaffner analyzes and quantifies the foreign exchange risks and assesses the need for risk

2011/12 2010/11

Increase in % Effect on EBTin CHF '000

Effect on equity in CHF '000

Increase in % Effect on EBTin CHF '000

Effect on equity in CHF '000

EUR / CHF 4 347 93 13 1,697 305USD / CHF 8 420 49 16 296 94THB / CHF 7 – 461 0 14 – 500 0

management measures under internally defined foreign exchange guidelines, which require an intervention whenever the calcu-lated value-at-risk exceeds 10% of budgeted EBIT. The table be-low shows the sensitivity of profit before tax (EBT) and of share-holders’ equity to a reasonably possible movement in the exchange rates of the euro, US dollar and Thai baht against the Swiss franc when all other variables are held constant.

84

A decrease in exchange rates by the same percentage amounts shown in the preceding table produces an equal, opposite effect on EBT and equity.

The percentage movement in exchange rates is based on the ac-tual range of fluctuation during the respective reporting period. The calculation of foreign currency risk includes all material holdings of financial instruments that are not reported in the functional currency of the respective Group company. The ef-fect on equity arises from foreign exchange differences on eq-uity-like loans between Group companies denominated in eu-ros and US dollars.

Credit risk

Cash and cash equivalentsWhen investing cash, the Schaffner Group is exposed to losses from credit risks in the event that financial institutions do not fulfill their obligations. In order to minimize this risk, the Group spreads its cash and cash equivalents among a number of banks and invests only in safe instruments with low default risk.

The table below shows the amounts of cash and cash equivalents held at the three largest counterparties at the balance sheet date.

Creditworthiness of key counterparties30.9.2012 30.9.2011

In CHF '000 Rating Balance Rating Balance

Bank A AA- 1,467 A 3,017Bank B A 1,447 A 2,605Bank C A 1,303 BBB 2,341Other counterparties 5,620 5,406Total cash and cash equivalents, other than cash in hand and banker’s acceptances 9,837 13,369

Trade receivablesThe Schaffner Group markets a wide range of products. Con-centration risks in connection with trade receivables are limited as a result of the Group’s large, diverse and global customer base. The Group companies locally regularly assess and monitor re-ceivables balances and adherence to payment terms.

Provision for doubtful debts

In CHF '000 2011/12 2010/11

At 1 October 322 166Additions 134 254Amounts used – 20 – 75Reversal of unused amounts – 84 – 12Exchange differences 23 – 11At 30 September 375 322

Impairment risks on receivables are provided for collectively on the basis of historical experience, and through individual im-pairment provisions. Receivables are only written off when there is sufficient evidence that no further payment is likely. Past ex-perience has shown the risk of trade receivables impairment to be relatively low.


85

The ageing of trade receivables is detailed in the following table:

Total Not overdue

Overdue

In CHF '000less than

30 days30 to 60

days 61 to 90

days more than

90 days

Trade receivables at 30 September 2012 34,766 24,790 6,583 1,596 474 1,323

Trade receivables at 30 September 2011 32,426 24,368 4,776 1,713 525 1,045

The Schaffner Group’s maximum exposure to credit risk at 30 September 2012 was CHF 52.1 million (prior year: CHF 52 million), which represented all financial assets.

Liquidity riskLiquidity risk is the risk that the Schaffner Group will no longer be fully able to meet its financial obligations. The Schaffner Group monitors its liquidity risk and strives to avoid liquidity

shortages through prudent liquidity management. In addition, six-month bottom-up rolling liquidity and cash flow forecasts are generated monthly.

The following table provides an overview of the maturity struc-ture of the Schaffner Group’s financial liabilities at the balance sheet date based on all contractual payment obligations (undis-counted).

Carrying amount

Total Cash outflows due in

in CHF '000less than 1

month1 to 3

months3 to 12

months1 to 5 years

more than 5 years

Non-current financial liabilities2 33,337 33,835 200 352 6,384 26,899 0– of which hedged loans1 12,434 12,525 102 0 162 12,261 0– of which unhedged loans 20,903 21,310 98 352 6,222 14,638 0– Interest rate swap 434 392 33 0 98 261 0Current financial liabilities2 32,178 32,178 6 28,515 3,657 0 0Finance lease 2,810 3,592 74 0 235 1,200 2,083Total financial liabilities at 30 September 2012 68,325 69,605 280 28,867 10,276 28,099 2,083

Non-current financial liabilities 441 544 34 0 102 408– Interest rate swap 441 544 34 0 102 408Current financial liabilities 65,512 66,450 374 26,717 38,951 408– of which hedged loans1 12,441 12,610 65 0 12,137 408– of which unhedged loans 5,616 5,630 14 0 5,616 0Total financial liabilities at 30 September 2011 65,953 66,994 408 26,717 39,053 816

1 Including interest margin. 2 Excluding finance leases; these are presented separately.

86

Capital managementThe primary objectives of capital management in the Schaffner Group are to safeguard the business as a going concern and en-sure sustained growth in the Group’s value. In its financial man-agement the Group uses a system of financial ratios and other metrics. These control parameters, which are tailored to the busi-ness model, relate to liquidity, growth and profitability.

To monitor its capital structure, the Schaffner Group uses a gear-ing ratio, defined as the ratio of net debt to shareholders’ equity. The capital structure is designed to ensure sufficient equity to cover the business risks and secure the Group’s financial flexibil-ity. Borrowings must not exceed an amount that the Group can repay in the medium term out of free cash flows.

In CHF '000 30.9.2012 30.9.2011

Non-current borrowings 35,959 441Current borrowings 194 34,559Cash and cash equivalents – 10,256 – 14,235Net debt 25,897 20,765

Shareholders’ equity 60,333 56,929Gearing ratio 43% 36%

22 Related partiesAll transactions with related parties are conducted at arm’s length. All transactions with subsidiaries were completely elim-inated on consolidation.

Compensation of Executive Committee and Board of DirectorsThe following compensation was paid to members of the Executive Committee:

In CHF '000 2011/ 12 2010/ 11

Short-term compensation (base salaries, variable cash compensation and benefits in kind) 2,346 2,593Share-based payments expense1 529 463Contributions to pension plan 125 144Total compensation of Executive Committee 3,000 3,200

1 The expense for the options granted is spread over the vesting period (see note 18 on page 77). The market value of the 5,500 options granted in the year under review, at an exercise price of CHF 235.00 (prior year: 3,420 options at an exercise price of CHF 240.50), was CHF 340 thousand (prior year: CHF 261 thousand).


87

In the year under review, members of the Board of Directors were paid fees and expense allowances (including flat expense allowances) of CHF 342 thousand (prior year: CHF 304 thou-sand) and were granted 2,500 share options (prior year: 1,620) at an exercise price of CHF 235.00 (prior year: CHF 240.50).

Disclosures under the Swiss Code of Obligations on compensa-tion of the Executive Committee and Board of Directors are set out on page 91 in the notes to the company financial statements of Schaffner Holding AG.

Swiss pension fundsThe Group’s pensions in Switzerland are administered by legally separate funds in the form of foundations. In the year under re-view a total of CHF 1.5 million (prior year: CHF 1.5 million) was paid to these foundations. At the balance sheet date the Group had a net receivables balance of CHF 34 thousand with the foundations (prior year: CHF 34 thousand). As in the prior year, at the balance sheet date the pension fund held no owner-ship interests in Schaffner Holding AG.

23 Risk assessmentThe Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and

analysis. On this basis, risk management measures are formulated and their implementation and results are continually monitored. The Group uses a risk management system which is designed for the timely detection, evaluation and mitigation of risks.

24 Release of the consolidated financial statements for publicationThe consolidated financial statements were released by the Board of Directors of Schaffner Holding AG on 4 December 2012 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2013.

25 Events after the balance sheet dateNo events have occurred after the balance sheet date that have a material effect on the amounts in the consolidated financial statements.

26 Companies of the Schaffner GroupThe results of the following companies were included in the Schaffner Group’s consolidated financial statements at 30 Sep-tember 2012:

Company Registered office Capital in '000 Group’s interest in %

Schaffner Holding AG Luterbach, Switzerland CHF 20,668 100 Schaffner Trading AG Luterbach, Switzerland CHF 250 100 Schaffner EMV AG Luterbach, Switzerland CHF 14,000 100 Schaffner Oy Lohja, Finland EUR 34 100 Schaffner EMC S.A.S. Illzach, France EUR 5,330 100 Schaffner Ltd. Wokingham, UK GBP 260 100 Schaffner EMV Hungary Kft. Kecskemét, Hungary HUF 8,000 100 Schaffner EMC S.r.l. Milan, Italy EUR 100 100 Schaffner Deutschland GmbH Büren, Germany EUR 380 100 Schaffner EMC AB Sollentuna, Sweden SEK 200 100 Schaffner EMC Inc. Edison, NJ, USA USD 1,030 100 Schaffner MTC LLC Wytheville, VA, USA USD 2,676 100 Schaffner EMC Ltd. Shanghai, China CNY 52,815 100 Schaffner EMC K.K. Tokyo, Japan JPY 10,000 100 Schaffner EMC Pte. Ltd. Singapore SGD 1,200 100 Schaffner EMC Co. Ltd. Lamphun, Thailand THB 140,000 100 Schaffner EMV Ltd. (Taiwan Branch) Taipei, Taiwan TWD 5,000 100

88

To the General Meeting of Schaffner Holding AG, LuterbachAs statutory auditor, we have audited the consolidated financial statements of Schaffner Holding AG, which comprise the bal-ance sheet, income statement, statement of comprehensive in-come, cash flow statement, statement of changes in equity and notes (pages 52 to 87) for the year ended 30 September 2012.

Board of Directors’ responsibilityThe Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This re-sponsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of finan-cial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further respon-sible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the cir-cumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in ac-cordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evi-dence about the amounts and disclosures in the financial state-ments. The procedures selected depend on the auditor’s judg-ment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the pur-pose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reason-ableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropri-ate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements for the year ended 30 September 2012 comply with Swiss law and the company’s articles of incorporation.

Report on other legal requirementsWe confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independ-ence (article 728 Code of Obligations (CO) and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal con-trol 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 availa-ble earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

Berne, 4 December 2012

Ernst & Young AG

Bernadette Koch Pascal KocherLicensed audit expert Licensed audit expert(Auditor in charge)

Report of the statutory auditor on the consolidated financial statements

89

Company financial statements of Schaffner Holding AG

Income statement (year ended 30 September)

In CHF '000 30.9.2012 30.9.2011

Loan to Schaffner EMV AG 0 3,000Investments in subsidiaries 85,251 85,251Non-current assets 85,251 88,251

Receivables from subsidiaries 1,989 1,479Other receivables, and prepaid expenses with non-Group entities 84 99Securities and term deposits 939 756Cash and cash equivalents 88 145Current assets 3,100 2,479

Total assets 88,351 90,730

Share capital 20,668 20,668General legal reserve 4,134 4,134Reserve for treasury shares 1,469 1,617Share premium 44,671 47,515Retained earnings 12,836 13,881Net profit/(loss) for the period 1,726 – 1,193Shareholders’ equity 85,504 86,622

Non-current provisions 12 12Liabilities to subsidiaries 2,050 2,983Other liabilities to non-Group entities 164 147Accrued expenses 621 966Total liabilities 2,847 4,108

Total liabilities and shareholders’ equity 88,351 90,730

In CHF '000 2011 / 12 2010 / 11

Other income 6,300 5,303Total income 6,300 5,303

Staff costs – 2,265 – 3,457Operating expenses – 2,248 – 2,738Interest expense – 2 – 3Other finance expense – 360 – 635Interest income 365 455Foreign exchange losses on financing, net 49 – 39Income tax – 113 – 79Net profit/(loss) for the period 1,726 – 1,193

Balance sheet

90

Notes to the company financial statements of Schaffner Holding AG

As the Group’s Swiss companies are treated as a single entity for the purposes of value-added taxation, Schaffner Holding AG has joint and several liability for the Swiss subsidiaries’ VAT ob-ligations to the Swiss federal tax authority.

Under Group-wide agreements with Commerzbank and Credit Suisse, Schaffner Holding AG as a participant in the Group’s cash pool has joint and several liability to the extent of its free reserves.

Issued share capitalThe company has issued share capital of CHF 20,668,050, con-sisting of 635,940 ordinary registered shares with a nominal value of CHF 32.50 per share. The issued shares are fully paid. Each share carries one vote at the General Meeting. All shares not held by the Company or by one of its subsidiaries attract dividends.

Authorized but unissued capitalThe Company has authorized but unissued share capital with a total nominal value of CHF 2.4 million (72,342 ordinary reg-istered shares at CHF 32.50 per share). This capital is allocated to satisfying obligations under the share option plans. At 30 Sep-tember 2012 there were 70,019 share options outstanding, each relating to the purchase of one share of Schaffner Holding AG. In the year under review no options were exercised out of au-thorized unissued share capital.

Direct investments in subsidiaries › Schaffner EMV AG, Luterbach, Switzerland: 100% of

the share capital of CHF 14 million › Schaffner Trading AG, Luterbach, Switzerland: 100% of

the share capital of CHF 250 thousand › Schaffner EMV Hungary Kft., Kecskemét, Hungary: 2%

of the share capital of HUF 8 million

Release of the company financial statements for publicationThe company financial statements were released by the Board of Directors of Schaffner Holding AG on 4 December 2012 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2013.

Information about treasury sharesThe reserve for treasury shares was CHF 1.5 million. In the balance sheet at 30 September 2012, treasury shares were meas-ured at the lower of their average cost or the average exercise price of the share options (CHF 160). In the year under re-view, 1,763 options were exercised, at an average price of CHF 163 each.

In CHF '000 30.9.2012 30.9.2011

Guarantees 41,250 49,500Of which utilized in subsidiaries in respect of credit obligations 32,910 34,559

Guarantees and pledged assets

91

Number of shares

Fair value per share

in CHF

Average priceper share

in CHF

At fair valuein CHF '000

At average price in CHF '000

At 1 October 2010 4,391 163 200 716 879+ Purchase1 23,127 7,356 7,356– Disposal1 – 100 – 26 – 26– Shares utilized for Employee Share Option Plan3 – 21,124 – 4,115 – 4,115– Shares utilized for restricted share plans1 – 1,503 – 443 – 443Value changes2 – 2,732 – 2,034

At 30 September 2011 4,791 158 337 756 1,617+ Purchase1 4,420 980 980– Shares utilized for Employee Share Option Plan3 – 1,763 – 288 – 288– Shares utilized for restricted share plans1 – 1,590 – 169 – 169Value changes2 – 340 – 671

At 30 September 2012 5,858 160 251 939 1,469

1 At share prices quoted at transaction date. 2 Year-end closing price or average exercise price of the options, whichever was less. 3 At exercise price.

30.9.2012 30.9.2011

Number of shares Equity interest Number of shares Equity interest

Alpine Select AG 135,753 21.35% 131,663 20.70%Sarasin Investmentfonds AG "SaraSelect" 63,541 9.99% 61,834 9.72%Buru Holding AG 54,808 8.62% 50,808 7.99%UBS 30,748 4.84% 30,702 4.84%SUVA (Swiss National Accident Insurance Fund) 23,100 3.63% 20,000 3.14%Balfidor Fonds 22,830 3.59% 11,020 1.73%Shareholders with interests of less than 3% 299,302 47.06% 325,122 51.13%Free float 630,082 99.08% 631,149 99.25%

Treasury shares 5,858 0.92% 4,791 0.75%Total shares outstanding 635,940 100.00% 635,940 100.00%

Compensation of the Executive Committee and Board of DirectorsThe remuneration of the members of the Board of Directors and Executive Committee consists primarily of fees, salaries, varia-ble compensation, options under the share option plans, and other compensation, such as contributions to rental or travel costs. The variable compensation is dependent upon corporate financial results and the achievement of personal performance targets. It is paid out after the Board of Directors, based on rec-ommendations of the Nomination & Compensation Commit-tee, has confirmed the extent of target achievement. The varia-

ble compensation is ordinarily allotted and paid after the annual financial statements have been adopted by the Annual General Meeting.

All variable compensation is presented on an accrual basis, which means that any variable compensation shown under a given fis-cal year was accrued in that fiscal year. The expense for share-based payments consists of the market value of granted share options attributable to the respective fiscal year.

Significant shareholders

92

Board of Directors in 2011/12

In CHF '000

Cash fees and base salaries3

Variable com-pensation2

Pension costs Share-based payments expense1

Other com-pensation

Total

Daniel Hirschi, Chairman 112 53 165Herbert Bächler 47 26 73Hans Hess 47 28 75Suzanne Thoma (from 12 January 2012) 35 0 35Georg Wechsler (from 12 January 2012) 35 0 35Markus Zenhäusern (until 1 July 2012) 35 28 63Total compensation of Board of Directors 311 0 0 135 0 446

Executive Committee in 2011/12

In CHF '000

Alexander Hagemann 410 32 93 217 10 762Total for all other members of the Executive Committee 1,188 241 324 312 125 2,190Total compensation of Executive Committee 1,598 273 417 529 135 2,952

1 At market value in accordance with IFRS 2 (see note 18 on page 77). 2 Including, for the other members of the Executive Committee, CHF 25 thousand for discounts under the restricted share plan (see note 18 on

page 77).3 Excluding flat expense allowances.

Board of Directors in 2010/11

In CHF '000

Cash fees and base salaries3

Variable compensation2

Pension costs Share-based payments expense1

Other com-pensation

Total

Daniel Hirschi, Chairman 112 38 150Herbert Bächler 47 19 66Hans Hess 47 25 72Robert F. Spoerry (retired 31 March 2011) 24 0 24Markus Zenhäusern 47 23 70Total compensation of Board of Directors 277 0 0 105 0 382

Executive Committee in 2010/11

In CHF '000

Alexander Hagemann 395 130 114 187 10 836Total for all other members of the Executive Committee 1,298 268 368 276 95 2,305Total compensation of the Executive Committee 1,693 398 482 463 105 3,141

1 At market value in accordance with IFRS 2 (see note 18 on page 77). 2 Including, for discounts under the restricted share plan, CHF 26 thousand for Alexander Hagemann and CHF 28 thousand for the other members of the Executive Committee (see note 18 on page 77). 3 Excluding flat expense allowances.

Notes to the company financial statements of Schaffner Holding AG

93

30.9.2012 30.9.2011

Number of shares

held

Number of share options held Number of shares

held

Number of share options held

Vested Not vested Total Vested Not vested Total

Board of DirectorsDaniel Hirschi, Chairman 120 665 1,995 2,660 120 250 1,410 1,660Herbert Bächler 500 330 990 1,320 500 125 695 820Hans Hess 1,895 418 1,115 1,533 1,520 0 1,033 1,033Suzanne Thoma (from 12 January 2012) 5 0 0 0Georg Wechsler (from 12 January 2012) 200 0 0 0Markus Zenhäusern (until 1 July 2012) 100 375 945 1,320Total holdings of the Board of Directors 2,720 1,413 4,100 5,513 2,240 750 4,083 4,833

Executive CommitteeAlexander Hagemann, Chief Executive Officer 1,000 2,045 13,560 15,605 1,000 1,437 13,618 15,055Kurt Ledermann, Chief Financial Officer 743 1,095 4,653 5,748 743 590 4,458 5,048Fabian Beck (until 30 September 2011) 601 287 3,823 4,110Jean-Michel Calleri, Executive Vice President, Automotive division 80 600 1,850 2,450 0 725 1,125 1,850Ah Bee Goh, Chief Operating Officer 645 600 4,200 4,800 545 150 4,150 4,300Eduard Hadorn, Executive Vice President, Power Magnetics division 543 1,000 4,200 5,200 373 575 4,125 4,700Martin Köppel (until 30 September 2011) 687 262 3,698 3,960Guido Schlegelmilch (from 1 October 2011), Executive Vice President, EMC division 80 125 1,550 1,675Total holdings of the Executive Committee 3,091 5,465 30,013 35,478 3,949 4,026 34,997 39,023

Holdings of shares, options and conversion rights

Risk assessmentThe Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and analysis. On this basis, risk management measures are formulated and their implementation and results are continually monitored. The Group uses a risk management system which is designed for the timely detection, evaluation and mitigation of risks.

In the year under review, Schaffner did not grant any loans or other credit to current members of the Board of Directors, mem-bers of the Executive Committee or parties related to them.

94

Proposal for the appropriation of retained earnings

The Board of Directors proposes to the Annual General Meet-ing to allocate retained earnings as follows:

In CHF '000 2011/12 2010/11

Net profit/(loss) for the period 1,726 – 1,193Earnings brought forward 12,690 14,621Change in reserve for treasury shares 148 – 738Retained earnings available for distribution 14,564 12,690Allocation to general legal reserve 0 0Earnings carried forward 14,564 12,690

The Board of Directors also proposes to the Annual General Meeting to allocate share premium (the reserve for additional paid-in capital) as follows:

In CHF '000 2011/12 2010/11

Distributable share premium reserve brought forward 0 0Transfer from share premium account to distributable share premium reserve 1,260 2,840Distribution of CHF 2.00 (prior year: CHF 4.50) per share entitled to dividends, exempt from Swiss anticipatory tax – 1,260 – 2,840Distributable share premium reserve carried forward 0 0

Total number of shares outstanding 635,940 635,940Number of treasury shares – 5,858 – 4,791Number of shares entitled to dividends1 630,082 631,1491 Shares entitled to dividends are those shares not held by the Company or one of its subsidiaries.

95

Report of the statutory auditor on the financial statements

To the General Meeting of Schaffner Holding AG, LuterbachAs statutory auditor, we have audited the financial statements of Schaffner Holding AG, which comprise the balance sheet, income statement and notes (pages 89 to 93) for the year ended 30 September 2012.

Board of Directors’ responsibilityThe Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This re-sponsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of finan-cial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further respon-sible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the cir-cumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in ac-cordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evi-dence about the amounts and disclosures in the financial state-ments. The procedures selected depend on the auditor’s judg-ment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the pur-pose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reason-ableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropri-ate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements for the year ended 30 September 2012 comply with Swiss law and the company’s ar-ticles of incorporation.

Report on other legal requirementsWe confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independ-ence (article 728 Code of Obligations (CO) and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal con-trol 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 availa-ble earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

Berne, 4 December 2012

Ernst & Young AG

Bernadette Koch Pascal KocherLicensed audit expert Licensed audit expert(Auditor in charge)

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Selected addresses of the Schaffner Group

ChinaSchaffner EMC Ltd. ShanghaiT20-3, No 565 Chuangye RoadPudong New AreaShanghai 201201 T +86 21 3813 9500F +86 21 3813 9501 / [email protected]

GermanySchaffner Deutschland GmbHSchoemperlenstrasse 12B76185 KarlsruheT +49 721 56910F +49 721 [email protected]

FinlandSchaffner OySauvonrinne 19 H08500 LohjaT +358 19 35 72 71F +358 19 32 66 [email protected]

FranceSchaffner EMC S.A.S.112, Quai de Bezons95103 ArgenteuilT +33 1 34 34 30 60F +33 1 39 47 02 [email protected]

ItalySchaffner EMC S.r.l.Via Galileo Galilei 4720092 Cinisello Balsamo (MI)T +39 02 66 04 30 45/47F +39 02 61 23 [email protected]

JapanSchaffner EMC K.K.7F Mitsui-Seimei sangenjaya Bldg. 1-32-12, Kamiuma, Setagaya-ku154-0011 TokyoT +81 3 5712 3650F +81 3 5712 [email protected]

SwedenSchaffner EMC ABTurebergstorg 1, 6 19147 SollentunaT +46 8 5792 1121 / 22F +46 8 92 96 [email protected]

SwitzerlandSchaffner EMV AGNordstrasse 114542 LuterbachT +41 32 681 66 26F +41 32 681 66 [email protected]

SingaporeSchaffner EMC Pte Ltd.Blk 3015A Ubi Road 105-09 Kampong Ubi Industrial Estate408705 SingaporeT +65 6377 3283F +65 6377 [email protected]

SpainSchaffner EMC EspañaCalle Caléndula 93Miniparc III, Edificio EEl Soto de la MoralejaAlcobendas28109 MadridT +34 618 176 [email protected]

TaiwanSchaffner EMV Ltd.6th Floor, No 413Rui Guang RoadNeihu District114 Taipei CityT +886 2 8752 5050F +886 2 8751 [email protected]

ThailandSchaffner EMC Co. Ltd.Northern Region Industrial Estate67 Moo 4 Tambon Ban KlangAmphur Muangg P.O. Box 14Lamphun 51000T +66 53 58 11 04F +66 53 58 10 [email protected]

UKSchaffner Ltd.5 Ashville WayMolly Millars LaneWokinghamRG41 2PL BerkshireT +44 118 977 00 70F +44 118 979 29 [email protected]

USASchaffner EMC Inc.52 Mayfield Avenue08837 Edison, NJT +1 732 225 9533F +1 732 225 [email protected]/us

Headquarters and global innovation and developmentcenter

SwitzerlandSchaffner GroupNordstrasse 114542 LuterbachT +41 32 681 66 26F +41 32 681 66 [email protected]

Customer service and application centers

Important note regarding forward-looking statementsThis report contains forward-looking statements, which may be identified by the use of expressions such as could, “pro-pose”, “opens up opportunities”, “outlook”, “attractive”, or similar wording. Such forward-looking statements reflect management’s current opinion and are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Schaf-fner Group to differ materially from those contained or im-plied in such statements. These include, but are not limited to, risks related to the success of and demand for the Group’s products, the potential for its products to become obsolete, the Group’s ability to protect its patents, the Group’s ability to develop and market new products quickly enough, the rapidly changing and competitive environment in which the Group operates, the regulatory environment, fluctuation in foreign

exchange rates, the Group’s ability to generate revenue and net profits, and its ability to carry out expansion or cost control projects in a timely manner. Should one or more such risks or uncertainties materialize or come to bear, or should underly-ing assumptions prove incorrect, the actual results could differ materially from the outcomes suggested in this report. The in-formation in this report represents Schaffner’s best knowledge at the time of publication. Schaffner does not undertake any obligation to update any forward-looking statements con-tained herein, whether as a result of new information, future events or otherwise.

Publication information

© Schaffner Holding AG, December 2012

Publication and production: Schaffner Holding AG, Luterbach

Concept and consulting: Communicators AG, Zurich

Text: Schaffner Holding AG, Luterbach; Communicators AG, Zurich

Translation: Martin Focken, North Bay, Ontario, Canada

Design concept and prepress: W4 Marketing AG, Zurich/Dresden

Printing: Merkur Druck, Langenthal

Photography: flamisch photography, Düsseldorf; iStockphoto; Resorts World Sentosa

Schaffner Holding AG

Nordstrasse 11

4542 Luterbach / Switzerland

T +41 32 681 66 26

F +41 32 681 66 30

www.schaffner.com Sch

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Annual Report 2011/12

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