Holding Corporate Governance. AFG Annual Report 2014 CORPORATE GOVERNANCE

Transcription

1 AFG Annual Report CORPORATE GOVERNANCE This report complies with the Directive (CGD) of SIX Exchange Regulation of 1 September Unless indicated otherwise, the disclosures apply as of 31 December RESPONSIBILITY WE ARE PROACTIVE AND TAKE RESPONSIBILITY FOR OUR COMPANY, EMPLOYEES, PRODUCTS AND SERVICES. WE ARE CAREFUL STEWARDS OF OUR COMPANY S RESOURCES AND THE ENVIRONMENT.

2 GROUP STRUCTURE AND SHAREHOLDERS 1.1 Group structure Operational Group structure Following the sale of the kitchen business in early January 2014, the supplementation of the Building Technology Division in the Air-Conditioning & Ventilation Technology field in June 2014 and the sale of the Surface Technology Business Unit in December 2014, the operational Group structure of AFG as of 31 December 2014 comprised the three divisions: (1) Building Technology with the Heating Technology Business Unit, the Sanitary Equipment Business Unit and the Air-Conditioning & Ventilation Technology Business Unit, (2) Building Envelope with the Windows Business Unit and (3) Building Security with the Special Doors Business Unit and the Profile Systems Business Unit. Together with the Finance / Controlling / Reporting Business Unit, the three divisions form the Group's operational structure as of 31 December 2014 (see organisation chart as of 31 December 2014 on page 13). The AFG Group Management comprises the CEO, the CFO and the heads of the three divisions Building Technology, Building Envelope and Building Security. Group Management is supported by Corporate Functions. The company reports in line with IFRS on the basis of this divisional structure. Descriptions of the divisions can be found on pages Scope of consolidation The scope of consolidation of AFG Arbonia-Forster- AG, headquartered in Arbon TG ( AFG or the company ) comprises the Group companies listed in the financial report on page 187 (collectively the Group ). The name, registered office and share capital of the main Group companies, as well as the interests held by the Group, are also detailed on these pages. AFG shares are listed at the SIX Swiss Exchange in Zurich under securities number ISIN CH Information about market capitalisation can be found in the additional disclosures for investors on page 200. Other than AFG, none of the other Group companies included in the scope of consolidation are listed at any stock exchange in Switzerland or abroad. 1.2 Major shareholders in % Voting and capital shares Shareholding notification Voting and capital shares Artemis Beteiligungen I AG Lombard Odier Asset Management (Switzerland) SA UBS Fund Management (Switzerland) AG Edgar Oehler and Marianne Oehler < In December 2014, Artemis Beteiligungen I AG purchased shares from the Dr Edgar and Marianne Oehler group and from AFG. On 3 December 2014, Artemis Beteiligungen I AG reported a shareholding of a total of % of the voting rights. Also on 3 December 2014, the Dr Edgar and Marianne Oehler group reported that it had fallen below the threshold of 3 % of the voting rights. On 11 June 2014, AFG reported that it had surpassed the threshold of 3 %. On 3 December 2014, AFG reported that it had fallen under the threshold of 3 % as a result of the sale of treasury shares to Artemis Beteiligungen I AG. In the year under review, Lombard Odier Asset Management (Switzerland) SA did not make any shareholding notification. In the last shareholding notification of 27 April 2010, Lombard Odier Asset Management (Switzerland) SA had reported a shareholding of 3.93 %. Moreover, no shareholding notification was received from UBS Fund Management (Switzerland) AG in the year under review. In the last shareholding notification of 6 June 2013, UBS Fund Management (Switzerland) SA reported a shareholding of 3.02 % of the voting rights. On 28 January 2015, Artemis Beteiligungen I AG reported a shareholding of % of the voting rights. AFG is not aware of any shareholders agreements among its shareholders. 1.3 Cross-shareholdings No cross-shareholdings of more than 5 % of the votes or the capital exist between AFG and other companies.

3 CAPITAL STRUCTURE 2.1 Capital The ordinary capital is detailed in point 47 of the notes to the consolidated financial statements on page 172. Number Nominal value Share capital Number Nominal value Share capital Registered shares Conditional and authorised capital in particular AFG currently has the following conditional capital: the company s share capital may be increased by a maximum of CHF by issuing a maximum of registered shares of a par value of CHF 4.20 each, which shall be fully paid up. These registered shares are to be issued upon exercise of option rights granted in conjunction with convertible bonds, bonds with option rights or similar forms of financing offered by AFG or one of its subsidiaries. The holders of conversion and option rights are authorised to acquire new shares. The Board of Directors stipulates the conditions for granting conversion and option rights. Shareholders subscription rights are excluded. The Board of Directors may exclude the right to advance subscription of existing shareholders (1) in connection with the issue of bonds and other notes or (2) in connection with the issue of convertible or option bonds on the national or international capital market or (3) in connection with the financing or refinancing of the acquisition of companies, interests in companies or shareholdings or of new investment projects of the company or (4) in connection with the replacement of existing financing. Insofar as the shareholders right to advance subscription is excluded, (1) the convertible bonds, bonds with option rights or similar forms of financing must be offered to the public at standard market conditions, with placement via banks acting as fiduciary agents being permitted, (2) the period for exercising conversion rights may not exceed ten years from issue of the bonds, and (3) the exercise price for the new shares must at least match market conditions at the time of issue of the bonds. Moreover, AFG currently has the following authorised capital: the General Meeting of 25 April 2014 authorised the Board of Directors to increase the share capital by a maximum of CHF at any time before 25 April 2016 by issuing a maximum of registered shares of a par value of CHF 4.20 each, which shall be fully paid up. The Board of Directors is authorised to exclude the subscription right of shareholders, either wholly or in part, and assign it to third parties (1) in the event of a share issue for investment by strategic partners, (2) for the acquisition of companies, interests in companies or shareholdings or for financing or refinancing transactions of this kind, (3) to replace existing financing, (4) to raise equity quickly and flexibly, which would be very difficult if the subscription right was not excluded or (5) for other important reasons in accordance with Art. 652b. (2) of the Swiss Code of Obligations (CO). The authorised capital and the conditional capital cannot be made use of cumulatively but only alternatively, meaning that if and insofar as the Board of Directors has used or reserved one of the two categories of capital, the amount of remaining available capital in the other category is reduced accordingly. 2.3 Changes in capital In the last three reporting years ( ), the share capital of CHF ( registered shares with a par value of CHF 4.20 each) remained unchanged. 2.4 Shares and participation certificates The company has issued registered shares of a par value of CHF Each registered share grants the same entitlement to receive dividends and represents one vote at the General Meeting. No preferential rights have been granted. The company has not issued any participation certificates. 2.5 Dividend right certificates The company has not issued any dividend right certificates. 2.6 Limitations on transferability and nominee registrations On request, purchasers and beneficiaries of registered shares are registered in the share register as shareholders with voting rights if they expressly declare that they have purchased the shares in their own name and for their own account. Nominees are persons who, on applying for registration, do not explicitly declare that they hold the shares for their own account and with whom the Board of Directors has signed an agreement to this effect. As a matter of principle, a nominee is not entered in the share register with voting rights for more than 3 % of the registered share capital entered in the commercial register. Beyond this limit, a nominee is only entered in the share register with voting rights insofar as he discloses the names, addresses and shareholdings of the persons for whose account he holds 0.5 % or more of the registered share capital entered in the share register. In the event of such a disclosure, the nominee concerned is entered in the share register with voting rights with up to a maximum of 8 % of the registered share capital entered in the commercial register.

4 30 31 The Board of Directors may, after the registered shareholder, beneficiary or nominee has been heard, revoke the latter s registration in the share register as a shareholder with voting rights with retrospective effect from the date of registration if the registration was made on the basis of false information. The affected party must be informed of the revocation without delay. The Board of Directors sets out the detailed arrangements and issues the instructions required to ensure compliance with the above provisions. It may delegate its responsibilities and powers. 3 BOARD OF DIRECTORS The Board of Directors attaches due importance to the diversity of the body. The Board of Directors of AFG consists of experts who cover the key subject areas of AFG as an internationally and technologically leading building supplies group. The Board of Directors currently consists exclusively of male members. Female candidates were also considered in the case of the last two extensions of the Board of Directors. The fact that the General Meeting ultimately only proposed male members for election is a chance result of the recruitment processes as far as the proportion of women is concerned. The rules for registration in the share register set out in Article 5 of the Articles of Association also apply to shares subscribed to or acquired through exercise of a subscription, option or conversion right. The company s Articles of Association do not permit the Board of Directors to make any exceptions to the rules described above. Accordingly, the Board of Directors did not grant any exceptions in the year under review. 2.7 Convertible bonds and options There are no outstanding convertible bonds or options issued by AFG. From left to right: Peter E. Bodmer Heinz Haller Peter Barandun Rudolf Graf, Chairman Christian Stambach, Vice-Chairman Andreas Gühring Markus Oppliger

5 Members of the Board of Directors As of 31 December 2014, the Board of Directors consisted of the following members: Rudolf Graf (1953, Swiss citizen, resident in Erlinsbach AG), Dipl. El.- Ing. ETH Lausanne, from 19 April 2013 to 18 February 2014 non-executive, from 19 February to 31 October 2014 executive and since 1 November 2014 non-executive Chairman of the Board of Directors Marketing and Sales Director of the Energy Management Division of Landis & Gyr AG in Zug; Regional Head Asia-Pacific at Landis & Gyr AG, in Singapore; CEO of Ferrum AG, Rupperswil; CEO of Ammann AG, Langenthal; since 2005 various management and consulting engagements as an independent entrepreneur and owner of GBD Graf Business Development GmbH, including as Chairman of the Board of Directors of Soudronic AG, Bergdietikon. From 20 February 2014 to 31 October 2014, Rudolf Graf was part of the executive management of AFG. He had no material business relationships with AFG or its subsidiaries in the year under review. Christian Stambach (1970, Swiss citizen, resident in Thal SG), lic. iur., attorney-at-law, since 29 April 2011 non-executive Vice-Chairman of the Board of Directors ( non-executive Member of the Board of Directors) attorney at Bär & Karrer, Zurich; Group Vice President, Chief Risk Officer and Chief Legal Counsel, General Secretary, Member of Group Management of Centerpulse Ltd; Group General Counsel at Adecco SA; since 2004 partner of the law firm Bratschi Wiederkehr & Buob AG, St. Gallen. Christian Stambach has never been part of the executive management of AFG or its subsidiaries. In connection with the activity of the law firm Bratschi Wiederkehr & Buob AG as legal advisor for AFG and its subsidiaries, material business relationships exist with the company (see pages 185 / 186). Andreas Gühring (1963, German citizen, resident in Saarbrücken, Germany), degree in engineering, non-executive member of the Board of Directors since Head of Industrial Engineering at Hydac GmbH; CEO of Valeo GmbH; CTO of ThyssenKrupp Federn GmbH; CEO of Brose Fahrzeugteile GmbH & Co. KG; CEO of ThyssenKrupp Drauz Nothelfer GmbH, Heilbronn, Germany; CEO of Knorr-Bremse Systeme für Nutzfahrzeuge GmbH, Munich, Germany. Managing Partner of MHA ZENTGRAF GmbH & Co. KG, Merzig, Germany, since 1 January Andreas Gühring has never been part of the executive management of AFG or its subsidiaries. He has no material business relationships with AFG or its subsidiaries. Peter E. Bodmer (1964, Swiss citizen, resident in Küsnacht ZH), lic. oec. publ., Executive MBA, IMD, non-executive member of the Board of Directors since 19 April Head of Sales at Kaiser Precision Tooling Ltd., Rümlang; Deputy Director, Head of Integration and CFO Europe of GKN Sinter Metals GmbH; COO and CFO of Maag AG; various executive functions in the Implenia Group; since 2011 various management and consulting mandates as Chairman and CEO of BEKA Global Solutions. Peter E. Bodmer has never been part of the executive management of AFG or its subsidiaries. He has no material business relationships with AFG or its subsidiaries. Markus Oppliger (1959, Swiss citizen, resident in Wangs SG), accounting and controlling expert with a federal diploma, auditor with a federal diploma, non-executive member of the Board of Directors since 19 April Prefera Treuhandgesellschaft Sargans; Bank in Liechtenstein / Prince of Liechtenstein Foundation; at Ernst & Young, partner from 1996 and Quality & Risk Management Leader of the Advisory Services of Ernst & Young GSA (Germany, Switzerland, Austria) from 2009; various consulting mandates as an independent management consultant and owner of Oppliger Management Consulting since Markus Oppliger has never been part of the executive management of AFG or its subsidiaries. He has no material business relationships with AFG or its subsidiaries. Peter Barandun (1964, Swiss citizen, resident in Einsiedeln SZ), Executive MBA HSG, non-executive member of the Board of Directors since 25 April Deputy Head of Sales, Grossenbacher AG, St. Gallen; Head of Sales Eastern Switzerland, Bauknecht AG, Lenzburg; Head of Sales Switzerland / member of the management of Bauknecht AG, Lenzburg; Director of the divisions Electrolux and Zanussi, Electrolux AG, Zurich; CEO of Electrolux Switzerland / Chairman of the Board of Directors of Electrolux AG, Zurich, since Peter Barandun has never been part of the executive management of AFG or its subsidiaries. He has no material business relationships with AFG or its subsidiaries. Heinz Haller (1955, Swiss citizen, resident in Küsnacht ZH), MBA IMD, Lausanne, non-executive member of the Board of Directors since 25 April various leading positions in The Dow Chemical Company, Horgen / Frankfurt am Main, Germany / Midland MI (USA); Managing Director of Plüss-Staufer AG, Oftringen; Chief Executive Officer Red Bull Sauber AG / Sauber Petronas Engineering AG, Hinwil; Managing Director Allianz Capital Partners GmbH, Munich; Executive Vice President Performance Products and Systems Divisions and DAS (Dow Agricultural Science Division) The Dow Chemical Company, Midland MI (USA); Executive Vice President & Chief Commercial Officer, The Dow Chemical Company, Midland, MI (USA); Executive Vice President & Chief Commer-

6 34 35 cial Officer of The Dow Chemical Company, President Dow Europe, Middle East, Africa (EMEA) since Heinz Haller has never been part of the executive management of AFG or its subsidiaries. He has no material business relationships with AFG or its subsidiaries. 3.2 Other activities and vested interests Rudolf Graf, delegate of the Board of Directors of Ceramaret AG, Milvignes NE; member of the Board of Directors of Eugen Seitz AG, Wetzikon ZH; Chairman of the Board of Directors of Verwo AG, Reichenburg SZ; member of the Board of Directors of Edify S.A., Luxemburg (LU); consulting work as an advisor and coach for various other companies. Christian Stambach, member of the Board of Directors of ABD Hold - ing AG, Rorschacherberg SG; member of the Board of Directors of Les Couleurs Suisse AG, Kloten ZH; member of the Foundation Board of the Sport-Up Foundation, Lausanne VD; member of the Board of Directors of Soplar SA, Altstätten SG; member of various other boards of directors in Switzerland; active in an advisory capacity as a lawyer for various Swiss and foreign companies. Peter E. Bodmer, Vice-Chairman of the Board of Directors of Peach Property Group AG, Zurich ZH; member of the Board of Directors of HL Holzwerkstoffe AG, Laufenburg AG; member of the Board of Directors of Brütsch / Rüegger AG, Urdorf ZH; member of the Board of Directors of Vitallife International AG, Baar ZG; delegate of the government council of the canton of Zurich for strategic development planning, university hospital; active as an advisor for various companies. Markus Oppliger, active as an advisor for various companies. Peter Barandun, Chairman of the Board of Directors of Electrolux AG, Zurich ZH; Chairman of the Board of Directors of Electrolux Schwanden AG, Glarus South GL; Chairman of RLZ Hoch-Ybrig, Bonstetten ZH; Vice-Chairman of FEA (Swiss Association of the Domestic Electrical Appliances Industry), Zurich ZH; member of the Board of Swiss Ski, Muri near Bern BE. 3.3 Number of permissible mandates pursuant to Art. 12 (1) section 1 of the Ordinance against Excessive Compensation in Listed Companies Limited by Shares According to the regulation on the number of permissible mandates pursuant to Article 29 of the Articles of Association, members of the Board of Directors may exercise a maximum of ten mandates / activities outside the Group (including a maximum of five for listed companies) in the top steering or administrative bodies of legal entities that must be registered in the commercial register or in a corresponding foreign register. Additionally, members of the Board of Directors may exercise a maximum of five mandates / activities for charitable organisations. Mandates / activities at legal entities controlled by the company or mandates / activities that a member of the Board of Directors performs in exercise of his function as a member of the Board of Directors are not deemed to be mandates / activities outside the Group. Several mandates / activities outside the Group in associated legal entities, which are controlled by the same person, are regarded as one mandate. The same applies if a member in exercise of his function as member of the supreme management or administrative body of a legal unit exercises additional mandates / activities outside the Group. 3.4 Election and term of office The Chairman of the Board of Directors and the other members of the Board of Directors are elected by the ordinary General Meeting for a term of office of one year. The members of the Board of Directors may be re-elected. The Chairman of the Board of Directors and the other members of the Board of Directors are elected individually by the General Meeting. The Articles of Association of AFG provide for an age limit, according to which persons who have reached the age of 70 cannot be elected or re-elected as members of the Board of Directors. Apart from this, the Articles of Association do not contain any regulations concerning the appointment of the Chairman, the members of the Compensation Committee and the independent proxy that differ from the statutory provisions. At the General Meeting in March 2015, the Board of Directors of Mobimo AG, Lucerne LU, will propose Peter Barandun for election to the Board of Directors of Mobimo AG. Heinz Haller, Chairman of the Board of DowAksa Advanced Composites s B.V., Amsterdam (NL); Member of the Board of BioAmber Inc., Montreal (CA).

7 36 37 The terms of office of the current members of the Board of Directors are as follows: Board of Directors Year of birth First election End of the term of office Rudolf Graf, Chairman Christian Stambach, Vice-Chairman Andreas Gühring Peter E. Bodmer Markus Oppliger Peter Barandun Heinz Haller Internal organisation Allocation of tasks within the Board of Directors Rudolf Graf is the Chairman of the Board of Directors; Christian Stambach is Vice-Chairman. During the term of office of Rudolf Graf as interim CEO, i.e. from 19 February 2014 to 31 October 2014 Christian Stambach served as Lead Director. The Board of Directors is supported by an Audit Committee, a Nomination and Compensation Committee and, during the year under review, by a Strategy Committee Committees of the Board of Directors The duties, responsibilities and working procedures of the committees are laid down in the by-laws. The Board of Directors appoints the members and chairpersons of the committees Audit Committee The Audit Committee is convened by the Chairperson as often as business requires, but at least three times a year. It consists of three members. All three members are non-executive and independent. All members of the Audit Committee have experience in finance and accounting. The Audit Committee reviews the effectiveness of the external and internal auditors, the internal control system including risk management, the compliance with standards from a financial and legal perspective, the accounting system, the financial reports and the performance, fees and independence of the external auditors. It draws up a recommendation to the Board of Directors regarding the submission of the financial statements to the General Meeting. Within the scope of these duties, the Audit Committee has comprehensive rights of inspection and information. It may order investigations and consult external advisors. Reporting to the Audit Committee is Internal Audit, which performs an independent, Group-wide auditing and monitoring role (see 3.7). The Audit Committee is authorised to make decisions regarding the tasks delegated to it provided that the respective matter does not concern a non-delegable duty of the Board of Directors pursuant to Art. 716a of the Swiss Code of Obligations (CO). The committee may submit issues within the scope of its decision-making powers to the Board of Directors. The Audit Committee consists of the following members: Markus Oppliger, Chairman Peter E. Bodmer, Vice-Chairman Peter Barandun, member The Audit Committee met three times during the year under review. The interim Chief Executive Officer or the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the external and internal auditors attended each meeting. At the subsequent meeting of the full Board of Directors, the Chairperson reports on the meetings of the Audit Committee, and the meeting minutes are sent to the meeting participants and all members of the Board of Directors. The meetings of the Audit Committee lasted two and a half hours on average. Every two months, the Chairman of the Audit Committee and the Head of Internal Audit held additional meetings to discuss the findings of Internal Audit and its duties in detail Nomination and Compensation Committee In the year under review, the Board of Directors decided to combine the Remuneration Committee and the Nomination and Governance Committee to form a Nomination and Compensation Committee. This committee has taken over the duties of the previous Remuneration Committee and the previous Nomination and Governance Committee. The members of the Compensation Committee were elected by the General Meeting on 25 April The members of the Compensation Committee also take care of the duties of the Nomination Committee. The Nomination and Compensation Committee consists of three independent members and is convened by the Chairperson of the committee as often as business requires, but at least three times a year. The Nomination and Compensation Committee gives the Board of Directors recommendations regarding the Group s salary policy and compensation system. For the attention of the General Meeting, it submits requests to the Board of Directors concerning the total amount of the maximum compensation of the members of the Board of Directors for the period until the next ordinary General Meeting, concerning the total amount of the maximum fixed and variable compensation of the members of Group Management for the coming financial year and concerning the determination of the salary of the individual members of Group Management within the limits of the maximum total amount approved by the General Meeting. Moreover, the Nomination and Compensation Committee approves bonus programmes and employee participation schemes as well as pension fund solutions and benefit plans in principle. The Nomination

8 38 39 and Compensation Committee is also responsible for the preparation of the compensation report and the request to the full Board of Directors for approval. Furthermore, the committee determines the principles for the selection of candidates for election to the Board of Directors and Group Management. It identifies suitable candidates for the Board of Directors and Group Management and conducts the needed selection procedures. In the year under review, however, the Chairman of the Board of Directors handled the recruitment procedure for a new CEO by order of the full Board of Directors and by agreement with the members of the Nomination and Compensation Committee. The Nomination and Compensation Committee also determines the principles of the management and development of the members of the Board of Directors and Group Management. It assists the Board of Directors in self-assessment and assesses the performance of the members of Group Management. Essentially, the Nomination and Compensation Committee fulfils a supporting and preparatory function for the benefit of the full Board of Directors. The Nomination and Compensation Committee is only authorised to make decisions regarding the tasks expressly delegated to it under the Group s regulation of powers. The full Board of Directors decides on matters not expressly delegated to the Nomination and Compensation Committee under the regulation of powers. The committee may submit issues within the scope of its decision-making powers to the Board of Directors. The Nomination and Compensation Committee consists exclusively of independent members who must not be interdependent, namely: Peter Barandun, Chairman Andreas Gühring, Vice-Chairman Heinz Haller, member In the year under review, the Nomination and Compensation Committee came together four times (once as the Remuneration Committee and once as the Nomination and Governance Committee before May 2014). Within the framework of the recruitment procedure for the new CEO, the full Board of Directors also came together for an additional extraordinary meeting. The meetings of the Nomination and Compensation Committee usually take place in the absence of the members of the Board of Directors who are not on the committee. In the year under review, the Chairman of the Board of Directors attended two meetings of the Nomination and Compensation Committee as a guest (without a voting right). The interim CEO or CEO, the CFO and the Head of Corporate HR attended all meetings. The General Secretary attended one meeting. At the subsequent meeting of the full Board of Directors, the Chairman reports on the meetings of the Nomination and Compensation Committee, and the meeting minutes are sent to the meeting participants and all members of the Board of Directors. In the year under review, the then-existing Nomination and Governance Committee performed the selection procedure for the two members of the Board of Directors who were elected for the first time by the General Meeting on 25 April In this activity, the Nomination and Governance Committee was supported by external advisors. Among other things, the Nomination and Compensation Committee requested the Board of Directors to modify the bonus regulations. The meetings of the Nomination and Compensation Committee lasted two hours on average Strategy Committee In the year under review, the Board of Directors decided to form a Strategy Committee. The Strategy Committee consists of at least two members and is convened by the Chairperson of the committee as often as business requires, but at least three times a year. The Strategy Committee assists the Board of Directors in the preparation of strategic decisions, monitors the implementation of the strategy adopted by the Board of Directors and regularly reviews the strategy for timeliness and appropriateness in the changing market and competitive environment. The Strategy Committee is authorised to make decisions regarding the tasks expressly delegated to it under the Group s regulation of powers. The full Board of Directors decides on matters not expressly delegated to the Strategy Committee under the regulation of powers. The committee may submit issues within the scope of its decision-making powers to the Board of Directors. The Strategy Committee consists of two members, namely: Peter E. Bodmer, Chairman Rudolf Graf, member The Strategy Committee met three times during the year under review. The meetings of the Strategy Committee took place in the absence of members of the Board of Directors who are not on the committee. At the next meeting of the full Board of Directors, the Chairman reports on the meetings of the Strategy Committee. In the year under review, in which the CEO function was mostly staffed on an interim basis only, the Strategy Committee established the preconditions for the reorientation of the strategy process. It defined the guidelines of the strategic planning process and the conceptual framework conditions. Furthermore, the full Board of Directors entrusted the members of the Strategy Committee with the support and monitoring of strategic projects. The meetings of the Strategy Committee lasted one and a half hours on average. The Board of Directors decided to dissolve the Strategy Committee after the end of the induction period of the new CEO.

9 Working procedures of the Board of Directors The Chairperson convenes the Board of Directors as often as business requires, but at least four times a year. In the year under review, the Board of Directors held seven ordinary and four extraordinary meetings. In the year under review, the Board of Directors also held two additional meetings of the Board of Directors as executive sessions in connection with the filling of the interim management of AFG and the recruitment procedure for the new CEO. In the year under review, the Board of Directors performed most of its duties directly (see , and for details of the working procedures of the committees of the Board of Directors and their cooperation with the Board of Directors as a whole). Before their meetings, members of the Board of Directors receive documentation enabling them to prepare for the items on the agenda. Ordinary meetings of the Board of Directors usually last one day, and extraordinary meetings usually last around one hour. Three ordinary meetings in the year under review lasted two days each. The interim CEO, the CFO and the General Secretary attended all meetings. The new CEO attended two meetings. The divisional heads, heads of the business units, senior managers and managers of Corporate Functions as well as representatives of Internal Audit are usually invited to meetings to discuss issues that fall within their field of responsibility or scope of activities. In the year under review, all divisional heads and heads of the business units reported to the Board of Directors on the occasion of the strategy meeting and budget meeting, each of which lasted two days. The Head of Internal Audit and managers of Corporate Functions were also given the opportunity to speak during the strategy meeting. At three other meetings of the Board of Directors, a divisional head spoke on specific subjects concerning his area. The Board of Directors reviews its operability and discusses its performance on various occasions in executive sessions that usually take place at the end of every meeting. Following their appointment, the members of the Board of Directors who were newly elected in the financial years 2013 and 2014 were informed about the business operations of AFG by means of a comprehensive introduction programme. In the year under review, various members of the Board of Directors also attended external training courses in connection with their activity in the Board of Directors on an individual basis and at their own expense. 3.6 Regulation of powers The Board of Directors is responsible for guiding, supervising and monitoring management. It approves and regularly revises the strategy and budget. To this end, the Board of Directors held one strategy meeting and one budget meeting during the year under review, each of which lasted two days. Furthermore, the Board of Directors enacts the necessary rules, instructions and guidelines and establishes the organisational structure and risk policy. In the year under review, for example, the Board of Directors adapted the by-laws and regulation of powers to the requirements of the Ordinance against Excessive Compensation in Listed Companies Limited by Shares (ERCO) and included the newly formed Strategy Committee. The division of powers between the Board of Directors, Group Management and Divisional Management is set out in detail in the by-laws and the regulation of powers. Within the framework of law and the Articles of Association and based on the by-laws and the regulation of powers, the Board of Directors has delegated the management of the Group to Group Management under the chairmanship of the CEO. In accordance with the regulations in force (by-laws and regulation of powers), the Board of Directors has reserved the right to decide on the following subjects in addition to its non-delegable duties under Art. 716a of the Swiss Code of Obligations (CO): Determination of the Group s capital structure Establishment and liquidation of key subsidiaries Issue of bonds, participation certificates, convertible bonds and options as well as determination of the terms and conditions Purchase / sale of significant amounts of treasury shares Self-image of the Group (vision, mission statement, principles) Medium-term planning and annual budgets of the Group, divisions and business units Strategy of the Group, divisions and business units Significant individual operational investments Purchase and sale of non-operational property / restructuring / financial investments with a significant scope Purchase and sale of significant shareholdings (M & A activities) Significant intangible investments Joint ventures, strategic alliances, discontinuation of existing activities Annual financial statements and annual report for submission to the General Meeting Corporate development (establishment of new business areas, international development) Principles for the recruitment of members of the Board of Directors and Group Management Appointment and dismissal of members of Group Management Determination of the total amount for the Board of Directors for submission to the General Meeting

10 42 43 Determination of the fees to be paid to the Board of Directors (Chairman, Vice-Chairman, members, committee chairpeople and members) within the scope of the total amount Determination of the total amount (fixed and variable) for Group Management for submission to the General Meeting Determination of the salaries for the members of Group Management within the scope of the total amount or the additional amount Determination of a share-based payment programme for the Board of Directors and Group Management Compensation report and its submission to the General Meeting for consultative voting Group Management performance assessment Definition of a system for the authority to sign Principles for the management and development of members of the Board of Directors and Group Management Principles of the staff pension scheme Directives, standards and best practices regarding the Code of Conduct, compliance, corporate governance, etc. Initiation and settlement of important legal disputes Regulation of powers Management structure Corporate governance report Determination of powers of attorney and instructions for the independent proxy Corporate identity, brands, AFG trademark Risk management requirements and guidelines 3.7 Information and control instruments vis-a-vis management Through various channels, the Board of Directors is regularly updated on the activities of Group Management and the divisions. The management information system (MIS) provides the members of the Board of Directors with key information about the financial and income situation of the Group and the individual divisions and business units on a monthly basis. The external auditors provide the Audit Committee with written and oral information on the main findings of the audit. The CEO oversees the members of Group Management who report to him and ensures compliance with the law, the Articles of Association and regulations within the Group. In the year under review, the Chairman of the Board of Directors served as interim CEO from 19 February to 31 October Since the accession of the new CEO on 1 November 2014 the Chairman of the Board of Directors has held weekly briefings with him and has received the minutes of Group Management for information. In November and December 2014 the Chairman of the Board of Directors ensured the comprehensive introduction of the CEO. Where required, the Chairman of the Board of Directors informs the other members of the Board of Directors about the results of these discussions. In addition to his weekly discussions with the Chairman of the Board of Directors, the CEO reports regularly to the Board of Directors during ordinary meetings of the Board of Directors and without delay in the event of extraordinary developments. Regular contact also takes place between the Chairperson of the Audit Committee, the CFO and the Head of Internal Audit (see section ). Where required, he too informs the other members of the Board of Directors regarding his findings. The members of Group Management, heads of business units, managers and other employees are regularly involved in the meetings of the Board of Directors (see section 3.5.3). As a rule, the members of the Board of Directors may request any additional information required to carry out their tasks. Reporting to the Audit Committee is Internal Audit, which performs an independent, Group-wide auditing and supervisory role. The principal role of Internal Audit is to monitor processes and structures throughout the Group. It identifies business and operational risks in all three divisions and in Corporate Functions and defines the audits to be conducted on the basis of this risk analysis. In dialogue with the external auditors, it exchanges information on risks and coordinates all assurance-related activities throughout the Group. These activities are summarised in an annual audit plan that is approved by the Audit Committee. The Audit Committee also assigns special audit mandates to Internal Audit as and when required. The respective audit findings are discussed with the Audit Committee, Group Management and local management and communicated to the Board of Directors in writing. During the year under review, Internal Audit provided the members of the Board of Directors with eight audit reports. If material risks are identified, measures are defined to reduce them. Internal Audit adopts a systematic approach to monitoring risks and measures and carries out its work in accordance with the international standards governing internal auditors professional duties. It regularly reports to the Audit Committee and Board of Directors on the scale of risks and any changes to the risk situation as well as the status of measures implemented. The Board of Directors received a total of four written reports on the implementation of measures during the year under review. The external auditors also have access to all audit reports and the reports from the ongoing monitoring of risks and measures. In addition, Internal Audit informed the Audit Committee and the Board of Directors on the status of the internal control system, internal audits and risk management in four Assurance Memoranda.

11 GROUP MANAGEMENT 4.1 Members of Group Management Group Management comprises the following members: William J. Christensen (1973, Swiss citizen), BA (Econ.), MBA, Univer sity of Chicago, Booth School of Business, Chief Executive Officer (CEO) since 1 November 2014; Project Manager Rieter Automotive Heatshields AG, Sevelen; 1997 Financial Controller at Rieter Automotive Systems, Winterthur; Head of Business Development Rieter Automotive Systems, Detroit MI (USA); Director Rieter Automotive Systems, Aiken SC (USA); Associate, Mergers and Acquisitions J.P. Morgan Securities Inc., New York NY (USA); Head of Strategic Marketing Geberit AG, Rapperswil-Jona; President and CEO The Chicago Faucets Company, Chicago IL (USA); Group Leader Marketing Geberit AG, Rapperswil-Jona; Member of the Group Management, Head of Sales at International Geberit AG, Rapperswil-Jona. Felix Bodmer (1955, Swiss citizen), lic. oec. HSG, Chief Financial Officer (CFO) since 2003; Hilti Group, various positions in Controlling and Finance, most recently as Head of Finance of a German subsidiary; ABB / Alstom, Commercial Director / CFO of group companies, most recently CFO / Head of Shared Services of Alstom Power (Schweiz) AG; CFO of Steiner Group. Knut Bartsch (1968, German citizen), Dipl.-Wirtsch.-Ing., Spokesman for the Building Technology Division since 2004 (Head since 1 January 2015); Executive Assistant at Preussag AG / TUI AG; at Kermi GmbH since 1997, Director since Dr. Roman Hänggi (1967, Swiss citizen), Dr. oec. HSG, dipl. Ing. ETH; Head of the Building Envelope Division since 1 July 2014; Head of Manufacturing Technology Optics, Marketing Head of GPS Leica Geosystems AG Heerbrugg, Torrance CA (USA); Product Manager at Hilti AG Schaan FL; Business Unit Head of Service at SIG / Bosch Neuhausen; Business Unit Head of Cordless Tools, Messtechnik Hilti AG Schaan (FL); Director of EgoKiefer AG Altstätten. 4.2 Other activities and vested interests Felix Bodmer, since June 2012 member of the Board of Directors at the Bernet-Wirona Group, St. Gallen. Knut Bartsch, member of the CCI plenary meeting and member of the Presidential Council of the Chamber of Commerce and Industry for Lower Bavaria since 2013; member of the Supervisory Board of SorTech AG, Halle (Saale), Germany, since Number of permissible mandates pursuant to Art. 12 (1) no. 1 (VegüV) According to the regulation on the number of permissible mandates pursuant to Article 29 of the Articles of Association, members of Group Management may exercise a maximum of five mandates / activities outside the Group (including a maximum of one for a listed company) in the top steering or administrative bodies of legal entities that must be registered in the commercial register or in a corresponding foreign register. Additionally, members of Group Management may exercise a maximum of five mandates / activities for charitable organisations. Mandates / activities at legal entities controlled by the company or mandates / activities which a member of the Group Management conducts in exercise of his function as member of the Group Management are not deemed to be mandates / activities outside the Group. Several mandates / activities outside the Group in associated legal entities, which are controlled by the same person, are regarded as one mandate. The same applies if a member in exercise of his function as member of the supreme management or administrative body of a legal unit exercises additional mandates / activities outside the Group. 4.4 Management contracts AFG has not signed any management contracts with companies or natural persons outside the Group. Dr. Christoph Schönenberger (1968, Swiss citizen), Ph.D in law, attorney-at-law, LL.M., Head of the Building Security Division and Head of the Business Unit Profile Systems since 2012; lawyer in Legal Services at UBS AG, Zurich; attorney and partner in the law firm Probst Rechtsanwälte, Winterthur; Head of Corporate Services (Secretary General, Legal, Corporate Communications, Human Resources) of AFG.

12 COMPENSATION, SHAREHOLDINGS AND LOANS 5.1 Content and determination procedure for compensation and shareholding programmes The basis and elements of compensation and the share-based payment programmes as well as the procedure for their determination are presented in the compensation report on pages Principles of performance-related compensation, the allocation of shares and the determination of the additional amount According to Article 24 of the Articles of Association, the variable compensation paid to the members of Group Management must be aligned with the business results. The success criteria comprise business-related and personal targets. 100 % of the bonus amount determined in the individual agreement is paid out if the targets are fully achieved. If the targets are exceeded, the variable compensation may exceed the bonus amount determined by individual agreement up to a maximum amount. If achievement of the targets lies below a particular threshold, no variable compensation is paid. The variable compensation amounts to a maximum of 100 % of the fixed compensation. In the year under review, the Board of Directors revised the bonus regulations, which entered into force on 1 January The regulations now only provide for financial and business targets for the members of Group Management, but no longer for personal targets. Moreover, the maximum variable compensation if the targets are exceeded may amount to more than 100 % of the fixed compensation in the case of the CEO (max. 150 %). These two changes to the bonus regulations are subject to the approval of the corresponding amendment to the Articles of Association at the General Meeting on 17 April Management for the particular period in the case of the Chief Executive Officer and 20 % in the case of each other member of Group Management Loans, credit and pension benefits According to Article 26 of the Articles of Association, AFG shall not grant the members of the Board of Directors and Group Management any loans, credit or pension benefits outside the occupational pension scheme or collateral Rules concerning voting at the General Meeting on compensation According to Article 23 of the Articles of Association, the General Meeting votes at yearly intervals (1) on the maximum compensation of the Board of Directors for the period until the next ordinary General Meeting and (2) on the maximum fixed and variable compensation of Group Management for the next financial year. If the General Meeting refuses to approve a maximum total amount for the Board of Directors and / or the Group Management, the Board of Directors may submit new motions to the same General Meeting. With respect to the compensation to be paid to Group Management, it may submit the maximum fixed and variable compensation to be paid to Group Management for the next financial year separately for approval. If it does not submit any new motions or if these are rejected, the Board of Directors may convene an extraordinary General Meeting and submit new motions for approval of the total amounts to it or apply for approval on the occasion of the next ordinary General Meeting. Every year, the Board of Directors submits the compensation report for the financial year ended to the General Meeting for consultative (non-binding) approval. According to Article 25 of the Articles of Association, the Board of Directors determines the details of the allocation of shares to members of the Board of Directors and Group Management in a share programme. The Board of Directors especially regulates (1) the proportion of the fixed and variable compensation paid in the form of restricted shares; (2) the time and conditions of allocation and the determination of the allocation price of the restricted shares on the basis of the stock exchange price prior to the time of allocation; (3) the vesting periods of the shares and their possible lifting for important reasons; and (4) the valuation of the restricted shares as of the allocation time according to accepted principles. According to Article 27 of the Articles of Association, an additional amount is available for compensation of members of Group Management who are newly appointed or promoted after approval of the maximum total compensation to be paid to Group Management for every period for which the General Meeting has already approved the compensation of Group Management if the compensation already approved for the particular period is insufficient. This additional amount may not exceed 40 % of the approved total compensation to be paid to Group