38th ANNUAL REPORT 2000/2001 EMS-CHEMIE HOLDING AG. Domat/Ems Switzerland

Transcription

1 38th ANNUAL REPORT 2000/2001 EMS-CHEMIE HOLDING AG Domat/Ems Switzerland

2 Contents Chairman s Statement 2 The EMS Group Spotlight on share performance 3 Key Figures Corporate Governance Management Organization 6 General Information on the 2000 Fiscal Year at the EMS Group 7 Review of Business at the Individual Business areas in 2000 Performance Polymers Business area 8 Fine Chemicals Business area 8 Engineering Business area 8 Financial Statements EMS Group Consolidated Income Statement 9 consolidated data Consolidated Balance Sheet 10 for the calendar year Consolidated Changes in Shareholders Equity 11 Consolidated Cash Flow Statement 12 Notes to the Consolidated Financial Statements 13 Report of the group Auditors 35 EMS-CHEMIE HOLDING AG Income Statement 38 data for the fiscal year from Balance Sheet as of April May 1, 2000 to April 30, 2001 Notes to the Financial Statements 40 Proposals of the Board of Directors 44 Report of the Auditors 44 Addresses of EMS Companies, Switzerland 45 Addresses of EMS Companies, Worldwide 46 1

3 In the 2000 fiscal year, EMS Group exceeded expectations by posting an operating result of CHF 213 million (up from CHF 199 million in the previous year). We achieved this good result by focusing on high-value products and avoiding less profitable lines. The economic recovery in Asia also had a beneficial effect during the financial year. Over the year as a whole, the currency influence was neutral for EMS. The new products were launched successfully, which helped to lift operating results above budgeted levels. Customers showed particular interest in Grivory, a highquality alternative to expensive light metals, and Primid, an environmentally friendly hardening agent for powder coating. A marked improvement in the economic climate in Asia gave a substantial boost to the engineering business. The spiraling cost of the principal raw materials, which could not be passed on immediately to customers, meant that the encouraging rise in sales volumes for many products was not fully reflected in earnings growth. Consequently, the business result would have declined if new, higher-margin products had not been launched. The EMS-TOGO Business Unit, which is focused purely on the automotive industry, was hardest hit by the rise in raw materials prices. In the year under review, this unit took over Wagner Automobilsysteme, a company headquartered in Markdorf, Germany. With this move, EMS-TOGO has continued to strengthen its market position as a one-stop supplier of bonding, corrosion protection and sealing systems to the automotive industry. To improve competitiveness and achieve a flatter management hierarchy, EMS-CHEMIE the Group's largest profit center, comprising thermoplastics, technical fibers and adhesives was split into three autonomous Business Units, EMS-GRIVORY, EMS-GRILTECH and EMS- SERVICES. Axantis, a company acquired at the beginning of 2001, will specialize in refined cellulose and biochemical derivative products. These activities ideally complement the EMS Group's business. The reorientation of Axantis, the main component of which is Atisholz, is just the start of a longterm process. Since it was only acquired on 15 March 2001 it has not been included in the consolidated accounts for fiscal The good operating result could not have been achieved without strict cost discipline in all units. This is to the credit of our dynamic team. Thanks are therefore due to the Group's employees for their dedicated work. The new, flatter management structure introduced in the year under review will help improve the motivation of the workforce. For EMS, the current year, 2001, has seen a worsening of the business climate in the USA, again weaker economic growth in Asia and a marked deterioration in conditions in the automotive and cellulose industries. Nevertheless, EMS will be able to increase its sales and maintain its good operating result. Christoph Blocher Chairman of the Board of Directors 2

4 Spotlight on share performance Share capital on December Number of shares as per articles of incorporation Bearer shares (par value CHF 50) Registered shares (par value CHF 10) Conditional capital Authorized capital Number of shares entitled to dividend Bearer shares Registered shares Treasury shares Information per bearer share: Dividend proposal per share in CHF 1) 2) ) Equity per share entitled to dividend in CHF Cash flow per share entitled to dividend in CHF Earnings per share entitled to dividend in CHF Weighted average of shares, undiluted* Weighted average of shares, diluted* Number of shares on December Stock prices of bearer shares in CHF High Low Market capitalization on December 31 (CHF millions) Bearer shares are quoted on the Swiss Exchange ( SWX ) and are part of the Swiss Market Index (SMI). Security number Reuters identification Investdata identification EMS-CHEMIE EMS CHOZ * calculated according to IAS 33 1) Reduction of the share capital by repurchase of bearer shares at CHF 8400 (nominal KCHF 1200, premium KCHF ) 2) Reduction of the share capital by repurchase of bearer shares at CHF 6000 and bearer shares at CHF 6100 (nominal KCHF 2707, premium KCHF ) 3) Dividend payment (KCHF ) and repurchase of bearer shares at CHF (nominal KCHF 1369, premium and premium for option KCHF ) 3

5 Key Figures Calendar years, CHF millions Net sales revenue Change in % against previous year +6.8% +2.2% +3.7% +8.5% +2.3% Change in local currencies +2.5% +1.1% +7.2% +2.6% +1.2% Change with identical scope of consolidation +6.8% 0.9% +4.3% +9.9% +2.3% of which in Switzerland 8.8% 7.0% 10.9% 10.8% 9.6% Operating income Change in % against previous year +9.0% +1.5% 1.3% +13.1% 0.5% Net operating income Change in % against previous year +7.1% +5.1% +0.5% +23.8% +10.4% in % of net sales revenue 18.4% 18.3% 17.8% 18.4% 16.1% Net financial income Change in % against previous year +72.6% % 97.4% +38.8% +12.8% Net income before taxes and minority interest Change in % against previous year +22.2% +33.1% 46.7% +30.6% +11.5% Income taxes Change in % against previous year +31.1% +46.5% 52.4% +27.5% +8.3% Net income Change in % against previous year +20.6% +30.5% 46.5% +31.0% +12.2% in % of total operating income 20.7% 18.8% 14.6% 26.9% 23.2% Investments in % of total cash flow 31.2% 36.7% 47.8% 19.8% 25.7% Research and development cost in % of net sales revenue 5.1% 5.1% 5.1% 5.1% 5.3% Cash flow Change in % against previous year +16.0% +27.2% 39.4% +26.5% +11.7% in % of total operating income 26.0% 24.4% 19.5% 31.7% 28.3% Depreciation of fixed assets

6 Calendar years, CHF millions Balance sheet total Assets Current assets Fixed assets Liabilities Short-term liabilities Long-term liabilities Minority interests Shareholders equity Balance sheet equity ratio 44.7% 42.6% 36.8% 57.5% 67.2% Return on equity 21.6% 22.8% 22.8% 32.7% 24.1% Number of employees on December 31* Fire insurance value of fixed assets * Excluding apprentices (2000: 144; 1999: 140; 1998: 142; 1997: 144; 1996: 137) 5

7 Corporate Governance Board of Directors of EMS-CHEMIE HOLDING AG Term expires Christoph Blocher, Herrliberg, Chairman and Chief Executive Officer 2001 Albert Sommerauer, Schattdorf, Vice Chairmann 2001 Peter Matter, Sissach 2001 Ulrich Widmer, Trogen 2001 Auditors of EMS-CHEMIE HOLDING AG Robert Brütsch, Swiss Certified Public Accountant, Zurich PricewaterhouseCoopers AG, Zurich Management Organization EMS GROUP Performance Polymers EMS-GRIVORY EMS-GRILTECH EMS-SERVICES EMS-TOGO ATISHOLZ Albert Reich Reto Fintschin Ludwig Locher Hans M. Feix Beat Lorétan Fine Chemicals EMS-PRIMID EMS-DOTTIKON René Berri Hans Rudolf Wittmer Engineering EMS-PATVAG INVENTA-FISCHER POWER STATIONS EMS-REAL ESTATE Peter Hartmann Alfred Betschart Heinz Fuhrer Felix Weber Financial services Accounting/Controlling General secretariat Joos Zulauf Ralph Moor Walter Eberle 6

8 Business trend The year under review 2000 saw growth in both sales and earnings. After EMS had discontinued less profitable products in 1999 and incorporated new products into its range, and with the 4th quarter of 1999 bringing signs of a slowdown in the US economy in particular, EMS had not anticipated such growth. The unexpected improvement in the operating result is attributable first and foremost to the successful launch of new products in particular GRIVORY, a high-quality alternative to expensive light metal, and PRIMID, an environment-friendly hardening agent for powder coating as well as to the much healthier engineering business in Asia. The financial result also improved. As a result, net profits rose 20.6% to 253 million Swiss francs (210 million Swiss francs). Net sales increased by 6.8% to 1160 million Swiss francs (1 087 million Swiss francs) while EBIT climbed 7.1% to 213 million Swiss francs (199 million Swiss francs). For EMS, the main features of 2001 are a deterioration in the US economic climate, weaker economic growth in Asia and much tougher conditions in the automotive and cellulose industries. Despite this situation, EMS will be able to boost its sales and maintain its high operating income. In February 2001, EMS-CHEMIE HOLDING AG successfully concluded a public offer for the shares of AXANTIS HOLDING AG, Riedholz ( AXANTIS ). The EMS Group owns 99.52% of the AXANTIS share package and consequently in the 2001 financial year will complete the legal integration of AXANTIS into EMS and its delisting. The management of AXANTIS was taken over with effect from March 15, Consequently, the company is not consolidated in the financial statements for Investments In anticipation of a cooling-off in the economy, EMS curbed its investment plans. Consequently, at 99 million Swiss francs, investments were below the previous year s high of 100 million Swiss francs. With a cash flow of 316 million Swiss francs (273 million) EMS was able to finance its investments without recourse to borrowings. Investments by type: Expansion of capacity 58.8% Renewal/ rationalization 16.2% Quality-related and technological improvements 12.2% Environmental protection/ safety 12.8% Investments by region: Switzerland 70.1% USA 15.3% Asia 8.9% Europe 5.7% Management structure The last financial year was marked on the one hand by a reduction in both the average age and the size of the Board of Directors and on the other by a further leveling out of the management structure. The number of members of the Board of Directors was reduced from five to four. Three directors are full-time members of the Board while one is a part-time member. With effect from the 2000 General Meeting, Alfred Gilgen, Karl Imhof, Karl Janjöri and Max Kühne retired from the Board of Directors, to be replaced by Albert Sommerauer (Vice Chairman), Peter Matter and Ulrich Widmer. To achieve a flatter management hierarchy, the existing EMS- CHEMIE profit center was split into three autonomous Business Units, EMS-GRIVORY, EMS- GRILTECH and EMS-SERVICES, while the FINANCE Business Area was split into two autonomous Business Units, Accounting/ Controlling and Financial Services. The managers of the five new Business Units were recruited from within the Group. The executive bodies and the organizational structure of management are set out on page 6. Personnel At the end of the review period, the Business Areas forming the EMS Group employed a total of (2 713) persons and 144 apprentices. Of the total workforce, (1 886) were employed in Switzerland, 577 (551) elsewhere in Europe, 125 (114) in the USA and 176 (162) in the Far East. The apprentices cover 12 different vocational fields. A total of 40 apprentices successfully completed their training in the year under review. 7

9 Research and development Research and development expenditure amounted to 5.1% (5.1%) of sales in the year under review. Breakdown of EMS Group sales by region Germany 25.0% USA 11.7% Switzerland 8.8% France 7.3% Great Britain 7.2% China 5.1% Italy 5.1% Japan 4.1% Spain 2.8% Belgium 2.4% Sweden 2.4% Austria 1.8% Holland 1.5% Taiwan 1.5% Finland 1.0% Rest of Europe 4.4% Other countries 7.9% Breakdown of production by region Switzerland 72.4% Germany 8.8% USA 5.2% Sweden 5.1% Belgium 3.8% Great Britain 1.4% Taiwan 1.4% Other countries 1.9% Business areas: Performance Polymers EMS s business area Performance Polymers produces top-quality, custom-made polymers. In the EMS-GRIVORY Business Unit, these are the fast-growing highperformance polymers, i.e. materials which, thanks to their optimum price/performance ratio and economical processing properties, replace metal in automotive construction and in the electronic industry. The EMS- GRILTECH Business Unit manufactures technological thermoplastic adhesives and fibers for the clothing industry and for technological applications such as papermaking felt, car interiors, filters and laminates. The EMS-TOGO Business Unit specializes in materials used for bonding, corrosion protection and sealing in the automotive industry and manufactures plastisols, polyurethane adhesives and anti-corrosion waxes. The acquisition of AXANTIS together with its principal company, ATISHOLZ, complements the EMS Group s existing materials operations. Whereas EMS materials are based on polyamides and polyester, the ATISHOLZ Business Unit will concentrate on refined cellulose and biochemical derivative products. The EMS- SERVICES Business Unit is operated as a service provider on behalf of the Business Units located at the Domat/Ems site. In 2000, this business area generated net sales of million Swiss francs and an operating result of million Swiss francs. Fine Chemicals In addition to EMS-DOTTIKON, Fine Chemicals now also comprises the EMS-PRIMID Business Unit. The EMS-DOTTIKON Business Unit manufactures highgrade intermediates and active substances, primarily for the pharmaceuticals, animal health and plant protection industries. EMS-PRIMID concentrates on additives for surface treatment and produces hardening agents for powder coating, bonding agents for the tyre industry and epoxy compounds for the manufacture of building protection products. This business area generated net sales of million Swiss francs and an operating result of 52.3 million Swiss francs. Engineering The EMS-PATVAG Business Unit develops and manufactures highperformance electrical detonators and specializes in airbag squibs. INVENTA-FISCHER plans and builds high-quality polymer and synthetic fiber plants based on either its own or selected thirdparty processes. The POWER STATIONS Business Unit comprises five power plants of PATVAG KRAFTWERKE AG, KRAFTWERKE FRISAL AG and KRAFTWERKE REICHENAU AG. The EMS-REAL ESTATE Business Unit manages the company s own property and real estate. This business area generated net sales of million Swiss francs and an operating result of 30.6 million Swiss francs. 8

10 Consolidated Income Statement of the EMS Group Notes (CHF 000) (CHF 000) Net sales revenue from goods and services Inventory changes, semi-finished and finished goods (10 222) Capitalized costs and other operating income Operating income Material expenses Personnel expenses Depreciation and amortization 9, Other operating expenses Operating expenses NET OPERATING INCOME (EBIT) Income from equity-valuation of associated companies Financial income Financial expenses NET FINANCIAL INCOME NET INCOME BEFORE TAXES AND MINORITY INTERESTS Income taxes NET INCOME BEFORE MINORITY INTERESTS Minority interests NET INCOME Earnings per bearer share entitled to dividend (CHF) Earnings per registered share entitled to dividend (CHF) Earnings per bearer share (fully diluted) (CHF) Earnings per registered share (fully diluted) (CHF) Earnings per bearer share as per (in CHF) Earnings per registered share as per (in CHF) Notes to the Consolidated Financial Statements see on pages

11 Consolidated Balance Sheet of the EMS Group Notes (CHF 000) (CHF 000) FIXED ASSETS Intangible assets Tangible assets Financial assets Investments in associated companies Other investments Long-term interest-bearing financial assets CURRENT ASSETS Inventories Accounts receivable Trade accounts receivable Other receivables Securities Cash and cash equivalents TOTAL ASSETS SHAREHOLDERS EQUITY Share capital Retained earnings and reserves Net income MINORITY INTERESTS LIABILITIES Long-term liabilities Bonds Bank loans Other long-term liabilities Deferred income taxes Provisions Short-term liabilities Bank loans Trade accounts payable Income tax liabilities Other short-term liabilities TOTAL LIABILITIES Notes to the Consolidated Financial Statements see on pages The consolidated financial statements were approved by the Board of Directors on March 1,

12 Consolidated Changes in Shareholders Equity of the EMS Group Share Legal Free Retained Net Shareholders (CHF 000) capital reserves reserves earnings income equity At Distribution of net income ( ) 0 Net income Currency translation differences At Distribution of net income ( ) 0 Net income Transactions with treasury shares Currency translation differences (3 629) (3 629) At Balance sheet equity ratio 44.7% 42.6% Legal reserves include KCHF 5219 not being allowed to be distributed. The proposal of the Board of Directors for the profit distribution of EMS-CHEMIE HOLDING AG, whose financial year will be closed on April 30, 2001, will be communicated after said date. For further information and data refer to page 3, Spotlight on share performance. 11

13 Consolidated Cash Flow Statement of the EMS Group Notes (CHF 000) (CHF 000) Net income Minority interests Depreciation and amortization of intangible and tangible fixed assets 9, Capitalized costs 2 (14 880) (17 210) (Profit)/loss from disposal of tangible fixed assets 2, Increase/(decrease) of other long-term provisions Increase/(decrease) of other long-term liabilities (5 506) (Gain)/loss from sale of group companies 2 0 (6 227) (Gain)/loss from sale of financial participations 6 (330) 0 (Income)/expenses from the equity-valuation of associated companies, net after dividends (3 533) (4 887) Value adjustments financial assets/goodwill amortization associated companies 9, Unrealized currency translation differences (1 992) Interests, net 6, Dividends from securities in current assets 6 (68 353) (14 655) Dividends from associated companies and other companies 6 (6 576) (106) Income from sale of securities 6 (49 908) (68 082) Expenses for income taxes OPERATING PROFIT BEFORE CHANGES IN WORKING CAPITAL Cash flow from changes in working capital excluding cash and cash equivalents (39 106) (43 765) Taxes paid 8 (42 943) (68 878) Interests received Interests paid (29 215) (15 374) Dividends received Provisions used 20 (1 922) (1 860) CASH FLOW FROM OPERATING ACTIVITIES A (Purchase) of intangible and tangible fixed assets 2, 9 (83 886) (82 870) Disposal of intangible and tangible fixed assets 2, 5, Disposal/(purchase) of financial assets 9 ( ) ( ) Disposal/(purchase) of marketable securities (Purchase)/sale of fully consolidated companies 24 (506) (2 991) (Purchase)/sale of associated companies 9 (5 623) 0 CASH FLOW FROM INVESTING ACTIVITIES B ( ) ( ) Dividends paid to minorities 16 (1 303) (663) Minority share in change of share capital (2 250) (Purchase)/sale of treasury shares (Increase)/decrease of interest-bearing assets (2 859) Increase/(decrease) of interest-bearing liabilities CASH FLOW FROM FINANCING ACTIVITIES C CHANGE OF CURRENCY TRANSLATION D (11 999) 12 (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C+D) (4 352) Cash and cash equivalents at beginning of the year (Decrease)/increase of cash and cash equivalents (4 352) Cash and cash equivalents at year-end Notes to the Consolidated Financial Statements see on pages

14 Notes to the Consolidated Financial Statements of the EMS Group Consolidated accounting principles General The consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash flows of the EMS Group in accordance with the International Accounting Standards (IAS) as issued by the International Accounting Standards Committee (IASC). They also comply with the law. Scope of consolidation The scope of consolidation includes all companies in and outside Switzerland which are controlled directly or indirectly by EMS-CHEMIE HOLDING AG, holding more than 50% of the voting rights, or by contracts or other agreements (see list of subsidiaries and minority interest, pages 31 and 32). Not included are companies with a charitable character (such as housing cooperatives). Joint ventures where the parties have joint control are included at the equity method of accounting. This method is also applied for the associated companies, which are not directly or indirectly controlled by EMS-CHEMIE HOLD- ING AG (shareholding normally between 20% and 50% of voting rights). Shares in other companies (less than 20% of voting rights) are valued at purchase price less economically required value adjustments. Method of consolidation The financial statements of majority-owned companies are fully consolidated. Assets and liabilities, income and expenses are incorporated in full and the minority interests in shareholders equity and net income are separately disclosed in the consolidated balance sheet and consolidated income statement. Capital consolidation is effected using the Anglo-Saxon purchase method, under which all assets and liabilities of the acquired company are valued according to the accounting principles of the EMS Group at the time of acquisition. Any positive difference between the resulting shareholders equity and the cost of acquisition is capitalized as goodwill and amortized over its expected useful life using the straight-line method. Results for acquired companies are included in consolidation as from the date of acquisition. In case of disposal of companies, the deconsolidation is effected through the income statement at the date of the disposal, whereas the companies results are included in the consolidation up to this date. Intercompany transactions and relations have been eliminated in the course of consolidation. Unrealized profits from intragroup deliveries are eliminated in the income statement. Balance sheet date The balance sheet date is December 31. Subsidiaries with a different year-end closing not exceeding three months are included in the consolidation based on this closing. If the year-end differs more than three months, an interim closing is prepared as of December 31. Valuation principles Valuation principles remained unchanged from previous year. Uniform principles of valuation have been applied throughout the group. Consolidated financial statements are prepared under the historical cost convention. Value adjustments and provisions are set up for all known and quantifiable decreases in value and liabilities at the balance sheet date. Intangible fixed assets This item mainly consists of goodwill acquired in acquisitions since January 1, Amortization periods have been determined individually, with due regard for the benefit. The maximum useful life applied is 20 years. If goodwill is amortized over more than five years, this policy is supported by detailed business plans from the companies concerned. Organization and foundation costs are not capitalized. Amortization of intangible fixed assets is calculated on a straight-line method. 13

15 Tangible fixed assets Tangible fixed assets are shown at purchase price or manufacturing cost less economically required depreciation. Assets are depreciated using the straightline method over their estimated useful lives and up to the date of transfer of ownership to the Government for power stations respectively. Useful lives are estimated in terms of the asset s physical life expectancy, corporate policy on asset renewals and technological and commercial obsolescence. The value of the capitalized fixed assets is periodically reviewed and a provision is set up for permanent impairment, if considered necessary. Repairs and maintenance are expensed as incurred. Investments in improvements or renewals of assets are capitalized if they significantly extend service life, increase capacity or provide a substantial improvement of the quality of production performance. Assets held under leasing agreements which may be considered as an asset purchase in economic terms (finance leases) are capitalized as tangible fixed assets at their estimated present value of the underlying lease payments and depreciated over their useful lives or the shorter leasing period. Leasing commitments are shown under financial liabilities. Financing costs are charged to the income statement over the leasing period in such a manner that the periodic costs are correct. Payments on leased assets defined as operating leases and having a rental character are expensed over the lease period. Depreciation periods are as follows: Land normally not depreciated Plant under construction Buildings Technical plant and machinery Other tangible fixed assets normally not depreciated years 7 25 years 5 15 years Power stations including land are included in Technical plant and machines and are depreciated according to the operating life or up to the date of transfer of ownership to the Government. Financial assets Shares in associated companies are included using the equity method. Shares in other companies are included at the lower of purchase price or current market value. Inventories Inventories used for production are valued at their historical purchase or production cost (including attributable manufacturing overheads) or at their realizable market value, whichever is lower. Inventories are valued using the fifo method (first-in, first-out). Long-term contract work-in-progress is valued using the percentage-of-completion method (PoC). Accounts receivable and accrued income This item is valued at its nominal value less provisions for bad debts. Provisions are either based on specifically known risks or on historical default rates. Cash and cash equivalents Liquid assets include cash on hand, bank account balances and short or medium-term deposits maturing within twelve months. Securities include marketable securities traded on stock exchanges being held with the intention of short-term disposal. Liquid assets are valued at their nominal value, securities at the lower of cost or market value. Accrued interest on securities is capitalized. In case of disposal of securities, the profit or loss is calculated using the average method. Cash and cash equivalents disclosed in the cash flow statement include liquid assets with a maturity of less than three months. Provisions Provisions are set up for legal or other liabilities if these liabilities will most probably bring along a cash outflow and if the amounts can be reliably estimated. Liabilities and deferred income This item includes short and longterm debts, valued at the amount of repayment, and deferred income. 14

16 Pension funds All subsidiaries in Switzerland dispose of their own, legally independent pension plans, being independently managed. They are financed through contributions from employers and employees. Present and former employees (or their surviving dependants) will receive benefits upon reaching the age limit and/or in the event of invalidity or death. For the purposes of the consolidated financial statements, future pension obligations are calculated on the basis of actuarial methods complying with IAS. In the case of defined-benefit obligations, the present value of the projected benefit obligation is assessed using the projected unit credit method on the basis of completed and expected years of service, the expected pay trend and the adjustment of pensions. Cost for this provision ( Expense Recognized in the Income Statement ) are calculated annually and carried to income statement. In case of changes in pension plans or corrections due to new actuarial assumptions, the changes are spread forward over the remaining service life of employees. Employees of subsidiaries abroad are insured by governmental institutions or independent defined-contribution pension plans. Derivative financial transactions The EMS Group uses derivative financial instruments in the usual course of business to cover the risks. Different risk positions, composed of assets and liabilities and future engagements, are judged and managed by the treasury for the whole Group. Additionally, the liquidity required for the day-to-day operations has to be available at all times. Derivative financial instruments are only used with parties with a high credit rating. The hedging policy of the EMS Group is written down and supervised. The results of the hedge program are continuously reported to management. The treasury management is authorized to entirely or partially hedge exposures. The EMS Group does hedge positions if the costs in relation to the risks are justified. The EMS Group mostly uses forward currency and option contracts to hedge against the risk connected with value losses in cash flow terms resulting from balance sheet and income statement items held in foreign currencies. Profits and losses arising on instruments regarded under IAS standards as hedges on existing assets and liabilities, on firm future contractual liabilities and on liabilities likely to arise from possible future commitments, are accrued and deferred as appropriate and taken to income statement together with the transaction to which they refer. Profits and losses on instruments which do not qualify as hedges under IAS standards are shown as other financial income and expenses. Net sales revenue Net sales revenue includes the invoiced amounts for supplied goods and services less diminished proceeds and the amount of profits as defined by the progress accomplished on longterm construction contracts. The amount of profit is determined on a pro rata basis of overall engineering estimates according to the percentage-of-completion method (PoC), on which the profit realized is calculated with regard to the progress achieved. Such costs cover all direct and indirect costs incurred for the projects. Only the Group s own added value is taken into account. Income is defined as being realized on delivery and services rendered respectively. Research and development costs With the exception of those development projects capitalized in accordance with IAS 9, research and development costs are charged to the income statement for the year in which they originate under the following headings: wages and salaries, material expenses, amortization on research and development assets and research and development overheads. Research and development assets being used over a long period of time are classified under plant and machinery and are amortized over the estimated period of economic use. 15

17 Foreign currency translation Financial statements in foreign currencies are translated into Group currency as follows: current assets, fixed assets and liabilities at year-end exchange rates, equity at historical exchange rates. All items in the income statement and the net income are translated using the average exchange rate of the year. These exchange rate differences are carried to equity without affecting net income (translation adjustment). In case of disposal of a subsidiary abroad, the translation difference, accumulated during the period the subsidiary was a consolidated company, is added to profit (or loss) from sale of this company. The foreign currency positions in the financial statements of the consolidated companies are translated as follows: foreign currency transactions with the exchange rate of the transaction day. At year-end the balances of foreign currencies are translated with the exchange rate prevailing at year-end. The differences are recognized in the income statement (transaction gains and losses). The most important exchange rates are: Average exchange rates Year-end exchange rates Unit US dollar USD Euro EUR German mark DEM French franc FRF Pound sterling GBP Japanese yen JPY Swedish krona SEK Taiwan dollar TWD Income taxes Provisions for deferred income taxes pay due regard to the impact in income tax terms of the differences in the valuation of assets and liabilities for Group consolidation purposes and for local taxation purposes. These provisions are continuously adjusted to take account of any changes to local fiscal law. Provisions for deferred taxation are set up using the comprehensive liability method, under which provisions are set up for all temporary differences. Tax losses carried forward are not deducted from deferred income taxes unless it can be shown with sufficient certainty that the future taxable profit is adequate to offset such a loss. Taxes on income from foreign Group companies which is expected to be distributed to the parent company have been provided for. Provisions have not been set up for non-repatriated income invested for an unlimited period of time, or for income that can largely be transferred tax-free to the parent company. Tax expenses include income taxes on the profits of companies consolidated using the equity method. Earnings per share The earnings per share figure is based on the consolidated annual result divided by the weighted average number of shares. Consistency The principles of valuation, consolidation and classification remained unchanged from previous year. Segment reporting Segment reports are primarily presented by division and secondarily by geographical region. For the divisional assignment of Group companies, refer to the List of subsidiaries and minority holdings on pages 31 to

18 Breakdown by Business area (CHF 000) Net sales revenue Operating profit Primary segment Net sales with other segments Net sales from external customers Total net sales (EBIT) Segment assets 1) PERFORMANCE POLYMERS FINE CHEMICALS ENGINEERING Subtotal segments Internal net sales (8 615) (9 896) (8 615) (9 896) Total EMS Group Share of net profit/ Book value of Investments Depreciation Segment loss on equity-valued equity-valued in intangible and tangible intangible and tangible Primary segment liabilities 2) companies companies fixed assets fixed assets PERFORMANCE POLYMERS FINE CHEMICALS ENGINEERING Total EMS Group Breakdown by geographical region (CHF 000) Investments Total net sales revenue Total net sales revenue Operating profit in intangible and tangible Secondary segment (customers) (production) (EBIT) Segment assets 1) fixed assets Switzerland European Union (EU) North America Far East 3) Others Total EMS Group Invoicing and cost attribution between segments uses the same conditions as with third parties. The Business Unit EMS-PRIMID, shown last year under Performance Polymers, is stated under Fine Chemicals in the current year. Previous-year figures have been amended accordingly. 1) Without cash and cash equivalents and investments in associated companies. 2) Trade accounts payable, advances from customers, liabilities to related parties and associated companies, liabilities to social benefit institutions, other short-term liabilities, prepaid expenses and deferred income. 3) Mainly China, Japan and Taiwan. 17

19 Consolidated Income Statement Notes (CHF 000) (CHF 000) 1 Net sales revenue from goods and services Within plant construction, only the Group s own added value is taken into account. Revenue and cost of sales would be higher by if the entire value of third-party purchases were to be included. 2Capitalized costs and other operating income Capitalized costs Other operating income Real estate income Operating interest Income from disposal of Group companies Income from disposal of fixed assets Total capitalized costs and other operating income Material expenses Material and warehouse expenses Subcontractor salaries Energy expenses Total material expenses Personnel expenses Wages and salaries Legal/contractual social insurance Total personnel expenses

20 Notes (CHF 000) (CHF 000) Pensions schemes: Some Group companies have their own personnel pension plans, which all comply with national regulations and requirements. Normally, the assets are held in independent trusts. In cases in which a Group company does not have its own personnel pension plans, long-term provisions have been set up in the consolidated balance sheet. The trusts are normally financed through contributions from employers and employees. The future obligations and the corresponding plan assets which are qualified as defined-benefit plans under IAS are periodically verified by qualified actuaries, for the last time as per January 1, The following figures give an overview over the pension plans: Individual defined-benefit plans a. Plans with funding surplus Actuarial value of all benefit entitlements of former and current employees ( ) ( ) Market value of plan assets Actuarial profits, not accounted for (30 037) (27221) Total surplus, included in assets b. Plans with funding deficit Actuarial value of all benefit entitlements of former and current employees ( ) ( ) Market value of plan assets Actuarial profits, not accounted for (10 388) (7 503) Total deficit, included in liabilities (7 308) (15 406) Surplus and deficit respectively are included in long-term interest-bearing financial assets and other long-term liabilities respectively. 19

21 Notes (CHF 000) (CHF 000) The income statement shows the following: Current service cost Interest cost Expected return on plan assets (29 887) (26 727) Actuarial gains/losses 0 0 Employees contribution (6 417) (6 616) ERIS (Expense Recognized in the Income Statement) The reconciliation to the balance sheet is as follows: ERIS (Expense Recognized in the Income Statement) Employer s contribution (8 040) (8 341) Surplus of effective employer s contribution, net (3) (547) Benefits for pension plan members covered by defined-benefit plans are calculated using the following average actuarial assumptions: Expected future service life of the employees 12 years 12 years Discount rate 3.75% 3.75% Expected long-term return on capital 6.00% 6.00% Annual salary development 2.75% 2.75% Adaptation of pension benefits 1.50% 1.50% 5 Other operating expenses Rents, repairs and maintenance and general administration costs Losses on disposal of fixed assets Total other operating expenses Financial income Interest on interest-bearing assets Interest from related parties and associated companies Other interest income Dividends on securities in working capital Dividends on investments in associated and other companies Income from sale of securities Income from sale of financial participations Total financial income Dividends on securities in working capital have to be seen in the light of the merger between Canadian aluminium producer Alcan and algroup. They mainly consist of the special dividend received of CHF 135 per share and the reduction in par value of CHF 90 per share. 20

22 Notes (CHF 000) (CHF 000) 7 Financial expenses Interest to related parties and associated companies Other interest Expenses out of sale/valuation of securities in working capital Foreign exchange losses, net Costs of transactions/amortization of issue costs Goodwill amortization of associated companies Total financial expenses In 1999, Costs of transactions/amortization of issue costs are stated within the interest expenses. 8 Income taxes Current income taxes Deferred income taxes (see note 20) (2 997) Total income taxes The ultimate holding company is incorporated in Switzerland. The subsidiaries operate in different countries with different tax laws and tax rates. The effective income tax expenses were different from the expected income tax expenses. The expected income tax expenses are calculated on the basis of the local profit and tax rate. This difference is as follows: Breakdown of the income tax expenses: Net income before income taxes Expected income tax rate 26.5% 26.5% Expected income taxes Effect of different income tax rates (14 908) (10 486) Use of losses carried forward (583) (574) Income with special income tax rates (5 757) (1 031) Tax holidays and corrections from previous years (2 771) (8 783) Other (see below) (2 790) (4 256) Effective income taxes Effective income tax rate 18.0% 16.8% Deferred income taxes are calculated using the Comprehensive Liability Method, under which provisions are set up for all temporary differences. Tax losses carried forward are only carried to accrued income if it is certain that the future taxable profit is sufficient to offset such a loss. The expected income tax rate is 26.5%. Due to changes in the tax law of the Canton of Aargau to comply with the Federal Harmonization Act for Direct Cantonal and Municipal Taxes (StHG) and the switch from prior-year to current-year-based taxation that this alignment entails, the net income of EMS-DOTTIKON AG is only taxed at one third (in position Other ). As a result, taxes paid by the EMS Group are lower than they would be under normal circumstances. 21

23 Consolidated Balance Sheet as of December 31 Notes 9 Intangible fixed assets, tangible fixed assets, financial assets I. Intangible fixed assets Change in Reclassific. At scope of cons./ and value At transl. diff. Additions Disposals adjustments (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) Goodwill Cost (1 181) 506 (1 093) Amortization (282) (1 093) Book value (899) (1 792) Patents, Cost (629) (460) trade marks Amortization (45) (310) Book value (584) (150) Others, Cost (331) incl. advances Amortization (184) Book value (147) Total Cost (2 141) intangible Amortization (511) fixed assets Book value (1 630) The change in goodwill is due to the purchase of the 30% minorities in EMS-CHEMIE (Japan). EMS Group held accordingly 100% in EMS-CHEMIE (Japan) before the merger with Showa Denko K.K. took place. Now EMS Group holds 70% in the merged company EC-SHOWA DENKO K.K. Therefore, additions of intangible fixed assets less the increase in participation amount to KCHF IIa. Operating fixed assets Change in Reclassific. At scope of cons./ and value At transl. diff. Additions Disposals adjustments (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) Land incl. Cost (302) development Depreciation (4) 43 (8) cost Book value (298) Buildings Cost (1 599) Depreciation (539) Book value (1 060) Technical plant, Cost (2 647) machinery, Depreciation (1 580) (10 040) R&D plants Book value (1 067) (18 728) Furniture, Cost (1 469) (7 860) EDP equipment, Depreciation (957) (7 065) vehicles Book value (512) (3 138) (795) Plant under Cost (47 736) construction and Depreciation (3 826) 0 payments in advance Book value (43 910) Total operating Cost (5 825) (18 687) fixed assets Depreciation (3 080) (19 559) Book value (2 745)

24 Notes IIb. Non-operating fixed assets Change in Reclassific. At scope of cons./ and value At transl. diff. Additions Disposals adjustments (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) Land incl. Cost (19) development cost Depreciation 0 0 Book value (19) Buildings Cost (89) Depreciation (33) Book value (56) (95) Furniture Cost (49) Depreciation 946 (44) Book value 125 (5) (28) Total Cost (157) non-operating Depreciation (77) fixed assets Book value (80) Total tangible Cost (5 982) (18 672) fixed assets Depreciation (3 157) (19 559) Book value (2 825) In most Group companies, the fixed asset register was revised in 1999 in order to standardize the classification and the useful lives. For the remaining Group companies this revision has been made in the year under review, resulting in a net increase in book values of KCHF III. Financial assets Associated companies Change in Reclassific. At scope of cons./ and value At transl. diff. Additions Disposals adjustments (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) (CHF 000) Participations Cost Depreciation 0 0 Book value Goodwill Cost 0 (14) Amortization 0 (1) Book value 0 (13) Total Cost associated Depreciation/Amortization 0 (1) companies Book value Other participations Cost (8) Depreciation Book value (8)