To: The General Meeting of Shareholders of Kendrion N.V.

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1 Other information To: The General Meeting of Shareholders of Kendrion N.V. >> Independent auditor s report Report on the audit of the Financial Statements 2014 Our opinion We have audited the accompanying financial statements 2014 of Kendrion N.V. (the Company), based in Zeist. The financial statements include the consolidated and company financial statements. In our opinion: the consolidated financial statements give a true and fair view of the financial position of Kendrion N.V. as at 31 December 2014 and of its results and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code. the company financial statements give a true and fair view of the financial position of Kendrion N.V. as at 31 December 2014 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code. The consolidated financial statements comprise: the consolidated statement of financial position as at 31 December 2014; the following consolidated statements for 2014: consolidated statements of income and other comprehensive income, changes in equity and cash flows for the year then ended; and the notes, comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise: the company balance sheet as at 31 December 2014; the company income statement for 2014; and the notes, comprising a summary of the significant accounting policies and other explanatory information. Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section Our Responsibilities for the audit of the financial statements section of our report. We are independent of Kendrion N.V. in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA).

2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Materiality Misstatements can arise from fraud or error and will be considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. Based on our professional judgement the materiality for the financial statements as a whole was set at EUR 1.8 million. The Group materiality is determined with reference to a benchmark of profit before income tax (7%) as we consider this benchmark to be most relevant given the nature and business of the Company. We have also taken into account misstatements and/or possible misstatements that are in our opinion material for the users of the financial statements for qualitative reasons. We communicated to the Supervisory Board that uncorrected misstatements in excess of EUR 90,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. Scope of the Group Audit Kendrion N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of Kendrion N.V. Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for the entities. Decisive were the size and/or risk profile of the entities or operations. On this basis, we selected entities for which an audit had to be carried out on the complete set of financial statements or specific items. Applying these scoping criteria led to a full scope audit for 12 entities. This resulted in coverage of 90% of total group revenue, 90% of group profit before income tax and 89% of total group assets. None of the remaining entities individually represents more than 3% of total group revenue, group profit before income tax or total group assets. For these remaining entities, we performed either specified audit procedures or analytical procedures to corroborate our assessment that there are no significant risks of material misstatement within these entities. ANNUAL REPORT 2014

3 The group audit team sent detailed instructions to all entity auditors, covering the significant areas including the relevant risks of material misstatement and set out the information required to be reported back to the Group audit team. The Group audit team reviewed the audit files of the entity auditors for Kendrion Kuhnke Automation GmbH, Kendrion Kuhnke Automotive GmbH, Kendrion (Villingen) GmbH, Kendrion (Donaueschingen/Engelswies) GmbH (all based in Germany) and Kendrion (Shelby) Inc. (USA). Telephone calls were also held with the auditors of these entities and the majority of the auditors of the other entities. During these site visits and telephone calls, the findings and observations reported to the group audit team were discussed in more detail, and any further work deemed necessary was then performed by either the group audit team or the entity auditor. By implementing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group s financial information to provide an opinion about the financial statements. Our Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed. These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Sensitivities with respect to the valuation of goodwill The annual impairment test was significant to our audit because the assessment process is complex and imposes estimates. The assumptions used in the calculation are sensitive for expected future market conditions, particularly those in Germany and the USA. As a result, our audit procedures included among others discussing the budget and mid-term plan with the Executive Board and reconciling the input used to determine the value in use calculations with the budget and mid-term plan Furthermore we involved a valuation expert to assist us in evaluating the assumptions and methodologies used by the Company, in particular those relating to the assumed EBIT growth for the Cash Generating Units: Kendrion Linnig Group, Kendrion (Aerzen) GmbH, Kendrion Kuhnke Automation, Kendrion Kuhnke Automotive, Kendrion (Mishawaka) LLC and Kendrion (Shelby) Inc. For our audit we assessed the assumptions used, amongst others by comparing them to available market data, benchmark data for comparable companies and expected inflation rates. We also assessed the historical accuracy of management s estimates. We also assessed the adequacy of the Company s disclosures about those assumptions to which the outcome of the impairment test is most sensitive, as included in Note 2 of the consolidated financial statements.

4 Sensitivities with respect to the valuation of deferred tax assets The Company recognized deferred tax assets for the carryforward of unused tax losses to the extent that it is probable that future taxable profit will be available against which unused tax losses can be utilized. Assessing the future taxable profit is complex and requires significant management estimates, in particular on the assumptions about the expected future market and economic conditions, mainly in Germany and the Netherlands. Our audit procedures included evaluating the Executive Board s assumptions and estimates in relation to the likelihood of generating sufficient future taxable profits based on budgets and business cases. In addition we assessed the historical accuracy of management s assumptions. We discussed the Company s tax position, the transfer pricing methodology applied and the assumptions used with Executive Board and with the Company s tax advisors. We included in our audit tax specialists to analyse and challenge the assumptions used to determine tax positions and we corroborated the assumptions used with supporting evidence such as relevant tax legislation, recent tax filings, tax memorandums prepared by the Company s tax advisors, correspondence with the tax authorities and the sensitivity analysis prepared by the Company. We further assessed the adequacy of the disclosure in Note 4 of the consolidated financial statements. Responsibilities of the Executive Board and the Supervisory Board for the financial statements The Executive Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the Executive Board Report in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, the Executive Board is responsible and for such internal control as the Executive Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. As part of the preparation of the financial statements, the Executive Board is responsible for assessing the Company s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Executive Board should prepare the financial statements using the going concern basis of accounting unless the Executive Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Executive Board should disclose events and circumstances that may cast significant doubt on the Company s ability to continue as a going concern. The Supervisory Board is responsible for overseeing the Company s financial reporting process. Our Responsibilities for the audit of the financial statements Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. ANNUAL REPORT 2014

5 Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud. For a further description of our responsibilities in respect of an audit of financial statements, we refer to the website of the professional body for accountants in the Netherlands (NBA). Report on other legal and regulatory requirements Report on the Executive Board Report and other information Pursuant to the legal requirements of Part 9 of Book 2 of the Netherlands Civil Code (concerning our obligation to report about the Executive Board Report and other information): We have no deficiencies to report as a result of our examination whether the Executive Board Report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required by Part 9 of Book 2 of the Netherlands Civil Code has been annexed. Further we report that the Executive Board Report, to the extent we can assess, is consistent with the financial statements. Appointment We were appointed since 2005 for the first time as auditor of Kendrion N.V. and operated as auditor since then. We were re-appointed by the General Meeting of Shareholders on 14 April 2014 as auditor of Kendrion N.V. for the year Arnhem, 25 February 2015 KPMG Accountants N.V. M.J. de Vries RA

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