Autoneum Holding Ltd (“the Company”) was ­incorporated on December 2, 2010 as a Swiss corporation domiciled in Winterthur. The Company has been listed on the SIX Swiss ­Exchange (AUTN, ISIN: CH0127480363) since May 13, 2011. Autoneum Holding Ltd ­together with its subsidiaries will henceforth be referred to as “Autoneum Group”, “Group” or “Autoneum”. A list of subsidiaries, associated companies and non-consolidated investments of Autoneum Group can be found in note 36.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The ­conso­lidated financial statements are based on ­his­toric cost, with the exception of specific ­fi­nancial instruments, which are measured at fair ­value. The consolidated financial statements were ­authorized for issue by the Board of ­Directors on March 6, 2018 and are subject to approval by the Annual General Meeting of shareholders on March 28, 2018.

The consolidated financial statements are published exclusively in English. Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount.

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties includes the risk management process (refer to note 2) and the sensitivity analyses of defined benefit plans (refer to note 25).

In the process of applying the Group’s ac­­counting policies, management has made the ­following judgment in connection with the consolidation of entities in which the Group holds less than the majority of voting rights.

Assessing whether Autoneum has control over an entity includes all facts and circumstances that may indicate that the Group is able to direct the relevant activities and key decisions. Autoneum concludes that it has control over certain entities in which it holds 50% or more (refer to note 23), based on specific rights allocated. Facts and circumstances indicating that Autoneum controls an entity may change and lead to a reassessment of the management’s conclusion.

Key assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending December 31, 2017 include the following:

Impairment losses on tangible assets are assessed based on estimated cash flows, which may vary from actual cash flows. Important assumptions to consider are useful lives, growth rates, achievable margins as well as discount rates (refer to note 13).

Development costs must meet several criteria to be recognized as an intangible asset. Technical and financial resources must be available to ensure the completion of the development, and the costs attributed to the development must be reliably measured. Due to rapid technological changes, the required proof of future economic benefits could not be sufficiently supported and therefore no development costs could be capitalized as intangible assets in the reporting period. The assessment of whether these recognition criteria are met requires significant management judgment.

When assessing inventories, estimates for their recoverability based on the expected consumption of the corresponding item are considered. The valuation adjustments for inventories are determined for each item using a coverage analysis. The parameters are checked annually and modified if necessary. Changes in sales or other circumstances can accordingly lead to an adjustment of the book value (refer to note 18).

For defined benefit plans, actuarial valuations which are the basis for the employee benefit assets and liabilities in the balance sheet are carried out regularly. These calculations are based on statistical and actuarial assumptions. In particular, the present value of the defined benefit obligation is affected by assumptions such as discount rate, expected future salary growth and the life expectancy. Other assumptions for the valuation are derived from statistical data such as mortality tables and staff turnover rates. Actuaries are independent from Autoneum. Assumptions may differ significantly from actual results. These deviations can ultimately have an effect on the employee benefit assets or liabil­ities in future periods (refer to note 25).

In the course of the ordinary operating activities of Autoneum Group, obligations from guarantee and warranty, litigation and tax risk, and environmental risk can arise. Provisions for these obligations are measured on the basis of estimated future cash outflow. The outcome of these business transactions may result in claims against Autoneum that may be below or above the related provisions. Provisions for obligations from guarantee and warranty are recognized when damage has occurred and the related cash outflow can be estimated reliably, but a material uncertainty concerning the kind of damage and the kind of compensation exists. Provisions for litigation and tax risk comprise complex cases that include material uncertainties. Environ­mental provisions are recognized for the expected costs for the cleanup and reconstruction of contaminated sites that are interdependent of many uncertainties, such as Autoneum’s share of the cost or the applicable approach for determining these costs. The financial impact of these cases for future periods can only be estimated, because uncertainties relating to amount and date of cash outflow exist (refer to note 26).

Assumptions in relation to income taxes include interpretations of the tax regulations in place in the relevant countries. The adequacy of these interpretations is assessed by the tax authorities. This can result, at a later stage, in changes in the income tax expenses. To determine whether a deferred income tax asset on tax loss carryforwards may be recognized requires judgment in assessing whether there will be future taxable profits against which these tax loss carryforwards can be offset (refer to note 11).

The consolidated financial statements of ­Autoneum Holding Ltd include the Company and its subsidiaries. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affe­­ct those returns through its power over the entity. The financial statements of subsidiaries are included in the ­consolidated financial statements from the date on which control commences until the date on which control is lost. Acquisitions are accounted for using the acquisition method. Intercompany transactions are eliminated.

If Autoneum does not have control over ­entities but significant influence, which is us­u­ally the case if Autoneum holds interests of between 20% and 50%, these invest­ments are classified as associated companies and accounted for ­using the equity method. Interests of less than 20% where Autoneum does not have significant influence are classified as non-consolidated investments and are accounted for at fair value. The subsidiaries, associated companies and non-consolidated in­vestments are listed in note 36.

Items included in the financial statements of each Group company are measured using the ­currency of the primary economic environment in which the company operates (“functional ­currency”). The consolidated financial statements are prepared in Swiss francs, which is the ­functional currency and the reporting ­currency of ­Autoneum Holding Ltd.

Transactions in foreign currencies are translated into the functional currency by applying the exchange rates prevailing on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities de­nomi­nated in foreign currencies are recognized in the income statement.

For consolidation purposes, items in the ­balance sheet of foreign subsidiaries are translated at year-end exchange rates, while income statement items are translated at average rates for the period. The resulting currency translation differences are recognized in other compre­hensive income and, in the event of a disposal of a foreign operation, transferred to the income statement as part of the gain or loss from disposal.

Tangible assets are stated at historical cost less accumulated depreciation, which is recognized on a straight-line basis over the estimated use­­ful life of the asset. Historical cost includes expenditures that are directly attributable to the acquisition of the assets. Useful life is determined according to the expected utilization of each asset. The relevant ranges are as follows:

Buildings 20–50 years

Machinery and plant equipment 5–15 years

Data processing equipment 4–8 years

Vehicles and furniture 3–10 years

Components of certain assets with different useful lives are depreciated separately. Gains or losses arising from the disposal of tangible assets are recognized in the income statement. Costs of maintenance and repair are charged to the income statement as incurred. The residual values and useful lives of tangible assets are ­reviewed, and adjusted if appropriate, at each balance sheet date.

Leased assets where Autoneum substantially bears all the risks and rewards of ownership ­(finance leases) are capitalized. Assets held ­under such finance leases are depreciated over the shorter of their estimated useful life or the lease term. The corresponding lease obli­gations, excluding finance charges, are included in borrowings. Lease installments are divided into an interest and a principal component. All other leases are classified as operating leases. Payments in respect of operating leases are charged to the income statement on a straight-line basis over the duration of the lease.

Intangible assets such as product licenses, ­patents and trademark rights as well as software acquired from third parties are included in the balance sheet at acquisition cost and are amortized on a straight-line basis over a period of up to eight years. The residual values and useful lives of intangible assets are reviewed, and ­adjusted if appropriate, at each balance sheet date. Autoneum has neither in the current ­reporting period nor in the prior period intangible assets that have an indefinite useful life ­re­corded in the balance sheet. Autoneum has no goodwill capitalized in the balance sheet.

Tan­gible assets and intangible assets are tested for impairment if there are indications that, due to changed circumstances, their carrying value may no longer be fully recoverable. If such a situation arises, the recoverable amount is ­determined. This is the higher of its value in use and its fair value less cost to sell. Value in use is based on the ­estimated future cash flows, discounted to their present value ­using a pre-tax discount rate that ­reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount is below the carrying amount, a corresponding impairment loss is recognized in the income statement. Where the recoverable amount cannot be determined for an individual asset, it is ­determined for the cash-generating unit to which the asset belongs. To determine the value of an asset, estimates of the expected future cash flows from both usage and disposal are made.

Research costs are recognized in the income statement when incurred. Development costs for major projects are capitalized as intangible ­assets if the cost can be measured reliably, if it can be demonstrated that the project is tech­nically feasible and is expected to generate future economic benefits, and if Autoneum plans to ­provide sufficient resources in order to complete the development and to use or sell the intan­gible asset.

All financial assets not carried at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets carried at fair value through profit or loss are ­initially recognized at fair value, and transaction costs are expensed in the income statement.

Subsequent valuation depends on the category into which the financial assets are classified. Autoneum distinguishes between the following categories:

Financial assets at fair value through profit or loss include financial assets held for trading and those that are designated as such at inception. Assets in this category are presented as current assets if they are either held for trading or are expected to be realized within twelve months after the balance sheet date. For sub­sequent valuation, changes in fair value are ­recognized in the income statement. Derivative financial instruments with positive replacement value and marketable securities are assigned to this category.

Loans and receivables are non-derivative ­financial assets with fixed or determinable ­payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date, in which case they are ­presented as non-current assets. Subsequently, they are valued at amortized cost less impairment losses.

Available for sale financial assets are non-­derivative financial assets that are either classified as such or not assigned to any of the above categories. They are measured at market value as of the balance sheet date. Changes in the value are recorded in other comprehensive income prior to sale, and reclassified to the income statement when they are sold. Any impairment is charged to the income statement immediately. They are included in non-current assets unless management intends the disposal within twelve months after the balance sheet date.

Autoneum has no financial instruments that are classified as held-to-maturity.

Financial liabilities at fair value through profit or loss are either held for trading purposes or designated as such. At their initial recog­nition and subsequently, financial liabilities at fair value through profit or loss are measured at fair value. Transaction costs directly identifiable to the purchase of these liabilities are immediately expensed. Derivative financial instruments with negative replacement values are assigned to this category.

All other financial liabilities are measured at amortized cost. Mainly trade payables, borrowings and other liabilities are assigned to this category. They are recognized initially at fair value, net of transaction costs incurred. Subsequently, these financial liabilities are stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the ­redemption value is recognized in the income statement over the period of the obligation ­using the effective interest method.

Raw materials, consumables and purchased parts are valued at the lower of average cost or net ­realizable value. Semi-finished goods and fi­­­n­­ished goods are valued at the lower of manufacturing cost or net realizable value. Valuation adjustments are made for obsolete materials and ­excess stock.

Trade receivables are classified as loans and ­receivables and are stated at amortized cost, which usually equals the original invoice value less any impairment loss. The loss is measured as the difference between the invoiced amount and the expected payment. The allowances are established based on maturity structure and identifiable solvency risks.

Cash and cash equivalents include bank accounts and time deposits with original ­maturities from the date of acquisition of up to three months.

Ordinary shares are classified as equity since the shares are non-redeemable and any dividends are discretionary.

When shares are repurchased, the amount of the consideration paid is recognized as a ­deduction from equity and presented as a separate component in equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the ­transaction is recognized in retained earnings.

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the ­obligation, and the amount can be reliably estimated. Provisions are discounted if the impact is significant.

Income taxes comprise both current and deferred income taxes. Normally income taxes are recognized in the income statement, unless they are linked to a position that is recognized directly in equity or in other comprehensive income. In this case, the income taxes are also ­recognized directly in equity or in other com­prehensive income.

Current income taxes are calculated and ­accrued on the basis of taxable income for the year. Deferred income taxes on temporary ­differences between carrying amounts of assets and liabilities for financial ­reporting purposes and amounts determined for local tax purposes are calculated using the lia­bility method. Deferred income taxes are measured at the tax rate expected to be applied to temporary differences when they reverse, using tax rates enacted or substantially enacted at the ­reporting date. Deferred income tax assets and liabilities are offset to the extent that an entity has a legally enforceable right to offset current income taxes, and the deferred income taxes relate to income taxes levied by the same taxation authority and relate to the same taxable entity.

Temporary differences resulting from investments in Group companies are not considered if Autoneum is able to control the timing of the reversal of the temporary differences and if it is probable that these temporary differences will not reverse in future.

The tax impact of losses and deductible temporary differences is capitalized to the ­extent it appears probable that such losses will be offset in the future by taxable income.

Employee pension plans are operated by certain subsidiaries, depending upon the level of coverage provided by the government pension facilities in the various countries in which they are present. Some are provided by independent pension funds. If there is no independent pension fund, the respective obligations are shown in the ­balance sheet under employee benefit liabilities. As a rule, pensions are funded by employees’ and employer’s contributions. Pension plans exist on the basis of both defined contribution and ­defined benefit.

Pension liabilities arising from defined bene­fit plans are calculated annually by independent actuaries using the projected unit credit method. The discount rate used for the calculation is based on interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits ­will be paid, and that have terms to maturity ­approximating to the terms of the related ­pension obligation. Remeasurement gains or losses are recognized in other comprehensive ­income. Pension cost relating to services ­rendered in the reporting period are recognized in the income statement as current service cost. Pension cost relating to services rendered in previous periods as a result of new or amended ­pen­sion benefits are recognized in the ­income statement as past service cost. The net interest expenses or income on the net defined benefit ­liability or asset for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the then net de­fined benefit ­liability or asset, taking into account any changes in the net defined benefit liability ­(asset) during the period as a result of contributions and benefit payments. The net interest ­expenses or income is recognized in financial expenses or income. The fair value of plan ­assets is ­deducted from the defined benefit ­obligations. Any asset resulting from this calculation is only capitalized up to an amount not ­exceeding benefits from ­future contribution reductions or refunds.

In the case of defined contribution plans, the contributions are recognized as expense in the period in which they incurred.

Share-based payments to members of the Board of Directors, the Executive Board and senior management are measured at fair value at the grant date, and recognized in the income ­statement over the vesting period. The fair value is assessed based on the current market price and taking into account a discount for dividends that will not be collected by the beneficiary because the transfer of the shares is deferred. For share-based payments that are settled with equity instruments, a correspon­ding increase in equity is recognized.

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating revenue within the Group. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future eco­­nomic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below.

Sales of goods: Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Goods include mainly produced components and systems for optimal protection against noise and heat sold to customers. Revenue is recorded based on the price specified in the sales contracts, net of estimated discounts, sales tax or value-added tax as well as credit notes for goods returned. Accumulated experience is used to estimate and provide for the discounts and returns.

Rendering of services: The Group is in­volved in the design phase of new models and in the further development of existing vehicles and therefore performs simulations and tests for its customers. Revenue from rendering of ser­vices is recognized in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognized based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any re­sulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualified asset are capitalized as a part of the acquisition costs of the qualified asset. All other financing costs are recognized directly in the ­income statement.

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as completed sale within one year from the date of classification. The assets must be available for immediate sale in their present condition. Assets held for sale are measured at the lower of their carrying amount at the date of their first recognition as held for sale and fair value less costs to sell. Such assets are no longer depreciated or amortized systematically. A possible impairment is included in profit or loss. A discontinued operation is a substantial component of the Group that either has been disposed of or is classified as held for sale.

EBIT as a subtotal includes all income and expenses before addition/deduction of financial income, financial expenses, share of profit of associated companies and income taxes. EBITDA as a subtotal includes EBIT before deduction of depreciation and impairment of tangible assets as well as amortization and impairment of intangible assets.

The adoption of the amendments to IAS 7 (disclosure initiative) resulted in additional disclosures about the Group’s financing activities (refer to note 24). The adoption of the remaining new and revised standards had no effect on the consolidated financial statements 2017.

The following new and revised standards and ­interpretations have been issued, but are not yet effective. They have not been applied early in these consolidated financial statements. However, a preliminary assessment has been conducted by Group Management, and the expected ­impact of each standard and interpretation is presented in the table below.

IFRS 9 “Financial Instruments” includes revised guidance on the classification and measurement of financial assets and financial liabilities, including a new expected credit loss model for calcu­lating impairment as well as general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of ­financial instruments from IAS 39. The Group expects no material impact on the consolidated financial statements.

IFRS 15 “Revenue from Contracts with Customers” establishes a comprehensive framework for determining whether, how much and when revenue is recognized based on a five-step approach. Under IFRS 15, an entity recognizes revenue when control of the promised goods and services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled. It replaces ­existing revenue recognition guidance, including IAS 18, IAS 11 and IFRIC 13. Autoneum will implement the new standard as of January 1, 2018 and will apply the full retrospective method. The resultant impact of the conversion will be recognized in retained earnings as of January 1, 2018 and the prior year financial information will be restated. Autoneum expects an increase of around CHF 70 millions in retained earnings as of January 1, 2018 resulting from the conversion, which will consist mainly from pre-production costs that will be capitalized as “costs to fulfil a contract”. The impact on profit or loss is expected to be minor. Instead of an immediate recognition in the income statement of pre-production costs, these costs will be recognized delayed, over the underlying production term. The impact of the implementation of IFRS 15 to future results depends mainly on the amount of the future new business acquired and the respective pre-production costs.

IFRS 16 “Leases” brings most leases on the ­balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. For lessors, however, the accounting remains largely unchanged. Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated ­accordingly. The lease liability is initially measured at the present value of the lease payments ­payable over the lease term, discounted at the rate implicit in the lease if this rate can be ­readily determined. If the rate cannot be readily determined, the lessee’s incremental borrowing rate should be used. IFRS 16 supersedes IAS 17 “Leases” and related interpretations. The Group expects that the application of IFRS 16 will result in an increase in tangible assets and borrowings based on the existing operating lease agreements (refer to note 28).

Autoneum maintains an Internal Control System with the objective of ensuring effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. The Internal Control System is an important part of the risk manage­ment system.

The process of risk management is governed by the regulation “Autoneum risk management system”, which was adopted by the Board of ­Directors. The regulation defines the main categories of risk, which serve as a basis of the risk management, and the bodies that deal within the Group with the various risk. In addition, the regulation defines the procedures for detecting, reporting and managing risk and the criteria for qualitative and quantitative risk assessment.

The regulation defines the following main risk categories: strategic risk, operational risk, financial risk, capital risk, litigation and other risk (e.g. political, legal, organizational, environmental and work safety risk).

Besides the financial and capital risk (refer to paragraphs 2.1 and 2.2 respectively), the following risks within the main risk categories are a focus of Autoneum:

Strategic risk resulting from developments in the relevant markets and of the products offered therein is assessed as part of the strategic planning and the financial planning processes. Strategic risk and operational risk are regularly reviewed at the monthly meetings within the Business Groups and with the CEO and the CFO of the Group. These meetings also deal with other risks impacting actual performance against budget, in order to identify and implement corrective measures.

Risks resulting from acquisitions, divestments or other major projects are monitored at Group level within the framework of competencies and approvals for the respective project. Quarterly review reports were prepared for the attention of the Board of Directors.

Specific risks are addressed by periodic ­reports in dedicated bodies. Such reports cover environmental and work safety risk at the ­various sites, treasury risk and risk from legal actions and compliance.

An aggregate review of all identified risks and of the instruments and measures to address them is performed on a semi-annual basis by the Risk Council, consisting of representatives of all Business Groups and Corporate functions. The review results are reported to the Board of Directors and Group Executive Board.

As a result of its worldwide activities, Autoneum is exposed to various financial risks, such as credit risk, liquidity risk and market risk (foreign exchange risk, interest rate risk and price risk). Autoneum’s financial risk management aims to minimize the potential adverse impact of the development of the financial markets on the Group’s financial performance and to secure its financial stability. This may include the use of derivative financial instruments to hedge certain risk exposures. Financial risks are identified primarily locally and evaluated and managed centrally by Group Treasury in close cooperation with the Group’s legal units.

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as from exposures to customers, including outstanding receivables and committed transactions. Credit risk may result in a financial loss if one party in a transaction is unable or unwilling to meet its obligations. It is Autoneum’s objective to limit the impact of a default. The maximum risk of these positions corresponds to the book values of loans and receivables and derivative financial instruments and is disclosed in note 30.

Credit risk of financial counterparties is monitored centrally by Group Treasury. Significant relationships with banks and financial institutions are basically only entered into with counterparties rated not lower than “A” (according to Standard & Poor’s). At the date of reporting, management does not expect any losses from non-performance by financial institutions where funds are invested.

Autoneum maintains business relationships with all significant automotive manufacturers and, compared to the industry sector, has a geographically broad, diversified customer portfolio. No customer accounted for more than 16.9% (2016: 19.2%) of Autoneum’s revenue. The Group monitors the creditworthiness of its key customers by using independent ratings (if available) and by taking into account their financial position, past experience and other factors. The related credit risk is considered as low at the date of reporting.

The credit quality of financial assets that are neither past due nor impaired at the balance sheet date can be assessed by reference to external credit ratings, if available, or to historical information about counterparty default rates (refer to note 19).

The objective of liquidity risk management is to ensure that sufficient financial resources are available at any point in time in order to be able to completely and timely fulfill all payment obligations of the Group. As part of an integral budgeting and forecasting process, Group Treasury centrally monitors the planned liquidity position of the Group. Group Treasury com­pares the planned liquidity requirements with the available funds to detect shortages in a timely manner. The liquidity risk management of Autoneum includes the maintenance of sufficient liquidity reserves and the availability of funding through an adequate amount of credit lines.

Beside several smaller bilateral credit facilities with banks, Autoneum maintains a credit agreement for the medium- and long-term financing with a group of banks in the amount of CHF 150.0 million, which expires on December 31, 2022. Furthermore, a bond in the amount of CHF 75.0 million with maturity as of July 4, 2023 and a bond in the amount of CHF 100.0 million with maturity as of December 8, 2025 have been issued, both of which are listed at the SIX Swiss Exchange (refer to note 24).

The following table shows the contractual maturities of Autoneum’s financial liabilities (including interest).

Due to the global nature of its activities, the Group is exposed to foreign exchange risk. Foreign exchange risk arises from investments in foreign subsidiaries (translation risk) as well as from ­transactions and financial assets or financial liabilities that are denominated in a currency other than the functional currency of a legal unit (transaction risk). In order to hedge transaction risk that ­cannot be eliminated through offsetting transactions in the same foreign currency (natural hedging), subsidiaries may use forward contracts, which are usually traded with banks via Group Treasury. ­The transaction risk from foreign currencies is monitored periodically.

The subsidiaries’ cash holdings with banks are denominated mostly in the functional currency of the subsidiary. The majority of the business transacted in Autoneum’s subsidiaries is also in their functional currency. At the reporting date, the Group held financial instruments which were denominated in currencies other than the functional currency of the respective Group company as follows:

The Group is exposed to foreign exchange risk mostly against the euro and the US dollar. The currency-related sensitivity of the Group against these two currencies is shown in the following table:

The impact on net result is mainly due to foreign exchange gains and losses on trade receiv­ables and trade payables as well as the translation of the profit or loss of foreign subsidiaries into Swiss francs for consolidation purposes. The impact on equity additionally includes currency translation adjustments arising from the translation of the net investment in foreign subsidiaries.

The interest rate risk of the Group relates to interest-bearing assets and liabilities. Floating interest rate positions are subject to cash flow interest risk. Fixed-interest positions are subject to fair value interest risk if measured at fair value. In general, Autoneum aims to maintain, in consideration of seasonal fluctuations, a balanced relation between fixed and floating interest-bearing financial liabilities as disclosed in note 24. The two bonds issued at fixed interest rates are not subject to any interest rate risk, whereas the long-term credit agreement with floating interest rates is subject to a cash flow interest risk.

The Group analyzes the interest rate risk on a net basis. No hedging of the interest rate risk was performed in the reporting period or in the prior period. Based on the interest-bearing assets and liabilities that existed at December 31, 2017, a 100 basis point higher level of the money market interest rates would lead to a CHF 0.1 million (2016: CHF 0.1 million) lower net result as well as equity of the Group on an annual basis. A 100 basis point lower level of the money market interest rates would impact neither net result nor equity of the Group on an annual basis in both the reporting year and the prior year.

Holding marketable securities exposes Autoneum to a risk of price fluctuation. Since Autoneum held neither significant amounts of shares (except for treasury shares) nor options at the end of the reporting period, no sensitivity analysis of fair value risk is prepared.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders, and to maintain an optimally leveraged capital structure in order to reduce the cost of capital. Autoneum aims to maintain a stable investment grade rating as perceived by bank partners and debt investors.

Autoneum Group therefore targets a healthy balance sheet with an adequate portion of equity. In the mid-term, Autoneum aims for an equity ratio above 40%. As of December 31, 2017 the equity ratio equaled 39.6% (2016: 38.4%). For the next few years, the dividend policy will depend on a number of factors, such as net profit and the financial situation of the Group, the demand for capital and liquidity, the general business environment as well as legal and contractual restrictions. Subject to the foregoing, the Group intends to distribute at least 30% of its net profit attributable to shareholders of Autoneum ­Holding Ltd. Dividends, if any, are expected to be declared and paid in Swiss francs.

On September 30, 2017 Autoneum sold its production facility in Betim, Brazil, to the automotive supplier STS Group, headquartered in Hallbergmoos, Germany. With this transaction, the Group has adapted its South American production capacity to long-term market demand. STS took over the plant with its 90 employees and has continued to supply the existing customer base. In 2017, during the nine months until disposal, the facility in Betim contributed third-party revenue in the amount of CHF 5.9 million. CHF 0.6 million of the total selling price of CHF 3.3 million has been received in 2017, the remainder is payable in five installments until 2022. The loss from disposal of business in the amount of CHF 0.1 million is recorded in 2017. The disclosed transaction details below are provisional subject to the final acceptance of the post-closing purchase price adjustment.

In 2016, Autoneum’s US-American subsidiary UGN Inc. sold its business in Chicago Heights, USA, to an affiliate of Angeles Equity Partners, LLC, headquartered in Los Angeles, USA, on February 2, 2016.

On January 31, 2017 Autoneum acquired the remaining 40% interest in Autoneum Korea Ltd., Incheon, Korea, for a consideration of CHF 0.4 million from the minority shareholder SH Global Ltd., Iksan, Korea. The subsidiary is now fully owned by Autoneum. The difference between the carrying amount of non-controlling interests and the consideration paid to the minority shareholder was recognized as a decrease in equity attributable to the owners of Autoneum.

On January 31, 2017 Autoneum disposed of its 49% interest in the associated company SHN Co., Ltd., Daegu, Korea to the majority shareholder SH Global Ltd., Iksan, Korea, which liquidated the company. A total consideration of CHF 0.4 million was paid to the majority shareholder and recorded as loss from disposal of associated companies (refer to note 10).

In 2017, the Group newly established Autoneum Hungary Ltd., Komárom, Hungary; Autoneum (Changsha) Co., Ltd., Changsha, China; Autoneum (Pinghu) Co., Ltd., Pinghu, China; Autoneum (Yantai) Co., Ltd., Yantai, China and Autoneum (Tianjin) Co., Ltd., Tianjin, China.

Segment information is based on Autoneum Group’s internal organization and management structure as well as on the internal financial reporting to the Group Executive Board and the Board of Directors. The chief operating decision maker is the CEO.

Autoneum is the globally leading automobile supplier in acoustic and thermal management for ­vehicles. Autoneum develops and produces multifunctional and lightweight components and systems for noise and heat protection and thereby enhances vehicle comfort.

The reporting is based on the following four reportable segments (Business Groups): BG Europe, BG North America, BG Asia and BG SAMEA (South America, Middle East and Africa). Corporate and elimination ­include ­Autoneum Holding Ltd and the corporate center with its respective legal entities, an operation that produces parts for Autoneum’s manufacturing lines, investments in ­associates, and ­inter-segment elimination. Transactions between the Business Groups are made on the same basis as with independent third parties.

The following customers accounted for more than 10% of annual revenue in 2017 or 2016:

Information on revenue by product group is not available. The major customers generate revenue in all geographic segments.

Autoneum started a long-term incentive plan (LTI) for the management in 2012. Part of Autoneum’s net profit is allocated to beneficiaries defined in advance by granting them shares of Autoneum Holding Ltd. The shares become property of the beneficiaries after a vesting period of 35 months, if the beneficiaries are then still employed by an Autoneum company. Immediate vesting occurs in case of death or retirement of the beneficiary. In case of employment termination, shares not yet vested lapse without compensation. Exceptions are possible at the discre­tion of the Nomination and Compensation Committee. The first vesting date was in spring 2015. Employee expenses resulting from share-based compensation in course of the LTI are recognized over the vesting period. 2 797 shares (2016: 4 109 shares) valued at CHF 277.75 (2016: CHF 224.50) were granted in 2017, and expenses of CHF 0.6 million (2016: CHF 0.8 million) were recognized in wages and salaries.

Members of the Board of Directors receive part of their remuneration in Autoneum shares. 3 569 shares (2016: 3 178 shares) valued at CHF 280.50 (2016: CHF 235.87) were granted in 2017, and expenses of CHF 1.0 million (2016: CHF 0.7 million) were recognized in wages and salaries.

Members of the Group Executive Board receive part of their remuneration in Autoneum shares. 6 124 shares (2016: 5 801 shares) valued at a weighted average share price of CHF 291.88 (2016: CHF 266.30) were granted in 2017, and expenses of CHF 1.8 million (2016: CHF 1.5 million) were recognized in wages and salaries.

Miscellaneous income contains mainly income generated with by-products arising during the ­manufacturing process and income from release of unused provisions.

Reconciliation between expected and actual income tax expenses:

The change in the average applicable income tax rate is mainly due to the different geographic ­composition of profit or loss before taxes.

Deferred income tax assets and liabilities pertain to the following balance sheet line items:

The decrease in the net deferred income tax assets by CHF 16.6 million (2016: increase by CHF 3.5 million) relates to the deferred income tax expenses recognized in the consolidated income statement of CHF 16.1 million (2016: deferred income tax income of CHF 2.9 million), to the deferred income tax expenses recognized in other comprehensive income of CHF 1.7 million (2016: deferred income tax income of CHF 1.0 million) and to a currency translation adjustment of CHF 1.2 million (2016: CHF –0.4 million).

No deferred income tax assets have been recognized from deductible temporary differences in the amount of CHF 82.1 million (2016: CHF 66.4 million). At the reporting date, no tax loss carryforwards (2016: nil) are recognized for Group companies that incurred losses in 2017 or 2016 (2016 or 2015) supported by increased future profitability and synergies as a result of restructuring.

The table below discloses tax loss carryforwards by their year of expiry:

The tax loss carryforwards for which no deferred income tax assets were recognized originate ­from countries with a deferred income tax rate between 17% and 31% (2016: between 17% and 35%).

The table below discloses tax credits by their year of expiry:

The average number of shares outstanding is calculated based on the number of shares issued less the weighted average number of treasury shares held. The shares vested but not yet transferred in course of the management’s long-term incentive plan (LTI) and performance related bonus leads to a diluted average number of shares outstanding.

Additions in tangible assets comprise mainly investments in production facilities.

Tangible assets with a book value of CHF 20.5 million were financed by long-term leasing contracts as of December 31, 2017 (2016: nil). No borrowing costs were capitalized in both the reporting year and the prior year.

Tangible assets in the amount of CHF 0.8 million (2016: CHF 0.6 million) are pledged as security for financial liabilities.

Intangible assets comprise mainly investments in a new ERP system.

No development costs were capitalized in 2017 and 2016. In 2017, an amount of CHF 77.6 million was spent on research and development (2016: CHF 64.5 million). In an increasingly costcompetitive environment, the Autoneum Group invests in innovative materials and products, and in new efficient production technologies to support vehicle manufacturers in meeting challenging targets in acoustic comfort, fuel consumption and environmental emissions. The focus of the Group is in the ­development of lightweight and acoustically efficient solutions for vehicle engine bay, underbody, interior floor and body treatment.

Investments in associated companies comprise the 30% share in SRN Sound Proof Co., Ltd., Chonburi, Thailand, and the 25% share in Wuhan ­Nittoku Autoneum Sound-Proof Co. Ltd., Wuhan, China. On January 31, 2017 Autoneum disposed of its 49% interest in the associated company SHN Co., Ltd., Daegu, Korea, to the majority shareholder SH Global Ltd., Iksan, Korea (refer to note 3). The investments in associated companies are measured using the equity method. The net book value of investments in associated companies changed as follows:

The following table summarizes the movement in the allowance for doubtful trade receivables:

The table below sets forth the aging of trade receivables and the allowance for doubtful trade ­receivables, ­showing amounts that are not yet due as well as an analysis of overdue amounts. Trade receivables that are neither due nor impaired are expected to be settled within the agreed ­payment terms.

Trade receivables comprise receivables due from customers with the following credit rating ­(Standard & Poor’s long-term issuer rating):

At December 31, 2017 no trade receivables are pledged as security for financial liabilities (2016: nil). Trade receivables with a book value of CHF 1.4 million (2016: CHF 0.5 million) were sold to third parties based on factoring agreements and no material risks remain with Autoneum.

On September 30, 2017 Autoneum sold its production facility in Betim, Brazil, to the automotive supplier STS Group, headquartered in Hallbergmoos, Germany. With this transaction, the Group adapted its South American production capacity to long-term market demand. The related assets and liabilities were classified as held for sale as of December 31, 2016.

There were no cumulative income or expenses included in other comprehensive income relating to the assets and liabilities of the disposal group classified as held for sale.

Since the founding of Autoneum Holding Ltd on December 2, 2010 the number of registered shares has remained unchanged at 4 672 363, each with a nominal value of CHF 0.05 per share. The share capital amounts to CHF 233 618 and is composed as follows:

The holders of shares are entitled to receive dividends and are entitled to one vote per share at ­general meetings of the Company.

For issuing convertible bonds, warranty bonds, and for granting shareholder options, the share ­capital can be increased by a maximum of 700 000 fully paid-up registered shares with a par value of CHF 0.05 up to a maximum value of CHF 35 000. Furthermore, for the issuance of shares to ­employees of subsidiaries, the share capital can be increased by a maximum of 250 000 fully paid-up registered shares with a par value of CHF 0.05 up to a maximum value of CHF 12 500.

The following transactions with treasury shares were performed during the financial year:

Capital reserves originate from the contribution of the Autoneum companies to the Group in the course of the separation in 2011.

The available for sale reserves contain changes in the fair value of non-consolidated investments. The reserves will be reclassified to the income statement at disposal.

Retained earnings include accumulated earnings since the Group was established in December 2010.

The currency translation adjustment comprises all foreign exchange differences arising from the translation of the financial statements of foreign entities included in the consolidated financial statements.

The table below discloses changes resulting from other comprehensive income to each component of equity:

The non-controlling interests derive from UGN Inc., USA; Autoneum Erkurt Otomotive AS, Bursa, Turkey; Tianjin Autoneum Nittoku Sound-Proof Co. Ltd., Tianjin, China; Autoneum Nittoku (Guangzhou) Sound-Proof Co. Ltd., Guangzhou, China; Autoneum Nittoku Sound Proof Products India Pvt. Ltd., Chennai, India; Autoneum Feltex (Pty) Ltd., Durban, South Africa; Autoneum Portugal Lda., Setúbal, Portugal; and Autoneum Korea Ltd., Incheon, Korea (until acquisition of the remaining 40% interest from the minority shareholder on January 31, 2017, refer to note 3). Due to disclosure restrictions in shareholder agreements, information on significant non-controlling interests is only disclosed on an aggregated level.

The table below sets out aggregated financial information of the subsidiaries with non-­controlling interests:

On December 14, 2012 Autoneum Holding Ltd issued a fixed-rate bond with a nominal value of CHF 125.0 million, which was listed on the SIX Swiss Exchange (AUT12, ISIN: CH0196770439). The bond carried a coupon rate of 4.375% and had a term of five years with a final maturity on ­December 14, 2017. On December 31, 2016 the market value of the bond was CHF 129.6 million.

On July 4, 2016 Autoneum Holding Ltd issued a fixed-rate bond with a nominal value of CHF 75.0 million, which is listed on the SIX Swiss Exchange (AUH16, ISIN: CH0326213904). The bond carries a coupon rate of 1.125% and has a term of seven years with a final maturity on July 4, 2023. On December 31, 2017 the market value of the bond was CHF 76.5 million (2016: CHF 75.4 million).

On December 8, 2017 Autoneum Holding Ltd issued a fixed-rate bond with a nominal value of CHF 100.0 million, which is listed on the SIX Swiss Exchange (AUT17, ISIN: CH0373476032). The bond carries a coupon rate of 1.125% and has a term of eight years with a final maturity on December 8, 2025. On December 31, 2017 the market value of the bond was CHF 100.9 million.

Autoneum maintains a long-term credit agreement with a banking syndicate in the amount of CHF 150.0 million, whereof CHF 45.0 million was drawn at year-end (2016: nil). The line of credit may partly be used as a guarantee facility. On December 7, 2017 the long-term credit agreement was amended and the final maturity date extended from December 31, 2019 to December 31, 2022. The interest rate is based on the LIBOR rate plus an applicable margin, which is determined based on the ratio of net debt to EBITDA. The credit agreement contains customary financial covenants, which include the ratio of net debt to EBITDA and a minimum economic equity. Compliance with financial ­covenants is checked quarterly and reported to the banking syndicate. In fiscal years 2017 and 2016, the ­financial covenants were met at all times.

In addition to the aforementioned bonds and the long-term credit agreement, local credit limits and borrowings with individual customary market conditions exist in several countries.

The borrowings are denominated in the following currencies:

In the reporting period, total expenses for pensions in the amount of CHF 16.8 million have been recognized as employee expenses and interest expenses (2016: CHF 15.6 million).

Some employees participate in defined contribution plans whose insurance benefit results solely from the paid contributions and the return on investment on the plan asset. The other employees participate in ­defined benefit plans that are based upon direct benefits of the Autoneum Group.

The expenses for defined contribution plans totaled CHF 9.6 million in the current reporting period (2016: CHF 9.9 million).

Autoneum maintains defined benefit pension plans in Switzerland, Great Britain, the USA, Canada and the Netherlands. The most significant pension plans are those in Switzerland and the USA. Those plans sum up to 78.5% (2016: 79.3%) of the Group’s defined benefit obligation and to 78.4% (2016: 79.4%) of the Group’s plan assets.

The status of the defined benefit plans at year-end was as follows:

Pension plans are governed by the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). The Group’s pension plans are administered by separate legal foundations, which are funded by regular employee and company contributions. Plan participants are ­insured against the financial consequences of old age, disability and death. The most senior governing body of the pension plan is the Board of Trustees. The Board of Trustees is responsible for the ­investment of the plan assets. All investment decisions made by the Board of Trustees need to conform to the guidelines set out in a long-term investment strategy. This strategy is based on ­legal ­requirements, expected future contributions and expected future obligations and is reassessed at least once a year. All governing and administration bodies have an obligation to act in the ­interests of the plan participants. The final benefit is contribution-based with certain minimum guarantees. Due to these minimum guarantees, the Swiss plans are treated as ­defined benefit plans for ­the purposes of these IFRS financial statements, although they have many characteristics of defined contribution plans. Retirement benefits are based on the accumulated savings capital, which can ­either be drawn as a lifelong pension or as a lump-sum payment. The ­pension is calculated by multiplying the balance of the savings capital with the applicable conversion rate. The plan is exposed to actuarial risks, such as longevity risk, interest rate risk and market (investment) risk. In case of an underfunding, the Board of Trustees is required to take the necessary measures to ensure that full funding can be expected to be restored within a reasonable ­period. The measures may include increasing employee and company contributions, lowering the interest rate on retirement account balances or reducing prospective benefits.

Autoneum maintains five defined benefit pension plans in the USA. Four of those plans are funded and one plan is unfunded. The defined benefit plans in the USA have been closed to new members. New employees in the USA now join defined contribution plans. The defined benefit plans are subject to the ­provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which defines minimum standards such as the statutory minimum funded status.

Autoneum maintains defined benefit plans in Canada, Great Britain and in the Netherlands. The ­pension plan in Canada is open for all Canadian employees. The plan is funded, and the majority of the contributions are paid by the employer. The pension plan in Great Britain is funded and has been closed to new members. New employees join a defined contribution plan. The plan in the Netherlands is funded and has been closed to new members.

The movement in the defined benefit obligation over the year was as follows:

The movement in the fair value of plan assets over the year was as follows:

The major categories of plan assets were as follows:

All equity and debt instruments are listed on a stock exchange.

The amounts recognized in the income statement were as follows:

Prior year past service cost stems from amendments of Swiss pension plans.

The amounts recognized in the income statement result from plans in the following regions:

The expected employer contributions for the Group’s defined benefit pension plans for 2018 amount to CHF 6.8 million. The expected benefit payments for 2018 are CHF 6.2 million.

The effect from remeasurement of the defined benefit pension plans recognized in other comprehensive income is as follows:

The table below discloses the main actuarial assumptions at year-end:

At December 31, 2017 the weighted average duration of the defined benefit obligation was 16.4 years (2016: 16.7 years).

The table below shows the results of the sensitivity analysis. It was analyzed how expected changes in the discount rate, in future salary and pension growth, and in the life expectancy would impact the defined ­benefit obligation. Changes in these parameters would have the following­ ­effect on the defined benefit obligation:

Guarantee and warranty provisions are related to the production and supply of goods or services and are based on experience. The non-current guarantee and warranty provisions are expected to be used in one to two years.

Litigation and tax risk provisions comprise provisions for expected costs resulting from investigations and proceedings of government agencies, provisions for court cases, such as claims brought up by workers for health- or accident-related incidents, and provisions for tax risks. The ­majority of litigation and tax risk provisions are expected to be used within the next two to three years.

Environmental provisions contain the estimated costs for the cleanup of contaminated sites due to past industrial operations. The majority of provisions stem from legal entities within Business Group Europe. Long-term environmental provisions are expected to be used mainly over the next five to ten years.

Other provisions are made for contracts where the unavoidable costs to fulfill the obligation are greater than the expected economic benefits, as well as for other constructive or legal liabilities of Group companies. The disclosed reclassification mainly comprises estimated customer price reductions in the amount of CHF 6.6 million which were reclassified from the allowance for doubtful trade receivables to other current provisions (refer to note 19) and other long-term employee benefits in the amount of CHF 2.6 million which were reclassified to employee benefit liabilities (refer to note 25). The majority of other non-current provisions are expected to be used in two to three years.