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FINANCIAL HIGHLIGHTS<br />

Key data<br />

(EUR 000) 2005 2004 1) Change in %<br />

Orders 1 463 793 1 689 834 –13.4<br />

Sales 1 569 786 1 593 100 –1.5<br />

Operating profit 88 289 92 248 –4.3<br />

% of sales 5.6% 5.8%<br />

Profit from continuing operations 55 160 49 157 12.2<br />

% of sales 3.5% 3.1%<br />

Profit for the period 55 160 67 368 –18.1<br />

% of sales 3.5% 4.2%<br />

Depreciation and amortization 63 918 73 124 –12.6<br />

% of sales 4.1% 4.6%<br />

EBITDA 152 207 165 372 -8.0<br />

Cash flow from operating activities 71 464 163 174 –56.2<br />

% of sales 4.6% 10.2%<br />

Capital expenditure 78 301 59 126 32.4<br />

Employees (full-time equivalents at year-end) 2) 10 021 8 852 13.2<br />

Total assets 1 265 079 1 300 901 –2.8<br />

Total shareholders‘ equity 574 976 516 725 11.3<br />

% equity financing 45.5% 39.7%<br />

Stock market capitalization (year-end) 811 825 617 544 31.5<br />

Share summary (EUR)<br />

Shareholders‘ equity per share 39.05 36.08<br />

Earnings per share 3.72 4.71<br />

Cash flow from operating activities 4.98 11.52<br />

Share summary (CHF)<br />

Shareholders‘ equity per share 60.73 55.74<br />

Earnings per share 5.76 7.27<br />

Cash flow from operating activities 7.71 17.79<br />

Capital repayment 3) 1.80 2.00<br />

1) Data for 2004 is restated to take account of Share-based Payment and Discontinued Operations.<br />

2) 2005: including 1 369 from acquisitions made in 2005.<br />

3) For 2005: proposal of the Board of Directors to the General Meeting of Shareholders.


INDEX<br />

002 / THE BUSINESS YEAR 2005<br />

032 / FINANCIAL REPORT 2005<br />

043 / CONSOLIDATED FINANCIAL STATEMENTS<br />

073 / MULTIPLE YEAR COMPARISON<br />

079 / THE FINANCIAL REPORT OF SAURER LTD.<br />

086 / CORPORATE GOVERNANCE<br />

103 / ADDRESSES WORLDWIDE<br />

109 / SHARE STATISTICS


PAGE 2<br />

The Business Year 2005<br />

THE BUSINESS YEAR 2005<br />

THE BUSINESS YEAR 2005<br />

Dear Shareholders,<br />

In 2005, Saurer’s business maintained a level similar to that<br />

of the previous year. Gradual growth continued in Transmis-<br />

sion Systems but was accompanied by declining volumes in<br />

the textile sector, caused mainly by weaker demand from<br />

China as expected. The business efficiency program TEMPUS<br />

was concluded, exceeding expectations and enabling cost<br />

savings of over EUR 50m, and alongside this, some important<br />

foundations were laid for Saurer’s growth in the next years.<br />

These derived from a step change in Saurer’s priorities. Out<br />

of the strong focus on business processes, the supply chain<br />

and cost reductions to minimize our exposure to cyclical<br />

business downturns (TEMPUS) came a series of projects in all<br />

business units to exploit new business opportunities with<br />

maximum energy and efficiency. This included significant in-<br />

vestments in development of new products, new production<br />

and sales structures in Asia, the acquisition of Fairfield, long-<br />

sought-after complement to Graziano, and a number of<br />

smaller technology companies acquired in the textile sector.<br />

Once they are fully integrated, these acquisitions collectively<br />

will have a sales potential of over EUR 300m with an above<br />

average profit contribution.<br />

However, even the very significant fixed cost reductions from<br />

the TEMPUS program – EUR 50m over the last two years –<br />

were not enough to compensate for the loss of margins<br />

caused by lower sales, the unfavorable product and country<br />

mix, the startup costs of the growth program and the ab-<br />

sence of last year’s non-recurring income.<br />

In 2005 Saurer’s order intake reached EUR 1 464m (–13%<br />

compared with EUR 1 690m in 2004). Sales were EUR 1 570m<br />

(–1.5% compared with EUR 1 593m in 2004). The decline in<br />

orders compared with a strong prior year is mainly due to re-<br />

duced demand from China in the Textile Solutions division.<br />

Orders and sales in Transmission Systems rose slightly, but<br />

not enough to compensate for the decline in Textile Solutions.<br />

Acquisitions contributed only EUR 42m to sales (EUR 41m to<br />

orders) in 2005. Saurer’s orders on hand as at December 31,<br />

2005, EUR 392m, are 15% below the year-end figure of<br />

2004.<br />

The net profit of the period of EUR 55m exceeded that of<br />

the previous year by EUR 6m (+12%) for continuing<br />

operations (prior year EUR 49m plus EUR 18m from the<br />

divested Surface Technology). This was achieved by the cost<br />

reductions of the TEMPUS program combined with an<br />

improved financial result, lower taxes and the absence of<br />

goodwill amortization in 2005. The operating profit<br />

(earnings before interest and tax) was EUR 88m (prior year<br />

EUR 92m plus EUR 19m from Surface Technology), which<br />

corresponds to a margin of 5.6% on sales. The RONOA<br />

(return on net operating assets) was 19.3% (prior year<br />

22.5%). The EBITDA (earnings before interest, tax, deprecia-<br />

tion and amortization) reached EUR 152m (10% of sales;<br />

prior year EUR 165m plus EUR 21m from Surface Tech-<br />

nology). Cash flow from operating activities amounted to<br />

EUR 71m, and net cash at the year-end was EUR 112m (prior<br />

year EUR 141m). The reduction in net cash is due partly to<br />

liquidity requirements for the recent acquisitions (EUR – 48m)<br />

and partly to the reversal of excess liquidity at the end of<br />

2004, in customer prepayments and creditor balances<br />

(EUR –35m). The acquisition of Fairfield Manufacturing Inc.<br />

has not reduced liquidity until January 2006.<br />

As previously announced, capital expenditure for ongoing<br />

operations rose by EUR 19m over the previous year, to a<br />

total of EUR 78m. Of this, EUR 50m were invested in the<br />

Textile Solutions division and EUR 28m in Transmission<br />

Systems. In both cases the funds were applied mainly to<br />

building up our activities in Asia, and to tooling up for<br />

manufacture of new products. In Textile Solutions, the<br />

capital requirement is expected to decrease somewhat<br />

again.


46<br />

2003<br />

49<br />

2004<br />

55<br />

2005<br />

Profit for the period 2003–2005<br />

in EUR m (continuing operations)<br />

2001<br />

-208<br />

THE BUSINESS YEAR 2005 PAGE 3<br />

Saurer net cash (debt) 2001–2005<br />

in EUR m<br />

2003<br />

-32<br />

2004 141<br />

2005 112<br />

The Business Year 2005


PAGE 4<br />

The Business Year 2005<br />

THE BUSINESS YEAR 2005<br />

TRANSMISSION SYSTEMS – CONSOLIDATION<br />

COMPLETED, PROMISING NEW PRODUCTS IN THE<br />

PIPELINE AND DYNAMIC NEW GROWTH WITH THE<br />

ACQUISITION OF FAIRFIELD<br />

Transmission Systems (Graziano Trasmissioni) confirmed and<br />

continued its sales growth of the second half of 2004, which<br />

led to a clear improvement in the first half of 2005 and in<br />

the second half a repeat of the high volumes seen in the<br />

previous year. In total, orders and sales rose by 4% to EUR<br />

397m, after 6% growth in the previous year.<br />

The higher sales volumes in agricultural and construction<br />

vehicles, which make up more than half of Transmission<br />

Systems’ business, continued into 2005. In the automobile<br />

sector demand stabilized at the level of the second half-year<br />

2004. Further growth came from the production runup for<br />

various new products such as the Aston Martin DB9 and the<br />

Volkswagen T5 Transporter. In 2005 Graziano Trasmissioni<br />

also received order commitments for a large number of new<br />

products which will form a basis for future growth, but<br />

which also put great pressure on the company’s develop-<br />

ment and prototyping resources. These projects included<br />

among others the rear differential for the Maserati Quattro-<br />

porte, the gearbox for the Audi Le Mans which will come<br />

onto the market at the end of 2006, the gearbox for the<br />

new Ferrari 599 – the successor model to the Maranello<br />

575 –, the front power take-off unit for the new Epsilon<br />

worldwide all-wheel drive platform by General Motors, new<br />

components for Triumph motorcycles, and gearboxes for var-<br />

ious low-volume luxury sports cars. These new orders will<br />

further strengthen Graziano Trasmissioni’s already strong<br />

position in the supply market for luxury sports vehicles and<br />

high-quality all-wheel drive components. In the area of agri-<br />

cultural and construction vehicles also some important new<br />

projects are being pursued where Graziano is treading new<br />

ground in technology, such as CVT (Continuous Variable<br />

Transmission) for small tractors, variable double-clutch trans-<br />

missions for tractors, axles for the new family of CNH motor<br />

graders, and axles for a new series of light wheel loaders<br />

by JCB.<br />

The consolidation phase of Graziano Trasmissioni was sub-<br />

stantially concluded in 2005, leading to closure of the Carr<br />

Hill (GB) plant and transfer of its production to the plant in<br />

India and to Italy. A future increase in production capacity in<br />

India was initiated with work starting on an extension to the<br />

plant which will come into operation in the third quarter<br />

2006. A start was made on the transfer of operations for the<br />

European market to the existing plant of Saurer Textile<br />

Solutions in the Czech Republic, with a view to starting<br />

production there from mid-2006. In December the Graziano<br />

building on the site of the new Saurer plant in Suzhou (China)<br />

was opened for business. Its first product will be axles for<br />

fork-lift trucks by Linde, destined for the Chinese market.<br />

Apart from business know-how in general, these moves to<br />

China and the Czech Republic show how Graziano can be-<br />

nefit substantially from the management experience and<br />

infrastructure of Saurer Textile division.<br />

The operating profit of Graziano Trasmissioni, EUR 31.5m<br />

(7.9% of sales) clearly exceeds that of the previous year<br />

(EUR 22.2m), which was still charged with EUR 6m of re-<br />

structuring cost. However, despite a great improvement in<br />

difficult market conditions, the operating result is still below<br />

our target for such a capital-intensive business. Price pressure<br />

from customers and greatly increased steel and energy costs<br />

must be met in future by increased use of low-cost produc-<br />

tion sources such as the Czech Republic and India, where fa-<br />

cilities are currently under construction. The TEMPUS project<br />

is well advanced in Transmission Systems and has already<br />

made a significant contribution to the problems of output<br />

price contention and rising input costs.<br />

Fairfield: the perfect strategic complement. For over two<br />

years Saurer has examined the market of transmission manu-<br />

facturers very systematically, looking for a suitable comple-<br />

mentary partner for Graziano. Important criteria for such a<br />

partner were:<br />

• Specialities provider with complementary products to<br />

those of Graziano Trasmissioni<br />

• in NAFTA or Asia<br />

• sales in excess of EUR 100m<br />

• demonstrable EBITA return of over 15% on the<br />

acquisition price after integration, no dilution of RONOA<br />

(return on net operating assets)<br />

At the end of 2006 Saurer acquired 100% of the share<br />

capital of Fairfield Manufacturing Company, Inc. In 2005<br />

Fairfield had sales of around USD 230m, 1 650 employees<br />

(thereof 600 in India) and achieved a net profit of over 7%.


The company’s headquarters and largest production facility<br />

are in Lafayette, IN, USA, and Fairfield also has a manu-<br />

facturing presence in Belgaum, India.<br />

Fairfield’s most important products are planetary gear drives<br />

(under the Torque Hub ® trade name), custom gears (predom-<br />

inately large diameter gears), and customgear assemblies.<br />

Primary end markets which rely on the Torque Hub ® plane-<br />

tary gear drive include aerial work platforms and offshore<br />

platforms, agricultural and road construction equipment.<br />

Custom gear end-market applications include rail, mining,<br />

agricultural, construction, offshore platforms and material<br />

handling. Custom gear assemblies are utilized for numerous<br />

speciality applications including track drives, power takeoffs,<br />

pump drives, and drop boxes for defence, oil and energy,<br />

underground and aboveground mining and agricultural<br />

applications.<br />

Fairfield’s customer base includes many well-recognized in-<br />

dustrial companies, including AGCO, Allison Transmission,<br />

Case New Holland, Caterpillar, Electro Motive Diesel, Gen-<br />

eral Electric, John Deere, JLG, Joy Global, SPX and Terex.<br />

Many of them are long-standing customers of Graziano Tras-<br />

missioni.<br />

The combination of Fairfield and Graziano Trasmissioni cre-<br />

ates a globally leading solution provider for speciality trans-<br />

missions and gears. Fairfield adds attractive specialities to<br />

Saurer’s product portfolio, grants access to new applications,<br />

provides Graziano a manufacturing footprint in the NAFTA<br />

region, and offers better access to U.S. customers. In return,<br />

Graziano and Saurer provide a platform for Fairfield to further<br />

penetrate the European market. In addition to the synergies<br />

that are created in Europe and North America, the combined<br />

business will be in a stronger position to exploit market op-<br />

portunities and production bases in China and India.<br />

EBIT<br />

THE BUSINESS YEAR 2005 PAGE 5<br />

16%<br />

AMERICA<br />

2003<br />

79%<br />

EUROPE<br />

2004<br />

5%<br />

ASIA<br />

Worldwide sales distribution 2005<br />

Transmission Systems<br />

363<br />

384<br />

397<br />

2005<br />

28.6 22.2 31.5<br />

MARGIN 7.9% 5.8% 7.9%<br />

Sales 2003–2005<br />

Transmission Systems in EUR m<br />

The Business Year 2005


PAGE 6<br />

The Business Year 2005<br />

THE BUSINESS YEAR 2005<br />

TEXTILE SOLUTIONS – STRONG MARKET POSITION<br />

IN ASIA AND ACQUISITIONS TO STRENGTHEN<br />

PRODUCT PORTFOLIO<br />

In Textile Solutions the order intake for 2005, EUR 1 067m,<br />

was below the high level of the previous year (EUR 1 306m,<br />

–18%). The main reason for this was the decline in demand<br />

from China, principally for major projects for filament instal-<br />

lations, texturing and synthetic staple fibers – a decline<br />

which first became apparent in the second half of 2004.<br />

Sales for the year were EUR 1 173m, 3% below the previous<br />

year’s sales of EUR 1 209m. Our Chinese customers’ uncer-<br />

tainty in reaction to the trade disputes surrounding textile<br />

imports in the first half of 2005, together with the high in-<br />

vestment levels of earlier years and the government’s<br />

attempts to restrain the economy (soft landing), all had a<br />

bad effect on investment in textile machinery. In the second<br />

half of 2005 sales of EUR 615m were achieved, almost the<br />

level of the previous year (EUR 621m). In total, Asian markets<br />

continued to dominate in the textile sector with 67% of<br />

sales, however, in 2005 only 28% came from China compared<br />

with 38% in the previous year. In an encouraging contrast,<br />

the Indian market appears to be in continuing good health.<br />

The individual business areas within Textile Solutions devel-<br />

oped very differently; the record volumes of winding systems<br />

(cotton) contrasted sharply with extremely low sales of<br />

texturing machines.<br />

Saurer’s rapid adaptation to changes in the demand profile<br />

demonstrates our capability to react in quick response to<br />

market dynamics. Particularly important in this connection<br />

are our local teams of well-trained service engineers and<br />

product specialists in India and China, who can now be de-<br />

ployed anywhere in the world. Although it has improved<br />

slightly, the performance of the service, repair and spare<br />

parts business in Asia is still well behind expectations based<br />

on comparable volumes in other markets. Following the ac-<br />

quisition in 2005 of the component companies Heberlein<br />

Fiber Technology and Temco, this important area will benefit<br />

from an increased product range and a stronger presence in<br />

the market.<br />

Lower sales, significant preparatory costs of just over EUR<br />

6m in our growth program MUSANGALA and an unsatisfac-<br />

tory product/country mix led to a lower operating result for<br />

Textile Solutions of EUR 63m, which represents a margin of<br />

5.4% on sales (prior year EUR 76m, 6.3%). The result for<br />

the year benefited from cost reductions from the TEMPUS<br />

program and from greatly increased value added in Asia,<br />

however, these were not sufficient to compensate for the<br />

other negative factors. The new assets of the acquisitions<br />

contributed only a little to sales and earnings, yet a RONOA<br />

for the division as a whole of 25% (prior year 35%) was<br />

achieved and the average capital turn was further improved.<br />

Successful management of capital employed, besides<br />

operating profit, has proved its value in recent years as a<br />

major element of Senior Management compensation.<br />

However, although we can explain it, such a result is unsatis-<br />

factory and shows the gap which our growth program must<br />

close in the next two years if we are to achieve our target of<br />

8% recurring operating profit.<br />

In 2005 we acquired seven textile-technology companies,<br />

operating in the areas of nonwovens, textile machine com-<br />

ponents and recycling. These companies’ total sales for 2005<br />

were approximately EUR 112m, of which EUR 42m were<br />

consolidated in 2005, and in future they will contribute sig-<br />

nificantly to our growth in Textile Solutions.<br />

Acquired companies Business Area Saurer Business Unit<br />

Autefa Nonwovens Neumag<br />

Kortec Nonwovens Neumag<br />

Fehrer Nonwovens Neumag<br />

Ermafa Plastics recycling <strong>Barmag</strong> Spinning Systems<br />

Heberlein Fiber Technology Textile machine components Components<br />

Fincarde Nonwovens Neumag<br />

Jinsheng Staple fiber spinning Jinsheng<br />

Temco (2006) Textile machine components Components


Leader in total solutions and innovation. In recent years,<br />

Saurer has repeatedly secured its market leadership in ma-<br />

chinery and equipment for yarn production, and today we<br />

offer a broader range of applications than any of our com-<br />

petitors. Our new acquisitions will strengthen this capability<br />

further. We see significant advantages and opportunities de-<br />

riving from this:<br />

• Saurer’s diversified market segments with their different<br />

cycles smooth out the volatility of the individual seg-<br />

ments, so that business years with extreme downturns<br />

are less frequent.<br />

.• Saurer’s profound and comprehensive understanding of<br />

yarn production qualifies us to adopt and develop our<br />

role as provider of total solutions.<br />

• Saurer’s broad knowledge of development and engineer-<br />

ing puts us in a strong position to bring new technologies<br />

to the point of breakthrough, including difficult and ex-<br />

pensive technologies. Building on our product leadership<br />

we can differentiate ourselves from our competitors and<br />

secure our market share.<br />

• Saurer’s experience in our individual business units of<br />

building up and managing production and sales units in<br />

China and in India allow us to exploit business opportunities<br />

in Asia intensively.<br />

• Saurer’s decentralized worldwide sales and service orga-<br />

nization, together with our hard-learned knowledge of<br />

how to manage cyclical businesses efficiently, enable us<br />

to integrate smaller businesses with complementary pro-<br />

duct portfolios rapidly into the group and realize their<br />

added value at once.<br />

With its deeply rooted Total Solution capability, Saurer is de-<br />

veloping more and more from a textile machine manufac-<br />

turer to become a provider of total solutions to our customers<br />

worldwide, able to offer turnkey solutions for all yarn pro-<br />

duction requirements. This capability has been further refined,<br />

and five new total solution concepts have been developed<br />

for natural and synthetic yarns.<br />

Success of the Saurer network. Innovation will continue to<br />

be a driving force in Saurer’s market positioning. The TTM<br />

process (time to money) which the TEMPUS program intro-<br />

duced as a product generation process covers not only the<br />

THE BUSINESS YEAR 2005 PAGE 7<br />

product development phase but embraces the whole pro-<br />

cess from the original idea to solve a customer problem right<br />

through to market introduction including evaluation of suc-<br />

cess in terms of cash flow. Projects are developed on a multi-<br />

disciplinary basis in mixed teams made up from marketing,<br />

sales, development, production and service. In this way the<br />

use of scarce resources is measured against a shared target<br />

for planned cash inflows. New products with enhanced cus-<br />

tomer value, clearly differentiated from our competitors’ of-<br />

ferings, are an essential tactic in preserving Saurer from a<br />

single-dimensional price war.<br />

Textile Solutions’ worldwide sales and service network was<br />

further consolidated in 2005, and the common systems<br />

handling administration and logistics were unified further.<br />

This promotes sharing of market information and efficient<br />

exchange of production capacity. In cooperation with IMD<br />

in Lausanne, over 250 Saurer employees worldwide were<br />

trained in Saurer’s intensive approach to customer service.<br />

The central focus was on recognizing and categorizing cus-<br />

tomer needs, then converting these rapidly into products<br />

with a clear analysis of value to the customer.<br />

We must continue to watch carefully for opportunities to in-<br />

crease the flexibility of the organization. Following the initial<br />

component outsourcing effort which is now more or less<br />

complete, our focus is now on increasing the level of original<br />

manufacture and value added in Asia and in dollar-related<br />

areas. To this end, after completion of its planning phase the<br />

new Saurer logistics and production center in Suzhou (China)<br />

was built and occupied in 2005. All Saurer’s activities in the<br />

area are now grouped at this location, which will increase<br />

flexibility and reduce administration costs. The site was plan-<br />

ned to accommodate other Saurer activities if required, and<br />

the first to take advantage of this was Transmission Systems,<br />

who is just starting production of axles for fork-lift trucks.<br />

Our previous factory building in Suzhou, occupied for three<br />

years and now too small, was cleared and sold towards the<br />

end of 2005. Components and subassemblies are increas-<br />

ingly sourced locally, partly with the aim of reducing the<br />

currently dominant dependency on the euro. However, our<br />

worldwide supply network remains the basis for flexible and<br />

cost-efficient supply in all business areas.<br />

The Business Year 2005


PAGE 8<br />

The Business Year 2005<br />

THE BUSINESS YEAR 2005<br />

Our company culture is subject to daily scrutiny by our cus-<br />

tomers, and we are very conscious that there remains much<br />

to be done, despite the tangible changes of recent years.<br />

Our aim is for all employees to develop a sense of value to<br />

the customer, external or internal, in everything they do, and<br />

always to question the need and efficiency of what they are<br />

doing. This is a continuing management challenge at all<br />

levels. One very positive development is that efficient and<br />

unprejudiced cooperation between colleagues from diffe-<br />

rent regions has become the norm within Saurer. Our latest<br />

plans for referral of projects to Asia, joint development of<br />

new products for local markets, adaptation of marketing<br />

initiatives to other regions, all bear witness to this. Here we<br />

see how Saurer is moving in large steps from being a<br />

successful exporter of textile machines to becoming a global<br />

provider of total solutions for the textile industry.<br />

EBIT<br />

17%<br />

AMERICA<br />

2003<br />

16%<br />

EUROPE<br />

2004<br />

67%<br />

ASIA<br />

Worldwide sales distribution 2005<br />

Textile Solutions<br />

1275<br />

1209<br />

1173<br />

2005<br />

62.2 76.0 62.9<br />

MARGIN 4.9% 6.3% 5.4%<br />

Sales 2003–2005<br />

Textile Solutions in EUR m


Neumag – Total Solution for nonwovens. Neumag had<br />

another very good year. Efforts of recent years in develop-<br />

ment of new installations, machines and other equipment<br />

formed the basis for success in all markets, which led to a<br />

clear increase in sales and profits. The new staple fiber pro-<br />

duction installation was successfully installed in 2005 with a<br />

number of customers in China. This included the largest<br />

staple fiber installation ever, with 6 times 200 tons daily pro-<br />

duction capacity, which requires 100 large trucks daily to<br />

transport the product to the customer. Thanks to the new<br />

carpet yarn equipment S5 and S3, Neumag’s market positi-<br />

on in this segment was reinforced and substantial orders<br />

from U.S. and Turkey were won and delivered. Strenuous ef-<br />

Neumag nonwovens technology portfolio<br />

Preparation/<br />

Spinning<br />

Formation<br />

Bonding<br />

Packaging/Winding<br />

Airlaid<br />

Short fibers<br />

Airlaid<br />

M&J<br />

THE BUSINESS YEAR 2005 PAGE 9<br />

forts were devoted to development of the new nonwovens<br />

business. Decisive steps were completion of the pilot line in<br />

Neumünster for process development and customer sampling,<br />

and also the acquisition of four technology companies (Au-<br />

tefa, Kortec, Fehrer and Fincarde) which will help to position<br />

Neumag as a provider of total solutions in the nonwoven<br />

market. Another important milestone was delivery, installa-<br />

tion and production go-ahead for the largest spunbond in-<br />

stallation in Italy, for Procter & Gamble.<br />

Carding<br />

Long fibers<br />

Spunlace Needle Punching<br />

Festooning<br />

Fehrer<br />

Kortec<br />

Carding<br />

F.O.R<br />

Crosslapping<br />

Autefa<br />

Thermal bonding<br />

Winding<br />

Spunbond<br />

Granulate, polymer<br />

Spinning<br />

Meltblown<br />

Neumag<br />

Neumag<br />

Chemical bonding<br />

In-house technology Technology provided by partners<br />

The Business Year 2005


PAGE 10<br />

The Business Year 2005<br />

THE BUSINESS YEAR 2005<br />

<strong>Barmag</strong> Spinning Systems – higher sales despite weak<br />

markets in China. <strong>Barmag</strong> Spinning Systems again exceeded<br />

their sales of the previous year, although order intake was<br />

considerably lower. Together with cost improvements from<br />

the TEMPUS program this led to a further improved result. In<br />

China particularly order levels dropped dramatically, and al-<br />

though some larger orders were received from India, these<br />

could not compensate. Increasing market pressure from Chi-<br />

na forces firms in the other textile-producing countries of<br />

Asia to invest in modern, high-quality equipment, which of<br />

course offers opportunities for Saurer. Among higher quality<br />

yarns such as supermicrofilaments, or extremely strong<br />

yarns as used in tyre manufacture, new applications and cus-<br />

tomer needs have recently surfaced and were successfully<br />

supplied using the Total Solution approach. Further business<br />

potential was won by presentation of new and innovative<br />

products such as the 20 times FDY installation and the<br />

supermicrotechnology with up to 400 filaments. With the<br />

acquisition of ERMAFA in Chemnitz a foundation stone was<br />

laid for a broader entry into the recycling of plastics. Rapidly<br />

rising prices for energy and raw materials are opening up a<br />

broad field of new applications for recycling.<br />

<strong>Barmag</strong> Texturing Systems – innovation in a downturn.<br />

The market for texturing systems weakened clearly in 2004,<br />

then it halved itself again in 2005 to reach a level around<br />

one-third of it was in 2003. Practically all regions were affected<br />

by this contraction of demand, particularly China. Although<br />

<strong>Barmag</strong> was able to build up its market share in this very dif-<br />

ficult market, thanks to the new MPS product range, and<br />

despite rigorous cost savings introduced in the previous year<br />

which gave higher contribution margins, the massive sales<br />

recession could not be compensated and the business unit<br />

closed with a loss. Construction of production facilities in<br />

Suzhou (China) continued apace, together with resizing of<br />

capacities in Europe. The new generation of automatic tex-<br />

turizing systems MPS was tested successfully by various<br />

customers in 2005, and the first large order, for 48 systems,<br />

was delivered and installed in the fourth quarter. Also, 30 of<br />

a new low-cost machine developed in China and based on<br />

the FK6-1000 were sold in the last quarter.<br />

Schlafhorst Rotor Spinning Systems – success with new<br />

Autocoro 360. The rotor spinning business stayed at the low<br />

level of the previous year; a slight improvement in sales was<br />

matched by a small reduction in orders. Business improved<br />

in China, U.S. und India but declined in other markets. In<br />

2005 the Autocoro 312 was replaced by the fully automated<br />

Autocoro 360. The new machine’s increased productivity, its<br />

high flexibility which also permits production of special ef-<br />

fect yarns, and also the further perfected magnetic bearings,<br />

qualify it as best of class by a clear margin. This included<br />

the market launch of a new yarn quality monitoring system<br />

Corolab XQ, developed by Schlafhorst. These digital sensors<br />

are fully integrated in the Autocoro and enable valuable new<br />

perspectives over the yarn quality and fault detection. The<br />

technological progress marked by the Autocoro, together<br />

with the weak market demand, forced our competitors to<br />

reduce their prices to preserve their market share. Satis-<br />

factory business was done also with the manual and semi-<br />

automatic rotor spinning machines made in China and the<br />

Czech Republic, mainly for projects in Asia.<br />

Zinser Ring Spinning Systems – accelerated engagement<br />

in Asia. Zinser was unable to maintain its momentum of re-<br />

cent years. Recessive demand in the traditional Zinser mar-<br />

kets of Europe, Near and Middle East and U.S. put a damper<br />

on sales which could not be compensated fully by better<br />

business in Asian markets. This shift in the market was ex-<br />

pected, but came with unexpected speed and led to a more<br />

radical rethink and rebuild of Zinser in the direction of India<br />

and China, which will bear fruit in 2006 with new products<br />

for these markets. Zinser’s product range will be radically re-<br />

thought for the Asian market, as production starts in the<br />

new plant in Suzhou and in cooperation with our new part-<br />

ner Jinsheng, in whose business Saurer acquired a majority<br />

shareholding at the end of 2005. Production of roving<br />

frames for the Indian market, which started last year, is<br />

going well and clearly exceeded its sales targets in 2005.<br />

Schlafhorst Winding Systems – strong demand for cot-<br />

ton spinning leads to another record year. Winding Sys-<br />

tems’ business enjoyed another record year in sales and prof-<br />

its. The robust, technically unchallenged Autoconer winding<br />

machine did well in almost all markets. Particularly in China<br />

and India, which are by far the largest markets, the steps we<br />

have taken in sales and service areas have led to better mar-<br />

ket penetration and a higher market share. By virtue of strict<br />

cost management, innovative new components and flexible<br />

process management directed toward the volatile markets,


margins were held despite intense price competition. The<br />

successful market launch of the Autoconer Gold Edition and<br />

our various equipment and accessory packages designed for<br />

different markets and customers further enhanced customer<br />

acceptance. The new Ecopack with its exact length measure-<br />

ment in thousandths reduces the loss of yarn by up to 80%<br />

in subsequent processing, which has great appeal for our<br />

cost-conscious and demanding clientele.<br />

Volkmann Twisting Systems – FOCUS well established in<br />

Asian market. After a poor year in 2004, the twisting<br />

business revived a little this year, but sales volumes were still<br />

unsatisfactory overall. The slight revival in sales together<br />

with further cost reductions from TEMPUS led to a clearly<br />

positive operating result. FOCUS, a new low-cost twisting<br />

machine for cotton yarn, developed and built in China, was<br />

very well received by our Asian customers especially in Chi-<br />

na, India and Pakistan, and over 200 were delivered in the<br />

first year alone. The CompactTwister, a twisting machine in<br />

the upper price/performance category, also profited from<br />

our increased market presence and achieved high sales. The<br />

cabling equipment business for carpet yarns also went well;<br />

particularly in America our Total Solution approach, together<br />

with Neumag’s spinning systems, found favor with cus-<br />

tomers. In 2005 the first of a new generation of glass-fiber<br />

twisting machines, developed with a Czech partner, was<br />

delivered to a customer in China.<br />

Saurer Embroidery Systems – profitable in a downturn.<br />

Over the past two years Saurer Embroidery Systems has been<br />

renewing its sales program and clearing out its product<br />

palette. This, together with rigorous fixed cost reductions<br />

from the TEMPUS program, enabled the business unit to<br />

achieve a clearly positive result despite drop in market<br />

demand by almost a half. This is the benchmark for flexibility<br />

in the Saurer group. After a strong prior year, demand for<br />

shuttle embroidery was enormously reduced in almost all<br />

markets. The single and multihead embroidery business –<br />

the new AMAYA machine from Melco – did not attain its<br />

high growth targets either. The slow, still unsatisfactory<br />

growth in Asia was almost completely set off by the low<br />

volumes in the traditional U.S. market. Despite improvements<br />

that have been made, the potential of this system is now-<br />

here near being exhausted. The first large-scale installation<br />

of WINPRO spinning/twisting machines, the new high<br />

THE BUSINESS YEAR 2005 PAGE 11<br />

performance technique for wool spinning, was delivered to<br />

an Italian customer. Preparing the system for a broader<br />

range of applications is proving to be more time-consuming<br />

than was originally expected, and the financial circumstances<br />

of many of our customers have delayed their decision<br />

process considerably. However, by the fourth quarter the<br />

system was undergoing evaluation by several important<br />

customers and opinion leaders in the market.<br />

The Business Year 2005


PAGE 12<br />

OUTLOOK<br />

The Business Year 2005<br />

THE BUSINESS YEAR 2005<br />

Saurer has successfully concluded a phase of consolidation<br />

with emphasis on improvement of business processes and<br />

cost structures, together with realignment of the company’s<br />

culture. After thus looking inward with the aim of reducing<br />

risk, our full concentration is now directed outward again,<br />

aiming to seize every business opportunity, but without ne-<br />

glecting the virtues we have learned from the TEMPUS pro-<br />

gram. This change of direction from optimizing existing pro-<br />

cesses to new growth was clearly evident in 2005, both in<br />

Textile Solutions and Transmission Systems. Growth plans<br />

with steps clearly defined, time and cost budgets for new<br />

products, areas of application and markets have been<br />

worked up in all business areas and approved by Board of<br />

Directors. Our recent investments in technology companies,<br />

acquisition of know-how to form the basis for new products<br />

and the construction of our new facilities in Asia, are all part<br />

of this program.<br />

THANK-YOU<br />

The Board of Directors and the Management would like to<br />

thank all employees for their effort and commitment to<br />

Saurer. The will to change, and the active pursuit of change,<br />

Prof. Dr. Giorgio Behr<br />

Chairman of the Board<br />

The strong cash flow of recent years and our balance sheet,<br />

still in robust good health after several acquisitions, form the<br />

basis for a return to profitable growth. The expansion of our<br />

production capacity in Asia and resizing of our real estate in<br />

Europe are making good progress.<br />

In accordance with Saurer’s dividend policy, the Board of<br />

Directors proposes a capital repayment of CHF 1.80 per<br />

registered share. This gives Saurer scope for further attrac-<br />

tive acquisitions to expand its operations.<br />

For 2006, Saurer does not expect to see organic growth. Our<br />

acquisitions of 2005 will however contribute to increased<br />

sales in the textile sector (approx. EUR +80m) and to a much<br />

larger sales volume in Transmission Systems (approx. +EUR<br />

175m / consolidation of Fairfield from February 2006). Devel-<br />

opments in the volatile textile business are hard to predict,<br />

so the forecast of sales of Saurer Textile Solutions contains a<br />

degree of uncertainty.<br />

have strengthened Saurer and given us all a healthy base for<br />

a new phase of growth.<br />

Heinrich Fischer<br />

CEO and Board Delegate


MUSANGALA<br />

Growth starts with needs, ideas and energy.<br />

A company is more than its balance sheet and income statement, its products and markets,<br />

its machines and factories. A company’s success stems largely from the spirit which drives it,<br />

from the shared values and the goals which guide its people in their daily work.<br />

In the long term the worth of a company depends on the value it creates for its customers,<br />

its employees and its shareholders. A company wishing to grow must create new value and<br />

only through growth can it break out of the endless spiral of competition, improvements in<br />

efficiency and value lost in costs or in lost people. “We must seek success (value) in the<br />

heads of our customers” 1 – that is, the success of products or services depends largely<br />

on making customer attitudes and values the basis of business decisions. Growth will<br />

be achieved only by those who understand their customers’ view of the world better and<br />

can quickly provide solutions for their needs. The difficulty is that customer needs are as<br />

individual and varied as the customers themselves. Nowadays we have to adapt to each<br />

individual customer. The hard factors such as value for money, technology and product<br />

quality must all be in order; this is basic and the market demands it. Increasingly, it is the soft<br />

factors which are decisive, such as mutual trust, working well together, customer relations<br />

in general. Whether hard factors or soft: “The soul of our firm must be obsessed with our<br />

customers.”<br />

1 Peter Kruse (expert in human cognition)<br />

The Business Year 2005


To grow, the company must be in good health. Our good health comes from the TEMPUS<br />

program. To this underlying rhythm of efficient business processes and a customer and team<br />

oriented company culture has been added a second beat, since mid-2004, which will give us<br />

a new overall rhythm. MUSANGALA should give Saurer profitable growth of EUR 600m,<br />

without neglecting the virtues of TEMPUS. However, that tangible sense of relief from<br />

our colleagues over this change of direction is premature. It is a lot harder to generate prof-<br />

itable growth than it is to optimize business processes and reduce costs. New ideas cannot<br />

simply be ordered up. They need a background of creativity and openness, a readiness to<br />

take risks, and the courage to turn back when we go wrong.<br />

Recognizing the need and having the right idea is hard enough. To succeed, we need energy<br />

to achieve results quickly and to overcome setbacks; we must persevere and always keep<br />

our eye on the ultimate goal. Does Saurer have the right people in all the right places,<br />

people whose energy and competence will assure us of success? To have better people than<br />

the competition will be a vital success factor in MUSANGALA and an important challenge<br />

for our leaders.<br />

However, not all forms of growth are healthy and wanted, not every idea is a good idea and<br />

worthy of realization. But without ideas, many ideas, to choose from, nothing new can be<br />

created. Just as in our garden we distinguish between flowers and weeds, we must often<br />

cut back to give promising young branches the light and space they need for growth.<br />

I think that TEMPUS has prepared and qualified us for this new challenge. If we can attack<br />

the next phase with humility and respect for the scale of the task, mixed with unquestioning<br />

faith in our own ability and strength, then I see no reason why our MUSANGALA program<br />

should not be crowned with success.<br />

The Business Year 2005<br />

Heinrich Fischer CEO


034 / MANAGEMENT’S DISCUSSION OF RESULTS<br />

CONSOLIDATED FINANCIAL STATEMENTS<br />

045 / CONSOLIDATED INCOME STATEMENT<br />

046 / CONSOLIDATED BALANCE SHEET<br />

047 / CONSOLIDATED CASH FLOW STATEMENT<br />

048 / CONSOLIDATED STATEMENT OF<br />

SHAREHOLDERS’ EQUITY<br />

049 / ACCOUNTING POLICIES<br />

054 / NOTES TO THE CONSOLIDATED FINANCIAL<br />

STATEMENTS<br />

071 / PRINCIPAL COMPANIES AND INVESTMENTS<br />

072 / REPORT OF THE GROUP AUDITORS<br />

MULTIPLE YEAR COMPARISON<br />

074 / MULTIPLE YEAR COMPARISON<br />

FINANCIAL REPORT OF SAURER LTD.<br />

080 / INCOME STATEMENT<br />

081 / BALANCE SHEET<br />

082 / NOTES TO THE FINANCIAL STATEMENTS<br />

084 / PROPOSAL TO THE GENERAL MEETING<br />

085 / REPORT OF THE STATUTORY AUDITORS


PAGE 34<br />

The Business Year<br />

MANAGEMENT’S DISCUSSION OF RESULTS<br />

In 2005 Saurer generated lower order intake and slightly lower sales than in 2004. Although Transmission Systems showed moderate growth it was<br />

not sufficient to compensate for Saurer Textile Solutions‘ lower sales volume and declining margins. Consequently, operating results were down,<br />

despite further cost savings and efficiency improvements made in the year. The net income from continuing operations however has improved by<br />

EUR 6m thanks to lower financial and tax expense.<br />

In the textile division both sales and orders were down on the previous year. After the high investment levels of last year, trade disputes and the result-<br />

ing uncertainty affecting the textile industry held back demand from China, and put constant pressure on margins in the textile machine business.<br />

However, thanks to strict cost management, Saurer Textile Solutions managed to achieve a satisfactory result for the year, with still high return on<br />

capital employed.<br />

Transmission Systems‘ business continued to improve. A strong first half-year, stable market conditions with good margins and significantly lower<br />

restructuring costs than the previous year, all contributed to a significant increase in the operating result.<br />

Following the divestment of the Surface Technology division, completed last year, and the successful implementation of Saurer‘s TEMPUS program<br />

promoting business efficiency, 2005 was a year marked by a number of new investments in the textile division. These were mainly in the areas of<br />

nonwovens and textile components and in the reporting year increased the group‘s net assets while reducing its net cash. However, there was only a<br />

minor impact from the new acquisitions on the operating result in 2005.<br />

Employee numbers increased with the acquisitions by 1 369 but were reduced by 200 as a result of restructuring measures. The year closed with total<br />

employees of 10 021.<br />

The Surface Technology division was fully discontinued in 2004 and made no contribution to 2005 results. The 2004 figures were restated accord-<br />

ingly. A further restatement of 2004 results was made due to changes in the IFRS standards regarding accounting for stock option plans, resulting in<br />

EUR 2.3m higher operating expense in both years.<br />

In the following tables all currency amounts are stated in EUR 000.<br />

Management’s discussion of results Saurer 2005


Order Intake<br />

MANAGEMENT’S DISCUSSION OF RESULTS PAGE 35<br />

Change Adjusted change<br />

2005 2004 1) in % in % 2)<br />

Saurer Textile Solutions 1 066 663 1 306 144 –18.3 –21.1<br />

Europe 188 390 180 074 4.6<br />

North and South America 217 908 188 326 15.7<br />

Middle/Far East, Rest of World 660 365 937 744 –29.6<br />

Transmission Systems 397 130 383 690 3.5 3.5<br />

Europe 311 996 298 700 4.5<br />

North and South America 63 657 68 439 –7.0<br />

Middle/Far East, Rest of World 21 477 16 551 29.8<br />

Total Saurer 1 463 793 1 689 834 –13.4 –15.6<br />

Europe 500 386 478 774 4.5<br />

North and South America 281 565 256 765 9.7<br />

Middle/Far East, Rest of World 681 842 954 295 –28.6<br />

1) Restated.<br />

2) Adjusted for currency effects and acquisitions.<br />

Order intake for 2005 was well below the previous year. This was mainly influenced by the market development in China and Turkey. In India, how-<br />

ever, both Saurer Textile Solutions and Transmission Systems reported increased order volumes.<br />

In China, a number of large-scale investment projects were completed in recent years and the downturn in the market was to be expected. Despite<br />

this, Asia was still by far the most important market in the textile machine business also in 2005.<br />

Transmission Systems enjoyed positive business development leading to increased demand, mainly in Europe and India. Whereas orders increased also<br />

in North America, in South America market demand was clearly reduced.<br />

Management’s discussion of results Saurer 2005


PAGE 36<br />

Sales<br />

MANAGEMENT’S DISCUSSION OF RESULTS<br />

Change Adjusted change<br />

2005 2004 1) in % in % 2)<br />

Saurer Textile Solutions 1 172 656 1 209 410 –3.0 –6.3<br />

Europe 192 455 172 092 11.8<br />

North and South America 196 405 167 872 17.0<br />

Middle/Far East, Rest of World 783 796 869 446 –9.9<br />

Transmission Systems 397 130 383 690 3.5 3.5<br />

Europe 311 996 298 700 4.5<br />

North and South America 63 657 68 439 –7.0<br />

Middle/Far East, Rest of World 21 477 16 551 29.8<br />

Total Saurer 1 569 786 1 593 100 –1.5 –3.9<br />

Europe 504 451 470 792 7.1<br />

North and South America 260 062 236 311 10.1<br />

Middle/Far East, Rest of World 805 273 885 997 –9.1<br />

1) Restated.<br />

2) Adjusted for currency effects and acquisitions.<br />

Saurer‘s consolidated sales for 2005 were down EUR 23m compared with 2004. The high order book at the start of the year helped Saurer Textile<br />

Solutions to contain an otherwise greater sales reduction in difficult market conditions. The new acquisitions account for EUR 42m of sales in 2005.<br />

A slight revival of business for Transmission Systems compensated only partially for the declining sales of Textile Solutions. In Transmission Systems<br />

order lead times are short, so the same market conditions as described above for order income apply to sales.<br />

Orders on Hand<br />

2005 2004<br />

Saurer Textile Solutions 392 008 459 613<br />

Transmission Systems – –<br />

Total Saurer 392 008 459 613<br />

As a result of the currently hesitant market demand in the highly cyclical textile machine business, orders on hand are down by EUR 68m compared<br />

to the previous year. However, a comparison over several years shows that this level of orders lies within the typical range of demand fluctuation for<br />

the textile machine business.<br />

Management’s discussion of results Saurer 2005


Saurer Textile Solutions<br />

MANAGEMENT’S DISCUSSION OF RESULTS PAGE 37<br />

(EUR 000) 2005 % 2004 1) %<br />

Sales 1 172 656 100.0 1 209 410 100.0<br />

Operating profit 62 850 5.4 76 027 6.3<br />

Depreciation and amortization 34 227 39 115<br />

EBITDA 97 077 8.3 115 142 9.5<br />

Capital expenditure 50 411 33 449<br />

Net Operating Assets (including goodwill) 399 262 298 951<br />

Employees (full-time equivalents at year-end) 7 099 5 861<br />

of which from acquisitions made in 2005 1 369 –<br />

1) Restated.<br />

The textile sector suffered from reduced sales and constant pressure on margins, and despite rigorous cost management and high operating flexibility<br />

the operating result of the previous year was not attained. However, achievements in cost reduction can be seen clearly over the years: Saurer Textile<br />

Solutions‘ operating profit of 2005 is close to double the operating profit of 2002, a business year with comparable sales volume.<br />

The various business areas underwent different cycles and this supported a more or less constant business performance for textile machines overall:<br />

low sales in texturing, ring spinning and embroidery machines were compensated by volume increases in the other business areas, with a record year<br />

for winding. The high level of capital expenditure in 2005 compared with 2004 was directed mainly to completion of the new plant in Suzhou, China,<br />

and includes EUR 18m for this purpose.<br />

In the important markets for components, Saurer‘s market presence and product portfolio were enhanced by the acquisition of Heberlein (Switzerland<br />

and Germany) at the end of the year. The staple fiber portfolio of Saurer in future will be expanded by the new 70% joint venture with Jinsheng in<br />

China.<br />

Due to the acquisitions at year-end net operating assets were increased, but as the acquired companies were not consolidated for the whole year there<br />

was only a minor impact on the operating result.<br />

Outlook<br />

Saurer has made a number of strategic acquisitions with a view to building up its market leadership as provider of total solutions in the textile machine<br />

business, thereby enhancing its process and technology competence as well as securing its market position and the stability of its margins for the<br />

future. The completion of the plant in Suzhou (China) and the joint venture with Jinsheng (China) strengthen the local presence in the important Asian<br />

markets. This will enable Saurer to benefit from the next cyclical recovery in the textile machine business. Alongside further process improvements and<br />

cost reduction targets the focus is on building up total solution capability both internally and externally, and on integration and further development<br />

of new acquisitions. With a growing level of value added sourced from Asia and other low-cost as well as Euro-independent countries the market-led<br />

moves on the demand side of our business will be further matched on the purchasing side.<br />

For the year 2006 we have a rather cautious outlook. Saurer is starting with a reduced backlog of orders, markets in many segments are at the lower<br />

end of the industry cycle. The integration of the acquisitions, while holding a lot of potential for the future, will in the short-term deliver an operating<br />

performance below the normal level.<br />

Management’s discussion of results Saurer 2005


PAGE 38<br />

Transmission Systems<br />

MANAGEMENT’S DISCUSSION OF RESULTS<br />

2005 % 2004 1) %<br />

Sales 397 130 100.0 383 690 100.0<br />

Operating profit 31 501 7.9 22 155 5.8<br />

Depreciation and amortization 29 558 33 823<br />

EBITDA 61 059 15.4 55 978 14.6<br />

Capital expenditure 27 845 25 641<br />

Net Operating Assets (including goodwill) 221 361 216 987<br />

Employees (full-time equivalents at year-end) 2 905 2 970<br />

of which from acquisitions made in 2005 – –<br />

1) Restated.<br />

In Transmission Systems the improved demand which had been noted in 2004 continued into 2005, with higher orders for components for agricul-<br />

tural and construction vehicles, Graziano Trasmissioni‘s core business, and stable sales volumes in the automotive market. In particular Graziano‘s<br />

home market of Europe developed very well, but business was also good in India.<br />

With the transfer of business activity from the Carr Hill plant (Great Britain) to India and Italy the consolidation phase of Graziano‘s operations was<br />

successfully completed. In planning its new operations in China and the Czech Republic, Graziano is able to draw support and benefit from Saurer<br />

Textile Solutions‘ country-specific experience and existing resources.<br />

During 2005 a number of prestigious customers selected Graziano Trasmissioni as supplier for a series of new multiple-year projects, some of which<br />

will explore new uses of technology, such as the stepless CVT (Continuous Variable Transmission). Thanks to higher sales volumes with good margins<br />

and a significant reduction of restructuring costs the start-up costs of these new customer projects were well covered and the operating profit<br />

improved in comparison with 2004. However, considering the capital-intensive nature of the Transmission Systems business the results achieved and<br />

the improved returns do not yet meet Saurer‘s targets.<br />

Outlook<br />

Before new customer projects will make the Graziano business grow again in 2007, 2006 will be a rather flat year. However, early in 2006 Transmission<br />

Systems acquired Fairfield Manufacturing Company Inc. (USA), which will strengthen its presence on the American continent and open the way to<br />

new transmission applications in niche markets. Besides Graziano‘s existing customer applications, transmissions can now be offered for mobile man<br />

lifts, cranes, drilling platforms, railways, mining and material transport systems and other applications.<br />

Realizing the synergies of their union from improved market access as well as the market potential of a broader product spectrum will be key to<br />

opening and exploiting new growth opportunities for Graziano Trasmissioni and Fairfield. Continued development of production facilities in India,<br />

China and the Czech Republic will lead to further cost reductions and will help to stay ahead not just with superior customer value, but also with<br />

attractive prices.<br />

Discontinuing Operations (Surface Technology)<br />

The divestment of the Surface Technology division was completed in 2004. No operational activities were left in 2005. For the prior year numbers<br />

please refer to the notes to the financial statements on page 58.<br />

Outlook<br />

Guarantees granted and all possible future obligations arising from the sale of Surface Technology have been evaluated at the balance sheet date and<br />

appropriately provided for in the accounts.<br />

Management’s discussion of results Saurer 2005


Financial and Group Results<br />

MANAGEMENT’S DISCUSSION OF RESULTS PAGE 39<br />

2005 2004 1)<br />

Operating profit before amortization of goodwill and other intangible assets (EBITA) 91 692 102 827<br />

Amortization of goodwill and other intangible assets –3 403 –10 579<br />

Operating profit 88 289 92 248<br />

Financial expense (net) –9 762 –16 601<br />

Income taxes –23 367 – 26 490<br />

Result from discontinued operations (Surface Technology) – 18 211<br />

Profit for the period 55 160 67 368<br />

1) Restated.<br />

Financial expense was EUR 7m less than the previous year. Higher average net cash during 2005 and repayment of the 2 1 /4% convertible bond in June<br />

2005 led to higher interest income and lower interest expense. Also, income from marketable securities was increased, adverse currency effects were<br />

lower and the interest cost relating to pensions was reduced. In accordance with IAS 32, interest expense amounting to EUR 1.8m was charged to<br />

the income statement for the 2 1 /4% convertible bond although only an amount of EUR 0.9m was actually paid. The effective tax rate for the group<br />

was reduced slightly despite lower income before taxes and the fixed character of deferred tax asset write-offs and the Italian tax on personnel<br />

expense (IRAP).<br />

Cash Flow<br />

2005 2004 1)<br />

Cash flow from operating activities 71 464 163 174<br />

Capital expenditure (net of capital grants) –78 301 –60 604<br />

Proceeds from sale of fixed assets 23 704 10 786<br />

Free cash flow 16 867 113 356<br />

Divestment (acquisition) of investments –12 886 82 392<br />

Assumption of debt (acquisitions), release of debt (divestments) –35 225 –<br />

Repayment of capital, purchase and sale of treasury shares / options –6 012 –17 610<br />

Other net cash movements 7 533 –4 276<br />

Increase (Decrease) Net Cash –29 723 173 862<br />

1) Restated.<br />

In 2005 a substantial cash flow was again generated from operating activity, although EUR 92m less than the high level of 2004. This was partly<br />

caused by the extended utilization of provisions mainly related to restructuring activities. Also, as already shown, the excess liquidity of EUR 35m<br />

deriving from receivables and payables which enhanced the cash flow in 2004 had the opposite effect in 2005. The increase in capital expenditure<br />

related to the expansion in Asia is partially offset by the proceeds from sale of fixed assets, mainly cash from the sale of real estate in Great Britain,<br />

Germany, and Switzerland. The relatively small cash flow in 2005 was mainly used for acquisitions amounting to a total of EUR 48m in cash payments<br />

and assumed debt. In January 2006 net cash was reduced by more than EUR 200m due to the acquisitions of Fairfield and Temco. For the acquisitions<br />

of Fairfield and Jinsheng Saurer used USD 280m of bridge financing from four Banks. This bridge financing will be replaced by mid 2006.<br />

Management’s discussion of results Saurer 2005


PAGE 40<br />

Net Cash and Equity<br />

MANAGEMENT’S DISCUSSION OF RESULTS<br />

2005 2004 1)<br />

Net Cash 111 762 141 485<br />

Liquid assets 165 888 265 679<br />

Short-term debt –29 066 –9 935<br />

Convertible bond (repayment in June 2005) – –82 703<br />

Long-term debt –25 060 –31 556<br />

Net Tangible Worth (Equity minus Goodwill) 459 097 420 668<br />

Shareholders‘ equity 574 976 516 725<br />

Goodwill –115 879 –96 057<br />

Ratios<br />

Equity in % of Total Assets 45.5% 39.7%<br />

Net Tangible Worth in % of Total Assets 36.3% 32.3%<br />

1) Restated.<br />

The repayment of the 2 1 /4% convertible bond in June 2005 was made from available liquid funds. The comfortable net cash position secures the<br />

financing for the Fairfield acquisition announced shortly after the year-end. Further, the increased equity ratio emphasises Saurer‘s strong financial<br />

position and potential for future growth and debt capacity.<br />

Management’s discussion of results Saurer 2005


Business Risks<br />

Saurer Textile Solutions<br />

Shortening market cycles<br />

MANAGEMENT’S DISCUSSION OF RESULTS PAGE 41<br />

Market cycles are getting shorter. In 2003 the business unit Texturing saw its order volume reduced by 65% within three months. In 2004, Embroidery<br />

has experienced a reduction in orders of 50% over twelve months. In the past years, Saurer Textile Solutions has taken many measures to encounter<br />

the shortening market cycles: The TEMPUS program has resulted in a hefty reduction of the fixed costs. Significant transfers of production and<br />

sourcing have taken place from high costs regions (Western Europe) to low cost regions (China, India), further will follow. As a consequence, Saurer<br />

Textile Solutions has been able to maintain a relative constant profitability over the last years, while the volatility of some markets has been dramatic.<br />

Risk mitigation is also supported by the number of business units with partially very different market cycles, strongly reducing the volatility of Saurer<br />

Textile Solutions as a whole.<br />

Pressure on service and spare parts business<br />

Due to the shift in markets in the last years, the installed machine basis has grown significantly in Asia. The world-wide installed machine basis has<br />

always helped a constant revenue stream for service and spare parts. As customers in Asia traditionally have a different view on service, preventative<br />

maintenance and the value of quality spare parts than customers in the traditional markets, the business from spare parts and after market services<br />

has been under constant pressure. Such pressures are being encountered by systematic marketing activities, segmented sales channels, focused<br />

acquisitions, and customer value offerings for high end as well as low end segments.<br />

Growing importance of low-end and mid-range markets<br />

In the past Saurer Textile Solutions was active mainly in the premium market segments, based on its technological leadership. We are however witness-<br />

ing a growing importance of the lower-end segments. This has motivated Saurer Textile Solutions to play in all fields of the markets. With the recent<br />

acquisition of the majority shareholding in Jinsheng (China), with successful development and market introduction of our own low end machines,<br />

with the opening of our new 70 000 m 2 plant in Suzhou, Saurer Textile Solutions is preparing itself to play not just successfully in the high end, but<br />

also in the low end of the market.<br />

Transmission Systems<br />

Pricing pressure and Far East competition<br />

While exposure to steel and energy costs is a known risk in the industry, it is also expected that competition from the Far East will increase in future.<br />

In order to prepare for these pressures, Graziano Trasmissioni has product cost reduction programs in tight coordination with customers and is<br />

continuously optimizing its manufacturing processes. Additionally, Graziano Trasmissioni is lowering its cost basis by transferring activities to our India<br />

facility and to the Saurer location in Suzhou, China.<br />

Dependence on construction and agricultural markets<br />

Graziano Trasmissioni has a relatively high dependence on the construction equipment and agricultural machinery markets. In order to decrease their<br />

dependence, Graziano Trasmissioni has been looking for a diversification of its existing business. Subsequent to year-end, such diversification was<br />

completed by the acquisition of Fairfield Manufacturing Company.<br />

Management’s discussion of results Saurer 2005


CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATED INCOME STATEMENT for the years ended December 31, PAGE 45<br />

(EUR 000) Note* 2005 % 2004** %<br />

Sales 1 1 569 786 100.0 1 593 100 100.0<br />

Cost of goods sold –1 254 557 –79.9 –1 252 070 –78.6<br />

Gross profit 315 229 20.1 341 030 21.4<br />

Selling and distribution –80 134 –5.1 –79 156 –5.0<br />

Research and development –71 545 –4.6 –74 069 –4.6<br />

Administration and other 2 –75 261 –4.8 –95 557 –6.0<br />

Operating expenses –226 940 –14.5 –248 782 –15.6<br />

Operating profit 3 88 289 5.6 92 248 5.8<br />

Financial expense (net) 4 –9 762 –0.6 –16 601 –1.1<br />

Profit before income taxes 78 527 5.0 75 647 4.7<br />

Income taxes 5 –23 367 –1.5 –26 490 –1.6<br />

Profit from continuing operations 55 160 3.5 49 157 3.1<br />

Result from discontinued operations 6 – – 18 211 1.1<br />

Profit for the period 55 160 3.5 67 368 4.2<br />

Attributable to<br />

Shareholders of Saurer Ltd. 53 392 66 774<br />

Minority interests 1 768 594<br />

55 160 67 368<br />

* For details see the notes to the consolidated financial statements, pages 54–70. These are an integral part of the consolidated financial statements.<br />

** Restated. For details see page 50.<br />

Earnings per share (EUR) 2005 2004<br />

Continuing operations<br />

Basic earnings per share 3.72 3.43<br />

Diluted earnings per share 3.70 3.41<br />

Discontinued operations<br />

Basic earnings per share – 1.28<br />

Diluted earnings per share – 1.27<br />

Total<br />

Basic earnings per share 3.72 4.71<br />

Diluted earnings per share 3.70 4.68<br />

See note 7, page 58.<br />

Consolidated financial statements Saurer 2005


PAGE 46<br />

CONSOLIDATED BALANCE SHEET as at December 31,<br />

(EUR 000) Note* 2005 % 2004** %<br />

Assets<br />

Cash and cash equivalents 120 950 216 196<br />

Marketable securities and time deposits (due after 90 days) 44 938 49 483<br />

Liquid assets 165 888 13.1 265 679 20.4<br />

Accounts receivable, trade 8 251 345 226 685<br />

Inventories 9 231 920 233 436<br />

Current income taxes 8 576 6 852<br />

Prepayments and accrued income 2 014 3 356<br />

Other receivables 51 431 83 724<br />

Current assets 711 174 56.2 819 732 63.0<br />

Non-current financial assets 10 17 770 18 921<br />

Deferred income taxes 5 31 077 34 841<br />

Property, plant and equipment 11 375 874 325 211<br />

Intangible assets 12 129 184 102 196<br />

Non-current assets 553 905 43.8 481 169 37.0<br />

Total assets 1 265 079 100.0 1 300 901 100.0<br />

Liabilities and shareholders‘ equity<br />

Short-term debt 13 18 735 3<br />

Short-term portion of long-term debt 13 10 331 92 635<br />

Accounts payable, trade 167 387 196 003<br />

Accruals and deferred income 85 686 83 221<br />

Current income taxes due within 1 year 11 946 4 622<br />

Short-term provisions 14 55 947 77 447<br />

Other current liabilities 106 915 88 250<br />

Current liabilities 456 947 36.1 542 181 41.7<br />

Long-term debt 13 25 060 31 556<br />

Long-term provisions 14 9 987 9 235<br />

Current income taxes due after 1 year 624 526<br />

Deferred income taxes 5 18 358 25 738<br />

Long-term employee benefits 15 178 923 174 829<br />

Other non-current liabilities 204 111<br />

Non-current liabilities 233 156 18.4 241 995 18.6<br />

Total liabilities 690 103 54.5 784 176 60.3<br />

Minority interests 11 494 0.9 2 938 0.2<br />

Share capital 16 85 853 110 228<br />

Group reserves 429 828 398 302<br />

Treasury shares and options –5 591 –61 517<br />

Profit for the period attributable to shareholders of Saurer Ltd. 53 392 66 774<br />

Equity attributable to shareholders of Saurer Ltd. 563 482 44.6 513 787 39.5<br />

Shareholders‘ equity 574 976 45.5 516 725 39.7<br />

Total liabilities and shareholders‘ equity 1 265 079 100.0 1 300 901 100.0<br />

* For details see the notes to the consolidated financial statements, pages 54–70. These are an integral part of the consolidated financial statements.<br />

** Restated. For details see page 50.<br />

Consolidated financial statements Saurer 2005


CONSOLIDATED CASH FLOW STATEMENT for the years ended December 31, PAGE 47<br />

(EUR 000) Note* 2005 2004**<br />

Cash flow from operating activities<br />

Profit for the period 55 160 67 368<br />

Income tax expense, including discontinued operations 23 367 27 164<br />

Depreciation and amortization, including discontinued operations 63 918 75 526<br />

Changes in net working capital 17 –39 712 38 023<br />

Gain on sale of fixed assets (net) –290 –12 472<br />

Profit on sale of discontinuing operations – –16 202<br />

Movements in provisions –27 757 –10 573<br />

Other non-cash items 4 708 11 599<br />

Interest expense (net) 9 322 12 889<br />

Interest received 3 760 3 249<br />

Interest paid –4 962 –7 317<br />

Income taxes paid –16 050 –26 080<br />

Cash flow from operating activities 71 464 163 174<br />

Cash flow from investing activities<br />

(Acquisition) divestment of subsidiaries and other equity investments (net) 18 –12 886 82 392<br />

Repayment of loans and other financial assets 3 448 523<br />

Capital expenditure –78 301 – 60 834<br />

Government grants received – 230<br />

Sale (purchase) of marketable securities 8 918 – 45 153<br />

Proceeds from sale of fixed assets 23 704 10 786<br />

Cash flow from investing activities –55 117 –12 056<br />

Cash flow from financing activities<br />

Increase of debt financing 2 751 161<br />

Repayment of debt financing – 26 404 – 16 109<br />

Repayment/repurchase of 2 1 /4% convertible bond 2000–2005 –83 726 –5 499<br />

Dividends to minority shareholders –1 373 –245<br />

Sale (purchase) of treasury shares and options (net) 12 568 –17 610<br />

Capital repayment to the shareholders of Saurer Ltd. – 18 580 –<br />

Cash flow from financing activities –114 764 –39 302<br />

Foreign exchange differences on cash and cash equivalents 3 171 –1 073<br />

Net (decrease) increase in cash and cash equivalents – 95 246 110 743<br />

Cash and cash equivalents as at 01.01. 216 196 105 453<br />

Cash and cash equivalents as at 31.12. 120 950 216 196<br />

Included in the cash flows reported above are the following cash flows from discontinued operations (see Note 6):<br />

Cash flow from operating activities – 8 851<br />

Cash flow from investing activities (including proceeds from divestment) 1 122 87 334<br />

Cash flow from financing activities – –265<br />

* For details see the notes to the consolidated financial statements, pages 54–70. These are an integral part of the consolidated financial statements.<br />

** Restated. For details see page 50.<br />

Consolidated financial statements Saurer 2005


PAGE 48<br />

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY<br />

Capital Foreign currency<br />

Share and legal translation Hedging Treasury shares Retained Minority Total<br />

(EUR 000) capital reserves reserve reserve and options earnings interests equity<br />

Balance as at 01.01.2004 as reported 110 228 110 555 –10 603 6 524 –63 598 314 765 2 720 470 591<br />

Effect of IFRS 2 (Share-based Payment) – – – – – –1 995 – –1 995<br />

Balance as at 01.01.2004 restated 110 228 110 555 –10 603 6 524 –63 598 312 770 2 720 468 596<br />

Movements in cash flow hedges – – – 978 – – – 978<br />

Foreign currency translation – – –4 750 18 – – –104 –4 836<br />

Net income recognized directly in equity – – –4 750 996 – – –104 –3 858<br />

Profit for the period – – – – – 66 774 594 67 368<br />

Total recognized income for 2004 – – –4 750 996 – 66 774 490 63 510<br />

Dividends to minority shareholders – – – – – – –245 –245<br />

2 1 /4% convertible bond 2000–2005 – –521 – – – 521 – –<br />

Changes in structure (minority shareholders) – – – – – – –27 –27<br />

Change in treasury shares and options – –5 417 1 572 – 2 081 –13 345 – –15 109<br />

Balance as at 31.12.2004 110 228 104 617 –13 781 7 520 –61 517 366 720 2 938 516 725<br />

Movements in cash flow hedges – – – –8 523 – – – –8 523<br />

Foreign currency translation – – 11 192 –354 – – 195 11 033<br />

Net income recognized directly in equity – – 11 192 –8 877 – – 195 2 510<br />

Profit for the period – – – – – 53 392 1 768 55 160<br />

Total recognized income for 2005 – – 11 192 –8 877 – 53 392 1 963 57 670<br />

Capital reduction –18 074 – –706 – 200 – – –18 580<br />

Cancelation of share capital –6 301 –36 432 –1 585 – 44 318 – – –<br />

Dividends to minority shareholders – – – – – – –1 373 –1 373<br />

2 1 /4% convertible bond 2000–2005 – –8 000 – – – 8 000 – –<br />

Changes in structure (minority shareholders) – – – – – – 7 966 7 966<br />

Change in treasury shares and options – –15 824 28 – 11 408 16 956 – 12 568<br />

Balance as at 31.12.2005 85 853 44 361 –4 852 –1 357 –5 591 445 068 11 494 574 976<br />

The consolidated statement of shareholders‘ equity for 2004 has been restated to take account of IFRS 2, Share-based Payment, and to include<br />

minority interests in accordance with IAS 1 (revised).<br />

The capital and legal reserves may not be freely distributed. Distribution of the retained earnings is subject to certain restrictions, since the retained<br />

earnings of the subsidiaries have first to be distributed to Saurer Ltd. in accordance with statutory and fiscal regulations, before they are at the dis-<br />

posal of the shareholders‘ meeting of Saurer Ltd. The value of conversion rights in connection with the issue of the 2 1 /4% convertible bond 2000–2005<br />

was included in capital and legal reserves until the bond was repurchased or repaid, at which time the relevant portion was transferred to retained<br />

earnings. The convertible bond was repaid on June 26, 2005 and the remaining value of the conversion rights was transferred to retained earnings.<br />

(See also Note 13.)<br />

Foreign currency translation adjustments arise from changes in the exchange rates used to translate the opening equity and net result of group com-<br />

panies that report in currencies other than the Euro, as well as foreign exchange differences on long-term intercompany loans of an investment nature.<br />

Share capital and treasury shares are denominated in Swiss Francs and translated to Euros at historical exchange rates.<br />

The proposal of the Board of Directors for the appropriation of the retained earnings of Saurer Ltd. is presented on page 84.<br />

Details of the movements in the hedging reserve are shown in Note 22.<br />

For details of share capital, as well as treasury share and option transactions see Note 16. In accordance with Swiss law, the company is required to<br />

maintain a non-distributable reserve equivalent to the original costs of treasury shares. This reserve is shown under “Capital and legal reserves“ and<br />

is increased or decreased by transfers to or from retained earnings in line with movements in the corresponding treasury shares.<br />

Consolidated financial statements Saurer 2005


Accounting policies<br />

(Except where otherwise noted, currency amounts are stated in EUR 000)<br />

Organization and business activity<br />

ACCOUNTING POLICIES PAGE 49<br />

Saurer Ltd. is a corporation organized under the laws of Switzerland with legal domicile in Arbon. The main activities of Saurer Textile Solutions are<br />

the development, manufacture and sale of textile systems and those of Transmission Systems are the development, manufacture and sale of trans-<br />

mission systems. Surface Technology was divested in 2003 and 2004 and for that reason is shown as Discontinued Operations. Saurer operates<br />

worldwide.<br />

Organizational changes within the scope of consolidation<br />

In January 2005 Saurer acquired 51% of Autefa automation GmbH, Germany, and a further 9% in October 2005. 100% of the following companies<br />

was also acquired in 2005: Kortec GmbH, Germany (April, subsequently merged into Saurer GmbH & Co. KG), ERMAFA Kunststofftechnik Chemnitz<br />

GmbH, Germany (July), Fehrer GmbH, Austria (September), Heberlein Fasertechnologie AG, Switzerland (December), Electrotex AG, Switzerland<br />

(December), Enka tecnica GmbH, Germany (December) and Fincarde S.p.A., Italy (December). In December 2005 Saurer founded jointly with Jinsheng<br />

the companies Saurer Jintan Textile Machinery Company Ltd., China, and Jintan Texparts Component Company Ltd., China, in both of which Saurer<br />

holds 70%.<br />

Principles for the consolidated financial statements<br />

General principles and accounting standards The consolidated financial statements are based on financial data of the individual group com-<br />

panies which has been drawn up in accordance with standardized accounting principles. The accounts are, in general, based on the historical cost<br />

convention, whilst certain items are reported at fair values, as noted below. The consolidated financial statements and the individual financial data of<br />

all companies are prepared in accordance with International Financial Reporting Standards (IFRS), including International Accounting Standards and<br />

Interpretations issued by the International Accounting Standards Board (IASB).<br />

Presentation The consolidated financial statements of Saurer are presented in Euros, although the parent company, Saurer Ltd., is domiciled in<br />

Switzerland. This reflects the fact that the Euro is the functional currency of the major part of Saurer‘s business.<br />

Changes in accounting policies IFRS 3, Business Combinations, which came into force for business combinations after March 31, 2004, was<br />

applicable for Saurer for the first time in 2005. A significant effect of this standard is that goodwill resulting from business combinations is no<br />

longer amortized in the income statement, but is subject to annual impairment testing, as noted below. In 2004 Saurer had goodwill amortization of<br />

EUR 7 347 for continuing operations and EUR 470 for discontinued operations, based on useful lives of a maximum of 20 years. The application of<br />

this standard will generally result in more intangible assets.<br />

The following major new or revised standards were implemented with effect from January 1, 2005 (with restatement of the prior year figures, where<br />

required):<br />

– IFRS 2, Share-based Payment<br />

– IFRS 5, Non-current Assets Held for Sale and Discontinued Operations<br />

– IAS 1, Presentation of Financial Statements<br />

– IAS 8, Accounting Policies, Changes in Accounting Estimates and<br />

– Errors<br />

– IAS 16, Property, Plant and Equipment<br />

– IAS 17, Leases<br />

– IAS 21, The Effects of Changes in Foreign Exchange Rates<br />

– (including early adoption of the amendment to “Net Investment in a<br />

– Foreign Operation“)<br />

– IAS 24, Related Party Disclosures<br />

– IAS 27, Consolidated Financial Statements and Accounting for<br />

– Investments in Subsidiaries<br />

– IAS 28, Investments in Associates<br />

– IAS 32, Financial Instruments: Disclosure and Presentation<br />

– IAS 33, Earnings per Share<br />

– IAS 36, Impairment of Assets<br />

– IAS 38, Intangible Assets<br />

– IAS 39, Financial Instruments: Recognition and Measurement<br />

– (including early adoption of “Cash Flow Hedge Accounting of<br />

– Forecast Intragroup Transactions” and the “Fair Value Option“)<br />

– IAS 40, Investment Property<br />

In accordance with IFRS 2, the fair value of stock options is taken to the income statement over the vesting period. Thereafter any changes in the fair<br />

value of cash-settled options are also taken to the income statement. Previously the effect of exercising stock options was netted with the correspond-<br />

ing gain on the sale of reserved treasury shares at the date of exercise. The result from the sale of the reserved treasury shares continues to be shown<br />

in equity. The corresponding figures for 2004 have been restated accordingly, as retrospective application is required for all cash-settled option<br />

plans.<br />

The income statement for 2004 has been restated in accordance with IFRS 5 to show the result from Discontinued Operations separately in one<br />

line.<br />

IAS 1 (revised) requires the shareholders’ equity to include minority interests. The consolidated balance sheet and consolidated statement of share-<br />

holders’ equity for 2004 have been restated accordingly.<br />

The effects of IFRS 2 and IFRS 5 for 2004 are shown below. The implementation of the other standards had no significant effect on the consolidated<br />

financial statements, apart from additional disclosures.<br />

Consolidated financial statements Saurer 2005


PAGE 50<br />

ACCOUNTING POLICIES<br />

Effects of restatement 2004 IFRS 2 IFRS 5<br />

Income statement<br />

As originally Share-based Discontinued 2004<br />

published payment operations Restated<br />

Sales 1 614 364 – –21 264 1 593 100<br />

Cost of goods sold –1 264 867 – 12 797 –1 252 070<br />

Gross profit 349 497 – –8 467 341 030<br />

Selling and distribution –81 904 – 2 748 –79 156<br />

Research and development –75 244 – 1 175 –74 069<br />

Administration and other –94 916 –2 294 1 653 –95 557<br />

Operating expenses –252 064 – 2 294 5 576 –248 782<br />

Operating profit before sale of discontinued operations 97 433 –2 294 – 2 891 92 248<br />

Profit on sale of discontinued operations 16 202 – –16 202 –<br />

Operating profit 113 635 –2 294 –19 093 92 248<br />

Financial expense (net) –16 809 – 208 –16 601<br />

Profit before income taxes 96 826 –2 294 –18 885 75 647<br />

Income taxes –27 279 115 674 –26 490<br />

Profit from continuing operations 69 547 –2 179 –18 211 49 157<br />

Result from discontinued operations – – 18 211 18 211<br />

Profit for the period 69 547 –2 179 – 67 368<br />

Earnings per share (EUR)<br />

Basic earnings per share 4.87 –0.16 – 4.71<br />

Diluted earnings per share 4.84 –0.16 – 4.68<br />

Balance sheet<br />

Current assets 819 732 – – 819 732<br />

Non-current assets 480 617 552 – 481 169<br />

Total assets 1 300 349 552 – 1 300 901<br />

Current liabilities 539 258 2 923 – 542 181<br />

Non-current liabilities 241 995 – – 241 995<br />

Shareholders‘ equity 519 096 – 2 371 – 516 725<br />

Total liabilities and shareholders‘ equity 1 300 349 552 – 1 300 901<br />

Cash flow statement<br />

Cash flow from operating activities 164 977 –1 803 – 163 174<br />

Cash flow from investing activities –12 056 – – –12 056<br />

Cash flow from financing activities – 41 105 1 803 – –39 302<br />

Foreign exchange differences on cash and cash equivalents –1 073 – – –1 073<br />

Net increase in cash and cash equivalents 110 743 – – 110 743<br />

Several new or revised IFRS standards will become effective on January 1, 2006 or 2007. None of these is expected to have a significant effect on the<br />

consolidated financial statements of Saurer, except that additional information is required to be disclosed (e.g. IAS 19 (revised) for post-employment<br />

benefits, and IFRS 7 for capital disclosures). Saurer will implement these standards as of the required effective dates.<br />

Consolidated financial statements Saurer 2005


Principles of consolidation<br />

ACCOUNTING POLICIES PAGE 51<br />

Scope of consolidation The consolidated financial statements of Saurer Ltd. include all subsidiaries in which Saurer Ltd. directly or indirectly controls<br />

more than 50% of the votes and the share capital. Companies acquired during the year under review are included in the consolidation as from the<br />

date of acquisition. Companies which are divested are deconsolidated as of the date when control passes to the acquiror.<br />

Investments of between 20% and 50% (associated companies), in which the group exercises a significant influence, are included in the consolidated<br />

financial statements in accordance with the equity method.<br />

Intercompany receivables, payables, transactions and cash flows are eliminated.<br />

Full consolidation In the case of consolidated subsidiaries with minority interests, 100% of all balance sheet and income statement items are<br />

included in the consolidated financial statements. The equity attributable to minority shareholders is shown as a separate component of shareholders‘<br />

equity, and the profit attributable to minority shareholders is disclosed separately below the income statement.<br />

The assets and liabilities of newly acquired subsidiaries are included at their fair values in the consolidated financial statements as from the date of<br />

acquisition. In the case of companies acquired during the year, the income earned prior to the acquisition is not included in the consolidated income<br />

statement.<br />

Intercompany profits Profits resulting from intercompany transactions are eliminated insofar as the products and services concerned were not<br />

delivered to third parties on the balance sheet date.<br />

Valuation and accounting principles<br />

Foreign currencies Transactions in foreign currencies are translated into the respective local (functional) currency at the exchange rate ruling on the<br />

day of transaction, and monetary assets and liabilities at the year-end balance sheet rate. The resulting profits and losses are included in the income<br />

statement, with the exception of exchange differences on intercompany loans of an investment nature, which are taken directly to shareholders‘<br />

equity.<br />

At the year-end the balance sheets of non-Euro group companies are translated into Euros at the year-end exchange rate, whilst the income<br />

statements and cash flow statements are translated into Euros at annual average rates. Translation differences arising from changes in exchange rates<br />

between the beginning and the end of the year as well as the difference resulting from translating the income statement at average exchange and<br />

the year-end rate are taken directly to shareholders’ equity. In the event of the divestment of a subsidiary, the relevant cumulative exchange rate<br />

differences from the sale are included in the income statement.<br />

Composition and valuation of balance sheet items<br />

Cash and cash equivalents include cash in hand, balances in postal and bank accounts, as well as short-term money market funds.<br />

Marketable securities are low-volatility securities and are designated as “financial assets at fair value through profit or loss”, since they are man-<br />

aged and their performance is evaluated on a fair value basis, in line with Saurer’s aim of yield enhancement. They are shown initially at cost and<br />

subsequently at fair value, which is the year-end quoted price where relevant. In the case of unquoted assets, standard valuation techniques based on<br />

market observable data are used to calculate the fair value. Changes in value are included in the income statement.<br />

Accounts receivable, trade and other receivables are included at cost, less impairment. Discounting is applied where material.<br />

Inventories Raw materials are valued at the lower of cost and market, using the weighted average cost method. Finished goods and work in process<br />

are valued at production cost, reduced to net realizable value should this be lower than cost. Provisions are made for items of reduced salability and<br />

excess stocks. Customer payments on account are deducted from inventories.<br />

Non-current financial assets comprise mainly loans, capitalized pension surplus and available-for-sale investments. The significant components are<br />

stated at fair value. Unquoted equity instruments held for strategic purposes, whose fair value cannot be measured reliably, are stated at cost.<br />

Derivative financial instruments are initially recorded at cost and are subsequently adjusted to fair value. With the exception of financial instru-<br />

ments which hedge a forecasted transaction (cash flow hedges) or intercompany loans of an investment nature, all adjustments in fair values are<br />

included in income.<br />

The purpose of hedge accounting is to match the impact of the hedged item and the hedging instrument in the income statement. To qualify for<br />

hedge accounting, the hedging relationship must meet several strict conditions concerning documentation, hedge effectiveness and reliability of<br />

measurement. If these conditions are not met, the transaction does not qualify as a hedge for accounting purposes. In this event fair value adjustments<br />

to the value of the derivative and the hedged item are made through the income statement.<br />

Saurer uses hedge accounting for cash flow hedges. These are used to protect future cash flows which have a high probability of occurring. The hedge<br />

instrument is recorded on the balance sheet at fair value (replacement cost) and any subsequent adjustments are booked in the hedging reserve in<br />

shareholders‘ equity. If the hedge relates to a transaction which will subsequently be recorded on the balance sheet, the adjustments cumulated under<br />

shareholders‘ equity at that time will be included in the initial book value of the asset or liability. In all other cases the cumulative changes in fair<br />

value of the hedging instrument that have been recorded in equity are included as a charge or credit to income when the forecasted transaction is<br />

recognized.<br />

Consolidated financial statements Saurer 2005


PAGE 52<br />

ACCOUNTING POLICIES<br />

Property, plant and equipment is carried at purchase or production cost less appropriate depreciation. In the case of an impairment loss the<br />

appropriate charge is made to income. Where significant items of property, plant and equipment comprise individually significant components, each<br />

component is valued and depreciated separately. Depreciation is charged on a straight-line basis over the following periods:<br />

IT, office equipment 3–7<br />

Vehicles, tools 4–6<br />

Furniture, fittings and equipment 5–12<br />

Machinery 6–10<br />

Buildings : • interior constructions 12–25<br />

• exterior constructions 30–60<br />

Repair and maintenance costs are expensed directly to the income statement. Costs which give rise to an increase in value are capitalized and<br />

depreciated over the remaining useful life of the assets.<br />

Financing costs incurred in respect of the construction of property, plant and equipment are taken directly to the income statement.<br />

Government grants which are conditional on certain requirements being met are generally included in liabilities and released to the income<br />

statement in line with the depreciation of the relevant assets.<br />

Leased equipment Property, plant and equipment financed through long-term financial leasing contracts, and for which the company bears the<br />

major risks (finance leases), are capitalized and depreciated like other fixed assets. Depreciation is charged over the shorter of the assets‘ useful lives<br />

and the lease term unless there is reasonable certainly that ownership will be obtained by the end of the lease term. The present value of the<br />

corresponding lease obligations is included as a liability.<br />

Rental costs for short-term operating leases are charged directly to the income statement. Operating leases are not included in the balance sheet; the<br />

corresponding obligations are fully reported in the notes.<br />

Goodwill represents the portion of the acquisition price of an investment which cannot be allocated to separately identifiable assets and liabilities.<br />

It is stated at cost less accumulated amortization up to December 31, 2004 (in the case of goodwill related to business combinations prior to March<br />

31, 2004) and less any impairment losses. In the case of the acquisition of a non-Euro company, any goodwill arising is treated as an asset of that<br />

company, held in the related currency and translated to Euros at the closing rate for the year.<br />

The carrying value of goodwill is reviewed annually for the relevant cash-generating unit to which the goodwill has been allocated and also if there is<br />

an indication of impairment. A detailed valuation is performed using Discounted Cash Flow analysis over a five-year period. Any impairment losses are<br />

recognized immediately in the income statement and are not reversed subsequently. Further details are reported in Note 12.<br />

Negative goodwill resulting from a business combination is taken immediately to the income statement.<br />

Patents, licenses and trademarks including intangible assets identified in connection with business combinations are capitalized at cost and are<br />

written off on a straight-line basis over their useful life, not exceeding 10 years, unless a longer useful live can be proven.<br />

Provisions are set up for present obligations based on past events. The amount of the provisions is based on the expected use of funds for covering<br />

the obligations.<br />

Retirement and other employee benefits Saurer companies operate various plans for providing employees with retirement benefits, which<br />

conform to local circumstances and practice in the countries concerned.<br />

These include defined benefit and defined contribution plans, under which benefits are provided through separate funds, insurance plans or unfunded<br />

arrangements. For defined benefit plans, the amount charged to the income statement consists of current service cost, which includes the normal<br />

cost of financing benefits in respect of future years of service, as well as net interest on the assets or obligations. Contributions to defined contribution<br />

pension schemes are charged to the income statement as incurred. For funded plans, plan assets are held separately from those of the group in inde-<br />

pendently administered funds. The group‘s liability to pay future retirement benefits is determined using the “projected unit credit method“ in<br />

accordance with IAS 19 (revised), and is provided in the group‘s balance sheet. Actuarial gains and losses are amortized over the average remaining<br />

period of employment, insofar as they exceed 10% of the higher amount of the present value of the benefits and of the plan assets. Actuarial<br />

calculations are performed generally on an annual basis.<br />

The additional costs for early retirement and reduced working hours are provided for at the time of the respective agreement.<br />

Employee stock options are valued based on the Black-Scholes option pricing model, using volatility rates based on historically observed prices of<br />

the underlying equity and risk-free interest rates based on Swiss Government bonds with similar maturities. The rate of employee fluctuation is based<br />

on experience figures. The cost is booked to the income statement over the vesting period. Thereafter any changes in the fair value of cash-settled<br />

options are also taken to the income statement.<br />

Convertible bond The convertible bond includes a liability and an equity component. At the time of issue the equity component is booked directly<br />

to shareholders‘ equity. The difference between the liability and the nominal value is treated as interest expense over the duration of the loan on the<br />

amortized cost basis.<br />

Own equity instruments Saurer‘s holdings in its own shares (treasury shares) and derivatives on Saurer shares (options) are deducted from share-<br />

holders‘ equity. The original cost of treasury shares and options and consideration received from the sale of treasury shares and options are booked<br />

directly in shareholders‘ equity.<br />

Consolidated financial statements Saurer 2005<br />

Years


Composition of items in the income statement<br />

ACCOUNTING POLICIES PAGE 53<br />

Sales Revenues from products sold or services rendered are stated without turnover or value added tax, net of allowances, and are recognized when<br />

title is passed to the customer, which is generally on shipment.<br />

Research and development Research and development costs are charged to the income statement insofar as the conditions for capitalization in<br />

accordance with IAS 38 are not fulfilled. Only the costs for the development of new products and the further development of existing products are<br />

capitalized.<br />

Income taxes Liabilities for taxes on income are calculated and provided for, irrespective of their maturity, on the basis of the substantially enacted<br />

tax rates of the relevant companies. Deferred taxes on differences between group and tax valuations as well as eliminations with an effect on the<br />

income statement are accounted for in accordance with the liability method. Deferred tax assets and liabilities are offset insofar as this is legally per-<br />

missible. The movements in deferred income taxes in connection with temporary differences where the movement is taken directly to equity (e.g. cash<br />

flow hedges and foreign exchange differences on equity loans) are also taken to equity.<br />

Tax effects from tax loss carryforwards are taken into account if it can be reasonably expected that they will be realized.<br />

Provisions for non-recoverable withholding taxes are set up in respect of retained earnings at group companies, as soon as a distribution of profits is<br />

planned.<br />

Segment reporting<br />

The primary segments reported in Note 1 (business segments) correspond to the structure of the internal management reporting. The secondary<br />

segment reporting is by geographical regions. Further details of the definitions of the segments are reported in Note 1.<br />

Management judgments made in applying accounting policies<br />

The application of Saurer’s accounting policies may require management to make judgments, apart from those involving estimates, that may have a<br />

significant impact on the consolidated financial statements.<br />

Key assumptions and estimates<br />

In preparing the consolidated financial statements management is required to make assumptions and estimates that affect the reported amounts of<br />

certain assets, liabilities, income or expense. The assumptions and estimates are based on experience and available information. Actual results may<br />

differ from these estimates.<br />

The following significant items are based on assumptions or estimates:<br />

Property, plant and equipment and Intangible assets<br />

The value of property, plant and equipment reported in the balance sheet as of December 31, 2005 is EUR 376m and of intangible assets EUR 129m,<br />

of which EUR 116m relates to goodwill. A detailed impairment test is made annually for goodwill, and also, as in the case of the other assets such as<br />

land and buildings, if there is any indication of a possible impairment. Impairment tests are based on estimated future cash flows. The actual cash<br />

flows could vary significantly from these estimates, as a result of changes in the planned use of assets such as land and buildings, technical obsolescence<br />

or competition.<br />

Long-term employee benefits<br />

Provisions for long-term employee benefits amount to EUR 179m. Post-employment benefits are based on actuarial calculations. The assumptions<br />

underlying these calculations are reported in Note 15. Changes in these assumptions, such as the discount rate, future salary increases or changes in<br />

the life expectancy of the plan participants could have a significant impact on the provisions reported.<br />

Deferred income taxes<br />

Deferred income tax assets amounting to EUR 31m and deferred tax liabilities amounting to EUR 18m are based on the tax rates expected to be<br />

applicable when the relevant temporary differences are realized. In addition, deferred tax assets assume that there will be sufficient taxable income in<br />

relevant future periods to recover assets from tax loss carryforwards or temporary differences. Value adjustments have been made to take account of<br />

the possible non-recoverability of these assets. Changes in income tax rates or in tax laws could have a significant effect on these assets and<br />

liabilities.<br />

Consolidated financial statements Saurer 2005


PAGE 54<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

Except where otherwise noted, currency amounts are stated in EUR 000, and are restated for 2004 to exclude discontinued operations.<br />

1 Segment information<br />

Saurer Textile Solutions is active in the development and manufacture of yarn-making solutions for the natural and synthetic fiber industry; Trans-<br />

mission Systems is engaged in the development and manufacture of transmission systems for motor vehicles. The reconciliation to Total Saurer in-<br />

cludes central headquarter costs such as Corporate Management, Corporate Communications and Internal Audit. This presentation is in line with<br />

internal management reporting. The difference between the segment operating profit and the net profit for the group is shown in the consolidated<br />

income statement. There are no significant sales transactions between the divisions. The prior year figures have been restated as mentioned on pages<br />

49 and 50.<br />

By division:<br />

Saurer Textile Solutions 2005 % 2004 %<br />

Sales 1 172 656 100.0 1 209 410 100.0<br />

Operating profit 62 850 5.4 76 027 6.3<br />

Research and development 67 075 5.7 69 818 5.8<br />

Capital expenditure 50 411 33 449<br />

Depreciation and amortization 34 227 39 115<br />

Segment assets (operating assets) 714 172 627 359<br />

Segment liabilities (operating liabilities) 314 910 328 408<br />

Number of employees (full-time equivalents at year-end) 1) 7 099 5 861<br />

Transmission Systems<br />

Sales 397 130 100.0 383 690 100.0<br />

Operating profit 31 501 7.9 22 155 5.8<br />

Research and development 4 470 1.1 4 251 1.1<br />

Capital expenditure 27 845 25 641<br />

Depreciation and amortization 29 558 33 823<br />

Segment assets (operating assets) 331 778 348 780<br />

Segment liabilities (operating liabilities) 110 417 131 793<br />

Number of employees (full-time equivalents at year-end) 2 905 2 970<br />

Reconciliation to Total Saurer (Corporate and Other)<br />

Operating loss –6 062 –5 934<br />

Capital expenditure 45 36<br />

Depreciation and amortization 133 186<br />

Segment assets (operating assets) 1 472 2 895<br />

Segment liabilities (operating liabilities) 6 025 6 789<br />

Number of employees (full-time equivalents at year-end) 17 21<br />

Total Saurer (Continuing operations)<br />

Sales 1 569 786 100.0 1 593 100 100.0<br />

Operating profit 88 289 5.6 92 248 5.8<br />

Research and development 71 545 4.6 74 069 4.6<br />

Capital expenditure 78 301 59 126<br />

Depreciation and amortization 63 918 73 124<br />

Segment assets (operating assets) 1 047 422 979 034<br />

Unallocated assets / eliminations 217 657 321 867<br />

Total assets 1 265 079 1 300 901<br />

Segment liabilities (operating liabilities) 431 352 466 990<br />

Unallocated liabilities / eliminations 258 751 317 186<br />

Total liabilities 690 103 784 176<br />

Number of employees (full-time equivalents at year-end) 1) 10 021 8 852<br />

1) 2005: including 1 369 from acquisitions made in 2005.<br />

Consolidated financial statements Saurer 2005


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 55<br />

By geographical region: 2005 2004<br />

Sales (by location of customer) 1 569 786 1 593 100<br />

Europe 504 451 470 792<br />

NAFTA 192 519 162 378<br />

South America 67 543 73 933<br />

Africa, Middle East 187 433 220 194<br />

Far East, Asia 617 840 665 803<br />

Capital expenditure 78 301 59 126<br />

Europe 54 017 49 533<br />

NAFTA 544 560<br />

South America 18 180<br />

Africa, Middle East 150 –<br />

Far East, Asia 23 572 8 853<br />

Total Assets 1 265 079 1 300 901<br />

Europe 1 085 926 1 178 126<br />

NAFTA 45 840 43 305<br />

South America 4 858 3 201<br />

Africa, Middle East 1 269 –<br />

Far East, Asia 127 186 76 269<br />

Number of employees (full-time equivalents at year-end) 1) 10 021 8 852<br />

Europe 7 483 7 278<br />

NAFTA 233 226<br />

South America 50 35<br />

Africa, Middle East 34 –<br />

Far East, Asia 2 221 1 313<br />

1) 2005: including 1 369 from acquisitions made in 2005.<br />

Consolidated financial statements Saurer 2005


PAGE 56<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

2 Administration and other 2005 2004<br />

Administration and other includes the following items:<br />

Amortization of goodwill – –7 347<br />

Gain on sale of fixed assets (net) 290 12 472<br />

Loss on divestment of activities, excluding discontinued operations – –2 451<br />

Employee stock option plan –2 282 –2 294<br />

3 Operating profit 2005 2004<br />

The operating profit is stated after deducting the following:<br />

Wages and salaries –294 094 –317 583<br />

Social expenses and other personnel expenses –93 994 –97 597<br />

Personnel expenses –388 088 –415 180<br />

Cost of materials –824 316 –809 102<br />

Depreciation and amortization –63 919 –73 124<br />

Payments made under operating leases –4 047 –3 338<br />

Rental expense – non-cancelable rental contracts –4 112 –4 287<br />

4 Financial expense (net) 2005 2004<br />

Net income from financial assets at fair value through profit or loss 1 512 525<br />

Interest expense from 2 1 /4% convertible bond 2000–2005 (Note 13) –1 778 –3 798<br />

Net interest expense from pension plans (Note 15) –7 880 –8 541<br />

Other interest expense –3 260 –3 729<br />

Interest income 3 596 3 299<br />

Expenses from foreign exchange differences (net) –1 206 –2 127<br />

Loss on repurchases of convertible bond (Note 13) –16 –135<br />

Other financial expense (net) –730 –2 095<br />

Total financial expense (net) –9 762 –16 601<br />

Interest expense relating to the 2 1 /4% convertible bond 2000–2005 is shown as for an equivalent loan without conversion rights, in accordance with<br />

IAS 32. The loss on repurchase of the convertible bond represents the difference between the liability value repurchased and the cash price paid (see<br />

also Note 13).<br />

The financial assets at fair value through profit or loss are mainly marketable securities.<br />

5 Income taxes 2005 2004<br />

Current income taxes –20 053 –9 876<br />

Deferred income taxes –3 314 –16 614<br />

Total income taxes –23 367 –26 490<br />

Using the tax rate of 24.3% (2004: 24.3%) at the company‘s headquarter location (Saurer Ltd., Arbon, Switzerland) applied to the profit before tax<br />

of EUR 78.5m (2004: EUR 75.6m), an expected tax charge of EUR 19.1m (2004: EUR 18.4m) results. The effective tax charge differs from the expected<br />

tax charge for the following reasons:<br />

Consolidated financial statements Saurer 2005


5 Income taxes (continued)<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 57<br />

Deferred tax assets and liabilities arise due to differences between the group and tax valuations in the following balance sheet items:<br />

Assets<br />

31.12.2005 31.12.2004<br />

Tax Tax Tax Tax<br />

assets liabilities assets liabilities<br />

Accounts receivable 481 1 607 1 233 1 438<br />

Inventories 2 903 1 137 3 125 984<br />

Financial assets 5 066 3 122 659 8 535<br />

Property, plant and equipment 9 054 32 505 9 759 34 964<br />

Intangible assets 31 367 – 40 006 982<br />

Liabilities<br />

2005 2004<br />

Profit before taxes 78 527 75 647<br />

Tax rate, Saurer Ltd. 24.3% 24.3%<br />

Expected tax charge –19 082 –18 382<br />

Variance due to differing local tax rates –2 129 –5 836<br />

–21 211 –24 218<br />

Effect of income not taxed and expenses not accepted for tax purposes –738 –259<br />

(Under) overprovision for prior year taxes –859 3 406<br />

Effect of tax losses and changes in value adjustments of deferred tax assets –119 –7 925<br />

Effect of changes in tax rate 571 178<br />

Other influences –1 011 2 328<br />

Effective tax charge –23 367 –26 490<br />

Effective tax rate 29.8% 35.0%<br />

Accounts payable 81 418 114 154<br />

Other short-term liabilities 4 634 338 6 665 2 311<br />

Long-term provisions including pension liabilities 11 082 1 996 13 077 1 696<br />

Other long-term liabilities 2 070 1 109 6 176 1 834<br />

Deferred taxes from temporary differences 66 738 42 232 80 814 52 898<br />

Offset of deferred tax assets and liabilities –23 874 –23 874 –27 160 –27 160<br />

Net deferred taxes from temporary differences 42 864 18 358 53 654 25 738<br />

Deferred tax assets deriving from tax loss carryforwards 61 050 – 45 017 –<br />

Valuation allowances –72 837 – –63 830 –<br />

Total deferred taxes 31 077 18 358 34 841 25 738<br />

Development of deferred tax assets (liabilities): 2005 2004<br />

Deferred tax assets (net) as at 01.01. 9 103 24 386<br />

Charge to income –3 314 –16 614<br />

Credit to shareholders‘ equity 2 469 883<br />

Change in scope of consolidation 3 750 825<br />

Foreign currency translation 711 –377<br />

Deferred tax assets (net) as at 31.12. 12 719 9 103<br />

As at December 31, 2005 the group had tax loss carryforwards totaling EUR 190m (2004: EUR 158m) with a tax value of EUR 61m (2004: EUR 45m).<br />

Of the tax losses, EUR 27m expire by the year 2008, EUR 22m by the year 2012, a further EUR 18m expire later, and the remainder has no expiry date.<br />

The increase in tax loss carryforwards in 2005 is mainly the result of acquisitions.<br />

Consolidated financial statements Saurer 2005


PAGE 58<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

6 Discontinued Operations – Surface Technology 2005 2004<br />

Sales – 21 264<br />

Operating profit before sale of discontinued operations – 2 891<br />

Profit on sale of discontinued operations – 16 202<br />

Operating profit – 19 093<br />

Financial expense (net) – –208<br />

Profit before income taxes – 18 885<br />

Income taxes on ordinary activities – –513<br />

Income taxes on profit on sale of discontinued operations – –161<br />

Result from discontinued operations – 18 211<br />

Total assets – –<br />

Total liabilities – –<br />

Depreciation and amortization – 2 402<br />

Cash flow from operating activities – 8 851<br />

Cash flow from investing activities<br />

(including proceeds from divestment) 1 122 87 334<br />

Cash flow from financing activities – –265<br />

The North American and Asian companies of the Xaloy Group were sold on March 9, 2004 and the IonBond Group was sold on May 28, 2004.<br />

In addition to the EUR –161 tax charge on the profit on sale of discontinued operations in 2004, a further EUR –3 060, which would have been<br />

payable, was offset against tax losses which had been fully provided for. Part of the sale proceeds was received in 2005.<br />

7 Earnings per share 2005 2004<br />

Profit attributable to shareholders of Saurer Ltd. 53 392 66 774<br />

Average number of ordinary shares 15 090 769 15 430 000<br />

less: treasury shares (average) –731 327 –1 265 942<br />

Average number of shares in circulation 14 359 442 14 164 058<br />

Dilutive effect of employee stock options 82 294 89 115<br />

Average number of shares outstanding<br />

for the calculation of diluted earnings 14 441 736 14 253 173<br />

Basic earnings per share (EUR) 3.72 4.71<br />

Diluted earnings per share (EUR) 3.70 4.68<br />

8 Accounts receivable, trade 31.12.2005 31.12.2004<br />

Accounts receivable, trade 254 937 234 084<br />

Bills of exchange 6 069 6 412<br />

Provision for impairment –9 661 –13 811<br />

Total accounts receivable, trade (net) 251 345 226 685<br />

9 Inventories 31.12.2005 31.12.2004<br />

Raw materials 128 178 141 019<br />

Work in process 136 472 190 286<br />

Finished goods 99 437 87 528<br />

Provision for slow-moving and obsolescent inventories –47 752 –40 828<br />

Total inventories before customer payments on account 316 335 378 005<br />

Customer payments on account –84 415 –144 569<br />

Total inventories (net) 231 920 233 436<br />

Write-down of inventories recognized as expense in the period 6 310 9 109<br />

Consolidated financial statements Saurer 2005


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 59<br />

10 Non-current financial assets 31.12.2005 31.12.2004<br />

Available-for-sale investments 4 637 4 205<br />

Loans 6 744 7 716<br />

Capitalized pension surplus (Note 15) 4 027 4 020<br />

Other non-current financial assets 2 362 2 980<br />

Total financial assets 17 770 18 921<br />

The available-for-sale investments are mainly unquoted equity investments held for strategic purposes, which are measured at cost, as their fair value<br />

cannot be measured reliably.<br />

11 Property, plant and equipment<br />

Prepayments,<br />

Land and Machinery and assets under<br />

Cost buildings equipment construction Total<br />

Balance as at 01.01.2004 405 924 793 194 8 459 1 207 577<br />

Additions 3 078 46 533 8 645 58 256<br />

Disposals –23 955 –48 794 – –72 749<br />

Transfers – 7 866 –7 866 –<br />

Change in scope of consolidation –30 462 –97 848 –83 –128 393<br />

Foreign currency translation 411 284 –135 560<br />

Balance as at 31.12.2004 354 996 701 235 9 020 1 065 251<br />

Accumulated depreciation<br />

Balance as at 01.01.2004 –205 545 –611 814 – –817 359<br />

Depreciation –11 232 –53 068 – –64 300<br />

Disposals 13 502 46 774 – 60 276<br />

Change in scope of consolidation 15 649 66 634 – 82 283<br />

Foreign currency translation –516 –424 – –940<br />

Balance as at 31.12.2004 –188 142 –551 898 – –740 040<br />

Property, plant and equipment (net)<br />

Balance as at 01.01.2004 200 379 181 380 8 459 390 218<br />

Balance as at 31.12.2004 166 854 149 337 9 020 325 211<br />

Cost<br />

Balance as at 01.01.2005 354 996 701 235 9 020 1 065 251<br />

Additions 3 781 48 236 23 825 75 842<br />

Disposals –9 766 –27 822 – –37 588<br />

Transfers – 6 235 –6 235 –<br />

Change in scope of consolidation 20 852 18 838 47 39 737<br />

Foreign currency translation 2 405 6 098 1 306 9 809<br />

Balance as at 31.12.2005 372 268 752 820 27 963 1 153 051<br />

Accumulated depreciation<br />

Balance as at 01.01.2005 –188 142 –551 898 – –740 040<br />

Depreciation –11 717 –48 798 – –60 515<br />

Disposals 3 039 24 211 – 27 250<br />

Foreign currency translation –583 –3 289 – –3 872<br />

Balance as at 31.12.2005 –197 403 –579 774 – –777 177<br />

Property, plant and equipment (net)<br />

Balance as at 01.01.2005 166 854 149 337 9 020 325 211<br />

Balance as at 31.12.2005 174 865 173 046 27 963 375 874<br />

Consolidated financial statements Saurer 2005


PAGE 60<br />

12 Intangible assets<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

11 Property, plant and equipment (continued)<br />

Cost Goodwill Patents etc. Software Total<br />

Balance as at 01.01.2004 219 734 8 475 19 884 248 093<br />

Additions – 235 2 343 2 578<br />

Disposals – – – 2 134 –2 134<br />

Change in scope of consolidation –26 235 –2 124 –2 660 –31 019<br />

Foreign currency translation –752 28 29 –695<br />

Balance as at 31.12.2004 192 747 6 614 17 462 216 823<br />

Accumulated amortization<br />

Balance as at 01.01.2004 –102 929 –5 626 –14 874 –123 429<br />

Amortization - 7 817 –885 –2 524 –11 226<br />

Disposals – – 1 998 1 998<br />

Change in scope of consolidation 13 088 1 618 2 398 17 104<br />

Foreign currency translation 968 –16 –26 926<br />

Balance as at 31.12.2004 –96 690 –4 909 –13 028 –114 627<br />

Intangible assets (net)<br />

Prepayments,<br />

Land and Machinery and assets under<br />

buildings equipment construction Total<br />

Value of leased assets 28 177 906 – 29 083<br />

Insured values 622 959 1 172 853 – 1 795 812<br />

Assets pledged as collateral 36 229<br />

In prior periods software was disclosed together with tangible fixed assets. The prior year figures have been adjusted to include software with in-<br />

tangible assets (see also Note 12).<br />

Of the additions to tangible fixed assets in 2004 of EUR 58 256, EUR 1 708 relates to discontinued operations. Of the depreciation in 2004 of<br />

EUR –64 300, EUR –1 755 relates to discontinued operations.<br />

Saurer owns a number of industrial sites and office buildings which are no longer necessary for its operations. The value of these properties is largely<br />

dependent on their future use, and for this reason it is not possible to make a reliable assessment of their fair value. However, based on estimates,<br />

the proceeds from the possible sale of these properties are not expected to be below their book values.<br />

Balance as at 01.01.2004 116 805 2 849 5 010 124 664<br />

Balance as at 31.12.2004 96 057 1 705 4 434 102 196<br />

Consolidated financial statements Saurer 2005


12 Intangible assets (continued)<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 61<br />

Cost Goodwill Patents etc. Software Total<br />

Balance as at 01.01.2005 192 747 6 614 17 462 216 823<br />

Additions – 174 2 285 2 459<br />

Disposals 7 133 –969 –1 282 4 882<br />

Change in scope of consolidation 19 661 7 510 623 27 794<br />

Foreign currency translation 2 326 19 138 2 483<br />

Balance as at 31.12.2005 221 867 13 348 19 226 254 441<br />

Accumulated amortization<br />

Balance as at 01.01.2005 –96 690 –4 909 –13 028 –114 627<br />

Amortization – –775 –2 628 –3 403<br />

Disposals –7 133 969 1 245 –4 919<br />

Foreign currency translation –2 165 –34 –109 –2 308<br />

Balance as at 31.12.2005 –105 988 –4 749 –14 520 –125 257<br />

Intangible assets (net)<br />

Balance as at 01.01.2005 96 057 1 705 4 434 102 196<br />

Balance as at 31.12.2005 115 879 8 599 4 706 129 184<br />

In prior periods software was disclosed together with tangible fixed assets. The prior year figures have been adjusted to include software with<br />

intangible assets (see also Note 11).<br />

In 2005 the plant in Carr Hill of Graziano Trasmissioni CH Ltd. was closed. Consequently the corresponding negative goodwill of EUR 7 133 which<br />

had previously been fully released to the income statement has been treated as a disposal.<br />

Of the additions to intangible assets in 2004 of EUR 2 578, none relates to discontinued operations. Of the amortization in 2004 of EUR –11 226,<br />

EUR –647 (including EUR -470 for goodwill amortization) relates to discontinued operations.<br />

Impairment testing<br />

Goodwill is allocated to cash-generating units that are expected to benefit from the business combination in which the goodwill arose and is tested<br />

annually for impairment using a discounted cash flow approach. Due to various changes in the financial and operating structure, the lowest levels of<br />

cash-generating units for goodwill testing are the reportable business segments as described in Note 1 on page 54.<br />

A segment-level summary of the goodwill allocation and amortization is presented below:<br />

2005 2004<br />

Saurer Textile Transmission Total Saurer Textile Transmission Total<br />

Solutions Systems Saurer Solutions Systems Saurer<br />

Amortization of goodwill – – – 6 074 1 273 7 347<br />

Impairment charge – – – – – –<br />

Goodwill balance as at 31.12. 107 637 8 242 115 879 87 815 8 242 96 057<br />

The recoverable amount used for impairment testing is based on the value-in-use and the most recent business plans approved by management. Cash<br />

flow projections covering a five-year period are used in the calculations. Cash flows beyond the five-year period are extrapolated using estimated<br />

growth rates of 1%. The discount rates used, 6.8% for Saurer Textile Solutions and 5.6% for Transmission Systems, are based on the weighted aver-<br />

age cost of capital of each business segment and reflect specific country and industry risks. Since the cash flows also take into account tax expense,<br />

post-tax discount rates are utilized. Use of the post-tax discount rates approximates the results of using a pre-tax rate applied to pre-tax cash flows.<br />

Scenarios are calculated based on lower than actually expected cash flow projections. In 2005 and 2004 no impairment charges were necessary.<br />

Of the EUR 19 661 goodwill added in 2005 through the change in the scope of consolidation, EUR 18 215 is in connection with acquisitions made<br />

after December 20, 2005, where the fair values assigned to the identifiable assets and liabilities could only be determined on a provisional basis. It is<br />

possible that this amount will be adjusted during 2006. No impairment tests on the basis of discounted cash flows have been applied to this portion<br />

of the goodwill, since it is a provisional value and the acquisitions are considered to have been made at market value.<br />

Consolidated financial statements Saurer 2005


PAGE 62<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

13 Debt 31.12.2005 31.12.2004<br />

Loans, mortgages and leasing liabilities secured over land and buildings 23 471 25 561<br />

Unsecured loans 11 920 15 927<br />

2 1 /4% convertible bond 2000–2005 – 82 703<br />

Total long-term debt 35 391 124 191<br />

Short-term debt 18 735 3<br />

Total debt 54 126 124 194<br />

The book values of the assets pledged to secure the loans amount to EUR 36 229 (2004: EUR 31 044).<br />

Bank Finance leases<br />

Maturities of long-term debt loans Mortgages (present value) Total Total<br />

Within 1 year (short-term portion) 5 761 450 4 120 10 331 92 635<br />

1 to 5 years 4 132 1 608 16 866 22 606 24 966<br />

After 5 years 2 027 – 427 2 454 6 590<br />

Total long-term portion 6 159 1 608 17 293 25 060 31 556<br />

Total long-term debt 11 920 2 058 21 413 35 391 124 191<br />

Short-term and long-term debt by currency<br />

EUR 47 795 41 356<br />

USD 11 41<br />

CHF 3 449 82 706<br />

Other currencies 2 871 91<br />

Total debt 54 126 124 194<br />

The minimum lease payments for the finance leases are as follows:<br />

Within 1 year 4 979 5 009<br />

1 to 5 years 18 557 19 332<br />

After 5 years 439 4 646<br />

Total minimum lease payments 23 975 28 987<br />

Interest charge –2 562 – 3 746<br />

Present value of finance leases 21 413 25 241<br />

The interest rates for debt as at December 31, 2005 are in the range of 2.5% to 5.05%.<br />

The movements in the convertible bond are as follows: 2005 2004<br />

Valuation of the liability as 01.01. 82 703 84 818<br />

Bond stock repurchased –1 829 –5 364<br />

Bond stock repayment –81 882 –<br />

Amortization of issue costs 353 703<br />

Interest expense (Note 4) 1 778 3 798<br />

Interest at 2 1 /4% –929 –1 961<br />

Foreign currency translation –194 709<br />

Valuation of the liability as at 31.12. – 82 703<br />

The 2 1 /4% convertible bond 2000–2005 was issued in June 2000 with an original nominal value of CHF 230m. In accordance with IAS 32 the conver-<br />

sion right was valued separately and reported in capital and legal reserves in shareholders‘ equity. In subsequent periods the liability component was<br />

presented on the amortized cost basis. The calculation of interest expense for the convertible bond is based on the effective market yield and the<br />

relative coupon of an equivalent bond without conversion right at the time of issue.<br />

During 2005, bond stock with a nominal value of CHF 2 850/EUR 1 840 was repurchased (2004: CHF 8 445/EUR 5 468). These transactions resulted<br />

in a book loss of EUR 16 (2004: EUR 135) (Note 4).<br />

The remaining convertible bond stock with a nominal value of CHF 126 805/EUR 81 882 was repaid at par in June 2005.<br />

The fair values of debt (excluding the convertible bond) do not differ significantly from the book values. As at December 31, 2004, the market value<br />

of the convertible bond was 100.40% of the nominal value.<br />

Consolidated financial statements Saurer 2005


14 Provisions<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 63<br />

Warranty Restruc-<br />

costs turing Other Total<br />

Short-term provisions as at 01.01.2004 28 982 33 219 23 012 85 213<br />

Long-term provisions as at 01.01.2004 2 289 2 482 8 322 13 093<br />

Balance as at 01.01.2004 31 271 35 701 31 334 98 306<br />

Charge to income 15 784 15 328 14 401 45 513<br />

Utilization –11 808 –20 829 –11 725 –44 362<br />

Release to income –3 171 –4 255 –4 298 –11 724<br />

Reclass within provisions and (to) from other liabilities 69 –167 1 254 1 156<br />

Change in scope of consolidation –646 145 –1 327 –1 828<br />

Foreign currency translation –29 –300 –50 –379<br />

Balance as at 31.12.2004 31 470 25 623 29 589 86 682<br />

Short-term provisions as at 31.12.2004 29 776 25 466 22 205 77 447<br />

Long-term provisions as at 31.12.2004 1 694 157 7 384 9 235<br />

Charge to income 15 551 4 272 10 644 30 467<br />

Utilization –16 942 –20 853 –12 239 –50 034<br />

Release to income –4 172 –342 –3 676 –8 190<br />

Reclass within provisions and (to) from other liabilities 42 –80 1 611 1 573<br />

Change in scope of consolidation 1 002 1 200 2 461 4 663<br />

Foreign currency translation 246 321 206 773<br />

Balance as at 31.12.2005 27 197 10 141 28 596 65 934<br />

Short-term provisions as at 31.12.2005 26 597 8 775 20 575 55 947<br />

Long-term provisions as at 31.12.2005 600 1 366 8 021 9 987<br />

Short-term provisions are expected to be utilized during 2006.<br />

Long-term provisions are expected to be utilized as follows:<br />

1 to 5 years 600 1 366 7 979 9 945<br />

After 5 years – – 42 42<br />

Warranty provisions are calculated on the basis of current year sales volumes, adjusted for individual claims and experience of warranty costs in prior<br />

years. Restructuring provisions are made only for significant one-time projects which have been detailed, documented and communicated in<br />

accordance with IAS 37.<br />

Major restructuring projects were initiated in 2002 and 2003 within Saurer Textile Solutions, which have been mostly completed in 2005. A number<br />

of smaller restructuring projects were started in 2005. Transmission Systems launched restructuring projects in 2004 which resulted in significant<br />

payments during 2005. They are expected to be completed during 2006.<br />

Other provisions cover various risks in the normal course of business as well as risks in connection with divestments and legal claims.<br />

Consolidated financial statements Saurer 2005


PAGE 64<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

15 Long-term employee benefits 31.12.2005 31.12.2004<br />

Retirement and other post-employment benefits 166 539 158 586<br />

Other long-term employee benefits 12 384 16 243<br />

Total long-term employee benefits 178 923 174 829<br />

Obligations for retirement and other post-employment benefits<br />

Present value of unfunded obligations 152 376 128 677<br />

Present value of funded obligations 234 867 245 189<br />

Fair value of plan assets –225 566 –235 681<br />

Underfunding (net) 161 677 138 185<br />

Unrealized actuarial (losses) gains –27 216 –8 030<br />

Pension surplus not capitalized 28 051 24 411<br />

Underfunding (net) recognized in the balance sheet 162 512 154 566<br />

thereof as retirement and other post-employment benefits 166 539 158 586<br />

thereof included in non-current financial assets (Note 10) –4 027 –4 020<br />

Expense in income statement 2005 2004<br />

Current service cost 10 967 12 163<br />

Interest cost 15 326 17 596<br />

Expected net return on plan assets –9 579 –10 721<br />

Past service cost –80 –50<br />

Actuarial (gains) losses recognized in period –19 185<br />

Employee contributions –850 –874<br />

Other, including effect of pension surplus not capitalized 2 280 740<br />

Total charged to income 18 045 19 039<br />

Contributions to defined contribution plans 1 000 809<br />

Actual return on plan assets 19 214 11 433<br />

Development of balance sheet obligations 2005 2004<br />

Balance as at 01.01. 158 586 159 731<br />

Curtailments and settlements – –2 725<br />

Total pension expense as above 18 045 19 039<br />

Employer‘s contributions – 8 609 –7 329<br />

Pensions paid from unfunded plans –10 926 –10 132<br />

Change in scope of consolidation 8 802 –<br />

Reclass from other long-term employee benefits 615 –<br />

Foreign currency translation 26 2<br />

Balance as at 31.12. 166 539 158 586<br />

Assumptions used in actuarial calculations (weighted average)<br />

Discount rate 4.0% 4.5%<br />

Expected return on plan assets 4.3% 4.5%<br />

Future salary increases 1.7% 2.6%<br />

Future pension increases 1.5% 1.5%<br />

Other long-term employee benefits 2005 2004<br />

Balance as at 01.01. 16 243 18 325<br />

Service cost 1 717 4 152<br />

Benefits paid –5 030 –6 088<br />

Reclass to other liabilities –269 –<br />

Reclass to post-employment benefits – 615 –<br />

Foreign currency translation 338 –146<br />

Balance as at 31.12. 12 384 16 243<br />

Pension costs are included with personnel costs in the relevant income statement captions. The net interest cost from unfunded and underfunded<br />

pension plans is shown as a financial expense (Note 4), whereas the interest cost and expected net return on plan assets reported above also include<br />

the relevant data for fully funded plans.<br />

Consolidated financial statements Saurer 2005


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 65<br />

16 Share capital 31.12.2005 31.12.2004<br />

Share capital of Saurer Ltd. 85 853 110 228<br />

The share capital comprises 14 548 000 fully paid registered shares with a nominal value of CHF 9.50 (2004: 15 430 000 registered shares with a<br />

nominal value of CHF 11.50) each. The shares outstanding are entitled to one vote each. The share capital is translated into Euros at historical<br />

exchange rates.<br />

Authorized Capital<br />

The Board of Directors is authorized to increase the share capital up to May 12, 2006 through the issue of a maximum of 3 000 000 fully paid up<br />

registered shares with a nominal value of CHF 9.50 each, up to the maximum amount of CHF 28 500 000. Increases through firm underwriting or<br />

in partial amounts are approved. The issue price, the period of the entitlement to dividends and the type of consideration or the contribution or<br />

underwriting in kind shall be determined by the Board of Directors. The Board of Directors is authorized to exclude the subscription right of the share-<br />

holders and to allocate them to third parties in the event of the use of shares for the purpose of the acquisition of companies, parts of companies or<br />

investments, for mergers and exchange of investments as well as in the case of a share placement for the financing of such transactions. Subscription<br />

rights not exercised shall be sold by the Board of Directors at market conditions.<br />

Conditional Capital<br />

The share capital of the company shall be increased by the maximum amount of CHF 40 375 000 through the issue of 4 250 000 fully paid up regis-<br />

tered shares with a nominal value of CHF 9.50 each, of which<br />

a) up to an amount of CHF 28 500 000, representing 3 000 000 registered shares with a nominal value of CHF 9.50 each, will be issued through the<br />

exercise of option and conversion rights, which will be granted in connection with loans or other bonds of the company or of group companies or<br />

through the exercise of option rights granted to the shareholders;<br />

b) up to an amount of CHF 11 875 000, representing 1 250 000 registered shares with a nominal value of CHF 9.50 each, which are granted to the<br />

employees of the company or of group companies as a result of the exercise of stock option rights.<br />

The subscription right of the shareholders is excluded. Shareholders‘ preferential subscription rights may be limited or suspended in respect of options<br />

and convertible bonds by decision of Senior Management (1) to finance acquisitions, participations or other new investments or (2) where options or<br />

convertible bonds are issued in international capital markets. When shareholders‘ rights are suspended (1) the related bonds must be placed in the<br />

public domain at prevailing market conditions and (2) the exercise price for the new shares on conversion must be equal to the market price for shares<br />

when the bonds are issued.<br />

Conditions for authorized and conditional capital<br />

The number of the new shares to be issued on the basis of Articles 6 and 7 of the Articles of Incorporation of Saurer Ltd. may not exceed a total of<br />

5 000 000.<br />

Purchase and sale of treasury shares 2005 2004<br />

Number of registered shares<br />

Balance as at 01.01. 1 189 630 1 111 861<br />

Repurchase through exercise of put options – 881 580<br />

Capital reduction –882 000 –<br />

Purchase 8 898 114 561<br />

Sale –17 648 –846 002<br />

Sale from employee stock option programs –179 100 –72 370<br />

Balance as at 31.12. 119 780 1 189 630<br />

Treasury shares are held by Saurer Ltd. and also by a subsidiary company. 115 900 treasury shares are reserved for employee stock option plans (see<br />

Note 19). Purchases and sales of treasury shares occurred at market prices, excluding those repurchased through the exercise of put options in 2004.<br />

A resolution to reduce the share capital of Saurer Ltd. by canceling 882 000 shares was approved by the General Meeting of Shareholders on May 12,<br />

2005 and the cancellation became effective on August 10, 2005.<br />

Purchase and sale of call options on Saurer shares<br />

In 2004 Saurer acquired 700 000 American-type call options on Saurer shares issued by a bank and expiring on July 27, 2007. 504 000 of these<br />

options were sold to the Board of Directors (214 000), to Senior Management (148 000) and to other members of management (142 000) at market<br />

rates (see also Note 20). The number purchased by the individuals was not restricted. Of the remaining 196 000 options 87 000 were sold to third<br />

parties in 2004 and 109 000 to third parties in 2005. As at December 31, 2005 Saurer holds none of these options. Each option entitles the holder<br />

to purchase one share. In 2005 Saurer acquired 300 000 American-type call options on Saurer shares issued by a bank and expiring on March 17,<br />

2006. 200 000 were sold to third parties in 2005. The balance as at December 31, 2005 is 100 000. Twelve options entitle the holder to purchase one<br />

share.<br />

Consolidated financial statements Saurer 2005


PAGE 66<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

17 Changes in net working capital 2005 2004<br />

(Increase) decrease in accounts receivable, trade and other (net) –7 373 22 461<br />

Decrease (increase) in inventories (net) 16 364 –64 725<br />

(Decrease) increase in accounts payable, trade and other (net) –37 305 92 290<br />

Other changes in net working capital –11 398 – 12 003<br />

Total changes in net working capital –39 712 38 023<br />

18 (Acquisition) divestment of subsidiaries and other equity investments 2005 2004<br />

Acquisition of subsidiaries<br />

Cash 19 018 2 584<br />

Accounts receivable 13 185 784<br />

Inventories 16 400 369<br />

Property, plant and equipment 39 737 1 432<br />

Goodwill 19 661 1 439<br />

Other intangible assets 8 133 –<br />

Other assets 13 288 132<br />

Debt –35 225 –<br />

Other current liabilities –29 507 –1 450<br />

Non-current liabilities –10 149 –<br />

Minority shareholders‘ interests –7 966 –<br />

Net assets acquired 46 575 5 290<br />

Other (payment of installments for acquisitions made in previous years) – 2 616<br />

Acquisition price 46 575 7 906<br />

Paid in the year under review –42 676 –7 906<br />

Less cash acquired 19 018 2 584<br />

Cash flow from acquisition of subsidiaries –23 658 –5 322<br />

Cash flow from acquisition of other equity investments –1 199 –1 521<br />

Cash flow from acquisition of subsidiaries and other equity investments –24 857 –6 843<br />

Divestment of subsidiaries<br />

Selling price (net of transaction costs) – 110 638<br />

Received in the year under review 11 808 96 675<br />

Less cash divested – –7 553<br />

Cash flow from divestment of subsidiaries 11 808 89 122<br />

Cash flow from divestment of other equity investments 163 113<br />

Cash flow from divestment of subsidiaries and other equity investments 11 971 89 235<br />

Net cash flow from (acquisition) divestment of subsidiaries and other equity investments –12 886 82 392<br />

The net assets divested comprise the following:<br />

Cash – 7 553<br />

Accounts receivable – 19 100<br />

Inventories – 28 065<br />

Property, plant and equipment – 48 437<br />

Goodwill – 14 990<br />

Other assets 1) – 30 141<br />

Current liabilities 1) – –54 984<br />

Non-current liabilities 1) – –72 213<br />

Net assets divested (translated at period-end rates at the date of divestment) – 21 089<br />

1) Including intercompany accounts of Saurer settled from proceeds.<br />

In January 2005 Saurer acquired 51% of Autefa automation GmbH, Germany, and a further 9% in October 2005. 100% of the following companies<br />

was also acquired in 2005: Kortec GmbH, Germany (April, subsequently merged into Saurer GmbH & Co. KG), ERMAFA Kunststofftechnik Chemnitz<br />

Consolidated financial statements Saurer 2005


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 67<br />

GmbH, Germany (July), Fehrer GmbH, Austria (September), Heberlein Fasertechnologie AG, Switzerland (December), Electrotex AG, Switzerland<br />

(December), Enka tecnica GmbH, Germany (December) and Fincarde S.p.A., Italy (December). In December 2005 Saurer founded jointly with Jinsheng<br />

the companies Saurer Jintan Textile Machinery Company Ltd., China, and Jintan Texparts Component Company Ltd., China, in both of which Saurer<br />

holds 70%.<br />

Since most of the subsidiaries acquired did not report in accordance with IFRS before their acquisition by Saurer, it is not practicable to disclose the<br />

values of their assets and liabilities in accordance with IFRS immediately before acquisition. For acquisitions made in December 2005 the fair values<br />

assigned to the identifiable assets and liabilities could only be determined on a provisional basis. It is possible that they will be adjusted during<br />

2006.<br />

The companies acquired during 2005 contributed EUR 41.9m to Saurer‘s sales and EUR 0.8m to Saurer‘s profit for the period. The effect of consolidating<br />

all of the companies acquired during 2005 for the whole of the year 2005 would have been an estimated increase in Saurer‘s sales by EUR 70.3m and<br />

an estimated decrease in Saurer‘s profit for the period of EUR 6.8m.<br />

No subsidiaries were divested during 2005, but cash was received in connection with divestments made in previous years.<br />

In 2004 Saurer acquired M&J Fibretech A/S, Denmark, and paid the final installment for Graziano Trasmissioni CH Ltd., UK, which was acquired in<br />

2001. In 2004 Saurer also acquired Surface Metallurgical, Inc., Canada, which was subsequently resold as part of the divestment of the IonBond<br />

Group. During 2004 the North American and Asian companies of the Xaloy Group, the IonBond Group and the Elektro activities of <strong>Barmag</strong> were<br />

sold.<br />

19 Employee stock options<br />

Saurer maintains a long-term program for employee stock options. The shares required to cover this program were purchased on the market. As at<br />

December 31, 2005 the total number of treasury shares reserved for this purpose was 115 900. The conditional capital, which is also available for this<br />

program (Note 16), has not been used to date. The options outstanding as at December 31, 2005 have exercise prices of CHF 21.25 and CHF 50.25.<br />

The exercise prices correspond to the market prices at the time of issue. They are not adjusted (no repricing), except for reductions equal to the reduc-<br />

tions of the nominal share value (dilution protection). When issued, half of the options are blocked for 2 and the other half for 3 years. All options<br />

expire after 5 years.<br />

Each option entitles the owner to the equivalent of one Saurer share for the exercise price, or cash compensation for the difference between market<br />

price and exercise price.<br />

Saurer issued no stock options during 2004 and 2005. At December 31, 2005 the following options were outstanding:<br />

Year Exercise Expiry Senior Board of<br />

Number of Options granted Price CHF 1) date Employees 2) Management 2) Directors 2) Total<br />

Options held 2003 50.25 08.02.2007 61 400 27 250 15 000 103 650<br />

Total number of<br />

2002 21.25 19.11.2008 5 250 – 7 000 12 250<br />

options outstanding 66 650 27 250 22 000 115 900<br />

1) Exercise prices have been and will be adjusted over the years parallel to changes in nominal value of the stock. In 2005 the exercise price of both remaining option programs was reduced by CHF 2.00.<br />

2) Including former members and employees.<br />

Consolidated financial statements Saurer 2005


PAGE 68<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

Movements in the number of employee stock options outstanding are shown in the following table:<br />

Senior Board of<br />

Employees 1) Management 1) Directors 1) Total<br />

Options outstanding as at 01.01.2004 185 900 150 000 128 220 464 120<br />

Options granted – – – –<br />

Options exercised –30 650 –24 500 –17 220 –72 370<br />

Options expired / canceled –11 950 –39 000 –37 500 –88 450<br />

Options outstanding as at 31.12 2004 143 300 86 500 73 500 303 300<br />

Options granted – – – –<br />

Options exercised –69 350 –58 250 –51 500 –179 100<br />

Options expired / canceled –7 300 –1 000 – –8 300<br />

Options outstanding as at 31.12.2005 66 650 27 250 22 000 115 900<br />

1) Including former members and employees.<br />

Weighted Expense Of which Payments<br />

Number average share in income Year end accrued for to option<br />

of options price at statement accrual vested options holders<br />

Additional information Year exercised exercise date EUR 000 EUR 000 EUR 000 EUR 000<br />

2004 72 370 CHF 63.44 2 294 2 923 1 745 1 803<br />

2005 179 100 CHF 79.49 2 282 2 259 1 691 2 953<br />

The accrual and expense for employee stock options are valued based on the Black-Scholes option pricing model. For the calculation volatility rates<br />

were based on historically observed prices of the underlying equity, and risk-free interest rates were based on Swiss Government bonds with similar<br />

maturities.<br />

20 Related parties<br />

Compensation of Board of Directors and Senior Management<br />

Short-term employment Other long-term Share-based Total<br />

2004 benefits 1) benefits benefits 2) compensation 3) compensation<br />

Current (non-executive) Board Members 538 – 178 224 940<br />

Current Senior Management (total) 2 278 310 232 567 3 387<br />

Highest individual compensation of Senior Management 1 128 162 156 261 1 707<br />

2005<br />

Current (non-executive) Board Members 599 – 356 292 1 247<br />

Current Senior Management (total) 1 657 329 443 781 3 210<br />

Highest individual compensation of Senior Management 736 161 312 352 1 561<br />

1) Including consultancy fees.<br />

2) Long-term retention bonus accrued. Payment will be made in 2007.<br />

3) Cash payment received by option holders in period when options are exercised.<br />

In 2004 a company controlled by one of the members of the Board of Directors charged consulting fees of EUR 38 (2005: EUR –) to Saurer.<br />

In 2004 members of Senior Management received advance facilities on a 2007 long-term bonus to purchase stock options issued by a bank (see Note<br />

16). At December 31, 2005 the net balance outstanding on these advance facilities was EUR 615 (2004: EUR 1 275). The amounts are interest-free<br />

and unsecured.<br />

As at December 31, 2005 and 2004 no amounts were receivable from or payable to the Saurer Pension Fund in Switzerland (“Pensionskasse der<br />

Saurer-Unternehmungen“). At December 31, 2005 the Saurer Pension Fund in Switzerland held no (2004: 6 612) registered shares of Saurer Ltd.<br />

Consolidated financial statements Saurer 2005


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE 69<br />

21 Contingent liabilities 31.12.2005 31.12.2004<br />

Discounted notes 2 269 2 472<br />

Guarantees in favor of third parties 6 232 6 866<br />

Others 1 666 1 046<br />

Total contingent liabilities 10 167 10 384<br />

The management and employees of Saurer are committed to complying with local laws and regulatory requirements in the course of their business<br />

activities. As of the date of this report, Saurer is not involved in any litigation and is not aware of any pending litigation which could have a material<br />

impact on the consolidated financial statements.<br />

22 Financial risk management and derivative financial instruments<br />

Financial risk management<br />

Saurer‘s international activities are exposed to a variety of market risks, including currency risks. An overall risk management policy coordinated by<br />

central corporate treasury seeks to mitigate the effects of unpredictable financial markets on the financial results of the group.<br />

Currency risks<br />

Currency risks, which, owing to the group‘s activities, mainly arise in U.S. Dollars, are hedged by using forward contracts and swaps. Foreign currency<br />

risks which arise from the translation of income statement and balance sheet items of foreign consolidated companies are generally not hedged.<br />

Interest rate risks<br />

The group‘s liquid assets are invested generally on a short-term basis. The group‘s income and operating cash flows are substantially independent of<br />

changes in market interest, and interest exposures are generally not hedged. In connection with a sale and leaseback transaction, however, interest<br />

rate swaps have been set up.<br />

Credit risks<br />

Liquid assets are placed short-term with first-class banks only. The credit risk pertaining to accounts receivable is limited by the wide spread of<br />

customers, both geographically and by business activity. International accounts receivable, mainly in the textile business, are to a large extent secured<br />

by letters of credit and government export credit guarantees.<br />

Fair value risks<br />

Investments in low-volatility marketable securities are designated as ”financial assets at fair value through profit or loss“ since they are managed and<br />

their performance is evaluated on a fair value basis, in line with Saurer‘s aim of yield enhancement. Risks in the fair value of such marketable securities<br />

due to currency fluctuations are generally hedged with short-term forward contracts on a rolling basis.<br />

Commodity price risks<br />

The price risks related to tradeable commodities used in Saurer products are low and are generally not hedged.<br />

At December 31 the following types of financial instruments were held:<br />

The positive and negative fair values are included in the balance sheet in other receivables and payables respectively.<br />

Of the forward volume in 2005, EUR 304m is the gross sum of external foreign exchange swaps offsetting each other and mainly designed to hedge<br />

intercompany financing risks and investments in marketable securities.<br />

All of the currency related instruments mature within one year. Interest rate swaps with a contract amount of EUR 7.5m run until 2007, and the<br />

remaining interest rate swaps run until 2010. The contract amount indicates the volume of business outstanding at the balance sheet date and does<br />

not represent amounts at risk.<br />

2005 2004<br />

Currency related Contract Positive Negative Contract Positive Negative<br />

instruments amount fair values fair values amount fair values fair values<br />

Forward foreign exchange rate contracts 376 893 986 –5 063 441 250 15 181 –2 907<br />

Over the counter currency options 26 614 70 –187 173 622 1 548 –2 000<br />

Cross currency swaps 2 126 – – 90 2 127 115 –<br />

Total of currency related instruments 405 633 1 056 –5 340 616 999 16 844 –4 907<br />

Interest rate swaps 25 368 – –381 38 579 – –637<br />

Consolidated financial statements Saurer 2005


PAGE 70<br />

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<br />

The table below shows the movements in the hedging reserve in shareholders‘ equity in respect of cash flow hedges:<br />

2005 2004<br />

Balance as at 01.01. 7 520 6 524<br />

Changes in fair value –2 270 9 593<br />

Realized gains transferred to the income statement –11 170 –8 073<br />

Deferred tax effect 4 917 –542<br />

Foreign currency translation –354 18<br />

Balance as at 31.12. –1 357 7 520<br />

In 2005 Saurer acquired a call option to acquire a 75% holding in a company in the textile components business in 2009 or 2010, at a price based<br />

on the higher of a multiple of the company‘s EBITDA in 2008 or 2009 and GBP 4m. At the same time Saurer granted a put option which obliges it to<br />

acquire a 75% holding in the company at a price based on the lower of a multiple of the company‘s EBITDA in 2008 or 2009 and GBP 6m. The<br />

multiple is considered to be a reasonable estimation of the fair value. Therefore neither option has a value and hence no asset or liability was<br />

recognized.<br />

23 Other financial obligations<br />

As at December 31, 2005 obligations for future capital expenditure amounted to EUR 6 327 (2004: EUR 6 107).<br />

Due within Due within Due after<br />

Future obligations from: 1 year 1 to 5 years 5 years<br />

Non-cancelable operating leases 3 274 3 204 1<br />

Non-cancelable rental contracts 4 122 11 748 2 907<br />

Total other financial obligations 7 396 14 952 2 908<br />

24 Events subsequent to the balance sheet date<br />

On January 27, 2006 Saurer acquired 100% of Fairfield Manufacturing Company, Inc., USA, a company operating in the Transmission Systems<br />

business. On February 1, 2006 Saurer acquired certain operating activities of TEMCO, Germany, a company operating in the textile components<br />

business. The expected cash outflow for these acquisitions is EUR 165m. In 2005 Fairfield reported sales of approximately EUR 185m. The activities of<br />

TEMCO are expected to contribute approximately EUR 10m to Saurer‘s sales in 2006. As at the date of this report it is not practicable to quantify any<br />

other effects of these acquisitions on Saurer‘s financial statements for 2006.<br />

25 Main currency rates applied 2005 2004<br />

Income Balance Income Balance<br />

Currency statement sheet statement sheet<br />

1 CHF 0.65 0.64 0.65 0.65<br />

1 USD 0.81 0.85 0.81 0.73<br />

1 GBP 1.46 1.46 1.47 1.42<br />

1 CNY 0.10 0.11 0.10 0.09<br />

These financial statements were authorized for issue by the Board of Directors of Saurer Ltd. on March 1, 2006. A resolution to approve the financial<br />

statements will be proposed at the General Meeting of Shareholders on May 11, 2006.<br />

Consolidated financial statements Saurer 2005


PRINCIPAL COMPANIES AND INVESTMENTS PAGE 71<br />

Share % share- Consol-<br />

Company Location Currency capital holding idation Function<br />

Group<br />

Saurer Ltd. Arbon, CH CHF 138 206 000 C ■<br />

S.B. Holding, Inc. Panama, Republic of Panama 1) 100 C ■<br />

Saurer Group Investments Ltd. George Town, Grand Cayman CHF 474 469 301 100 C ■<br />

Saurer Management AG Winterthur, CH CHF 100 000 100 C ●<br />

Saurer Holding, Inc. Denver, CO, US USD 5 058 000 100 C ■<br />

Saurer Holding GmbH Leonding, AT EUR 35 000 100 C ■<br />

SAC Saurer Automotive Components BV Rotterdam, NL EUR 11 344 505 100 C ■<br />

Saurer Textile Solutions<br />

Aktiengesellschaft Adolph Saurer Arbon, CH CHF 10 000 000 100 C ■<br />

Autefa automation GmbH Friedberg, DE EUR 25 000 60 C ● ● ■<br />

Beijing <strong>Barmag</strong> Machinery Co. Ltd. Beijing, CN CNY 6 619 000 60 C ● ● ■<br />

Electrotex AG Wattwil, CH CHF 600 000 100 C ● ● ● ■<br />

Enka tecnica GmbH Heinsberg, DE EUR 511 300 100 C ● ● ● ■<br />

ERMAFA Kunststofftechnik Chemnitz GmbH Chemnitz, DE EUR 50 000 100 C ● ● ■<br />

Fehrer GmbH Leonding, AT EUR 600 000 100 C ● ● ■<br />

Fincarde S.p.A. Biella, IT EUR 1 609 758 100 C ● ● ● ■<br />

Heberlein Fasertechnologie AG Wattwil, CH CHF 1 000 000 100 C ● ● ● ■<br />

Jintan Texparts Component Company Ltd. Jintan, CN USD 5 062 289 70 C ● ■<br />

M&J Fibretech A/S Horsens, DK DKK 42 000 000 100 C ● ● ■<br />

Melco Industries, Inc. Denver, CO, US USD 2 407 000 100 C ● ● ■<br />

Saurer Beteiligungs AG Mönchengladbach, DE EUR 250 000 49 C ■<br />

Saurer China Equity Ltd. Hong Kong, CN HKD 10 100 C ■<br />

Saurer China Investments Ltd. Hong Kong, CN HKD 266 052 000 100 C ■<br />

Saurer (China) Technology Co. Ltd. Suzhou, CN USD 23 908 500 100 C ● ■<br />

Saurer Czech Republic s.r.o. Cerveny ´ Kostelec, CZ CZK 30 000 000 100 C ● ● ■<br />

Saurer do Brasil Máquinas Ltda. São Leopoldo, BR BRL 18 588 000 99 C ● ■<br />

Saurer Far East Ltd. Hong Kong, CN HKD 100 000 100 C ■<br />

Saurer GmbH & Co KG Mönchengladbach, DE EUR 41 000 000 100 C ● ● ● ■<br />

Saurer Hamel AG Arbon, CH CHF 14 160 000 100 C ● ● ■<br />

Saurer India (Private) Ltd. Mumbai, IN INR 50 000 000 100 C ■ ● ■<br />

Saurer Jintan Textile Machinery Company Ltd. Jintan, CN USD 22 482 422 70 C ● ● ■<br />

Saurer Middle East Tekstil Makinalari A.S. Makinalari, TR TRY 50 000 100 C ● ■<br />

Saurer Textile Machinery (Wuxi) Co. Ltd. Wuxi, CN CNY 58 059 000 100 C ● ● ■<br />

Saurer Textile Systems (Suzhou) Co. Ltd. Suzhou, CN CNY 14 906 000 100 C ● ■<br />

Saurer Verwaltungs GmbH Mönchengladbach, DE EUR 250 000 49 C ■<br />

Saurer, Inc. Charlotte, NC, US USD 3 000 000 100 C ● ■<br />

Schlafhorst Electronics GmbH Mönchengladbach, DE EUR 1 050 000 51 C ● ● ■<br />

Texparts GmbH Fellbach, DE DEM 50 000 100 C ● ● ■<br />

Texparts Manufacturing Singapore Pte. Ltd. Singapore, SG SGD 1 000 000 100 C ● ● ■<br />

W. Reiners Verwaltungs GmbH Mönchengladbach, DE DEM 75 000 000 100 C ■<br />

Transmission Systems<br />

Graziano Trasmissioni Engineering S.p.A. Cascine Vica Rivoli, IT EUR 1 500 000 100 C ● ■<br />

Graziano Trasmissioni CH Ltd. Doncaster, UK GBP 40 000 100 C ● ■<br />

Graziano Trasmissioni India Ltd. New Delhi, IN INR 280 000 000 100 C ● ■<br />

Graziano Trasmissioni North America, Inc. Duluth, GA, US USD 1 100 C ■<br />

Graziano Trasmissioni S.p.A. Cascine Vica Rivoli, IT EUR 44 300 000 100 C ● ● ■<br />

Graziano Trasmissioni Group S.p.A. Cascine Vica Rivoli, IT EUR 50 000 000 100 C ■<br />

Graziano Trasmissioni UK Ltd. Cambridge, UK GBP 40 000 100 C ■<br />

I.T.T. S.r.l. Cervere, IT EUR 5 000 000 100 C ● ■<br />

GTG-Graziano Trasmissioni Group AG Arbon, CH CHF 250 000 100 C ● ■<br />

1) Shares without par value.<br />

Consolidation method:<br />

C = Full consolidation<br />

Financial companies ■<br />

Services ●<br />

Research and development ●<br />

Production ●<br />

Marketing and sales ■<br />

Consolidated financial statements Saurer 2005


PAGE 72<br />

REPORT OF THE GROUP AUDITORS<br />

Report of the group auditors<br />

to the general meeting of Saurer Ltd., Arbon<br />

As auditors of the group, we have audited the consolidated financial statements (income statement, balance sheet, cash flow statement, statement<br />

of shareholders’ equity and notes to the consolidated financial statements, on pages 45 to 71) of Saurer Ltd. for the year ended December 31,<br />

2005.<br />

These consolidated financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these con-<br />

solidated financial statements, based on our audit. We confirm that we meet the legal requirements concerning professional qualification and inde-<br />

pendence.<br />

Our audit was conducted in accordance with Swiss Auditing Standards and with the International Standards on Auditing, which require that an audit<br />

be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.<br />

We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed<br />

the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit<br />

provides a reasonable basis for our opinion.<br />

In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash flows in<br />

accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law.<br />

We recommend that the consolidated financial statements submitted to you be approved.<br />

PricewaterhouseCoopers AG<br />

Daniel Ketterer Beat Inauen<br />

St. Gallen, March 1, 2006<br />

Report of the group auditors Saurer 2005


MULTIPLE YEAR COMPARISON


PAGE 74<br />

MULTIPLE YEAR COMPARISON<br />

Income Statement (EUR 000) 2005 2004 1)2) 2003 2) 2002 2) 2001 2)<br />

Sales<br />

Saurer Textile Solutions 1 172 656 1 209 410 1 275 371 1 211 521 1 189 401<br />

Transmission Systems 397 130 383 690 363 009 380 172 282 208<br />

Total sales 1 569 786 1 593 100 1 638 380 1 591 693 1 471 609<br />

Gross profit 315 229 341 030 366 002 369 432 330 246<br />

Operating expenses before impairment charge –226 940 –248 782 –281 197 –296 073 –307 025<br />

Operating profit before impairment charge 88 289 92 248 84 805 73 359 23 221<br />

Impairment charge – – – – –50 838<br />

Operating profit (loss) 88 289 92 248 84 805 73 359 –27 617<br />

of which Saurer Textile Solutions 62 850 76 027 62 207 37 215 –58 170<br />

Transmission Systems 31 501 22 155 28 572 36 391 30 844<br />

Financial expense (net) –9 762 –16 601 –16 882 –13 389 –13 675<br />

Profit (loss) before income taxes 78 527 75 647 67 923 59 970 –41 292<br />

Income taxes –23 367 –26 490 –21 999 –19 701 –1 978<br />

Profit (loss) from continuing operations 55 160 49 157 45 924 40 269 –43 270<br />

Result from discontinued operations – 18 211 2 595 –5 657 –6 921<br />

Profit (loss) for the period 55 160 67 368 48 519 34 612 –50 191<br />

Attributable to shareholders of Saurer Ltd. 53 392 66 774 47 200 33 466 –51 314<br />

EBITDA (operating profit before depreciation and amortization)<br />

Total continuing operations 152 207 165 372 152 026 141 288 94 484<br />

of which Saurer Textile Solutions 97 077 115 142 99 405 79 115 40 962<br />

Transmission Systems 61 059 55 978 58 474 62 308 52 007<br />

Depreciation and amortization<br />

Total continuing operations 63 918 73 124 67 221 67 929 71 263<br />

as % of sales 4.1% 4.6% 4.1% 4.3% 4.8%<br />

of which Saurer Textile Solutions 34 227 39 115 37 198 41 900 48 294<br />

Transmission Systems 29 558 33 823 29 902 25 917 21 163<br />

Orders – continuing operations<br />

Order intake 1 463 793 1 689 834 1 595 644 1 682 053 1 328 729<br />

Orders on hand 392 008 459 613 391 393 451 315 368 430<br />

Cash flow<br />

Cash flow from operating activities 71 464 163 174 125 025 144 999 116 590<br />

as % of sales 4.6% 10.2% 7.6% 9.1% 7.9%<br />

Capital expenditure – continuing operations 78 301 59 126 47 233 48 491 58 871<br />

of which Saurer Textile Solutions 50 411 33 449 26 947 28 208 28 844<br />

Transmission Systems 27 845 25 641 20 138 19 916 29 255<br />

1) The year 2004 has been restated to take account of IFRS 2 (Share-based Payment).<br />

2) The years 2001 to 2004 have been restated to show discontinued operations separately in the income statement.<br />

Multiple year comparison Saurer 2005


MULTIPLE YEAR COMPARISON PAGE 75<br />

Balance sheet (EUR 000) 31.12.2005 31.12.2004 1) 31.12.2003 31.12.2002 31.12.2001<br />

Assets<br />

Liquid assets 165 888 265 679 109 786 100 687 133 998<br />

Accounts receivable, trade 251 345 226 685 276 170 281 409 261 315<br />

Inventories 231 920 233 436 207 211 218 969 244 498<br />

Prepayments, other receivables 62 021 93 932 77 893 69 672 54 805<br />

Current assets 711 174 819 732 671 060 670 737 694 616<br />

Financial assets, deferred taxes 48 847 53 762 65 037 71 311 75 321<br />

Property, plant and equipment 375 874 325 211 395 228 430 409 478 411<br />

Intangible assets 129 184 102 196 119 654 128 643 138 040<br />

Non-current assets 553 905 481 169 579 919 630 363 691 772<br />

Total assets 1 265 079 1 300 901 1 250 979 1 301 100 1 386 388<br />

Liabilities and shareholders‘ equity<br />

Short-term debt 29 066 92 638 16 793 44 728 149 390<br />

Accounts payable, trade 167 387 196 003 159 124 165 025 165 877<br />

Provisions, accruals and deferred income 141 633 160 668 168 436 175 874 166 328<br />

Other current liabilities 118 861 92 872 89 835 98 504 64 291<br />

Current liabilities 456 947 542 181 434 188 484 131 545 886<br />

Long-term debt 25 060 31 556 125 370 161 746 192 605<br />

Provisions, deferred taxes, other non-current liabilities 208 096 210 439 220 830 222 183 221 996<br />

Non-current liabilities 233 156 241 995 346 200 383 929 414 601<br />

Total liabilities 690 103 784 176 780 388 868 060 960 487<br />

Minority interests 11 494 2 938 2 720 2 445 11 064<br />

Shareholders‘ equity attributable<br />

to shareholders of Saurer Ltd. 563 482 513 787 467 871 430 595 414 837<br />

Total shareholders‘ equity 574 976 516 725 470 591 433 040 425 901<br />

Total liabilities and shareholders‘ equity 1 265 079 1 300 901 1 250 979 1 301 100 1 386 388<br />

Equity financing ratio 45.5% 39.7% 37.6% 33.3% 30.7%<br />

1) The year 2004 has been restated to take account of IFRS 2 (Share-based Payment).<br />

Employees (full-time equivalents) – continuing operations 1)<br />

Number of employees (year-end) 10 021 8 852 9 415 9 974 10 663<br />

of which Saurer Textile Solutions 7 099 5 861 6 443 6 929 7 632<br />

Transmission Systems 2 905 2 970 2 951 3 021 3 006<br />

Europe 7 483 7 278 7 936 8 717 9 536<br />

of which Switzerland 336 237 269 256 288<br />

NAFTA 233 226 251 289 323<br />

Asia 2 221 1 313 1 160 906 742<br />

Rest of world 84 35 68 62 62<br />

Personnel expenses (EUR 000) – continuing operations 2005 2004 2003 2002 2001<br />

Wages and salaries 294 094 317 583 350 596 369 628 373 911<br />

Social security and other personnel expenses 93 994 97 597 97 946 98 171 101 563<br />

Total 388 088 415 180 448 542 467 799 475 474<br />

1) 2005: including 1369 from acquisitions made in 2005.<br />

Multiple year comparison Saurer 2005


PAGE 76<br />

MULTIPLE YEAR COMPARISON<br />

Income Statement (CHF 000) 2005 2004 1)2) 2003 2) 2002 2) 2001 2)<br />

Sales<br />

Saurer Textile Solutions 1 816 010 1 867 692 1 939 201 1 777 422 1 796 460<br />

Transmission Systems 615 007 592 532 551 955 557 751 426 245<br />

Total sales 2 431 017 2 460 224 2 491 156 2 335 173 2 222 705<br />

Gross profit 488 173 526 653 556 506 541 994 498 804<br />

Operating expenses before impairment charge –351 446 –384 194 –427 560 – 434 369 –463 732<br />

Operating profit before impairment charge 136 727 142 459 128 946 107 625 35 072<br />

Impairment charge – – – – –76 786<br />

Operating profit (loss) 136 727 142 459 128 946 107 625 –41 714<br />

of which Saurer Textile Solutions 97 331 117 408 94 586 54 598 –87 860<br />

Transmission Systems 48 783 34 214 43 444 53 392 46 587<br />

Financial expense (net) –15 118 –25 637 –25 669 –19 643 –20 655<br />

Profit (loss) before income taxes 121 609 116 822 103 277 87 982 –62 369<br />

Income taxes –36 187 –40 909 –33 450 –28 903 –2 988<br />

Profit (loss) from continuing operations 85 422 75 913 69 827 59 079 – 65 357<br />

Result from discontinued operations – 28 123 3 946 – 8 299 – 10 453<br />

Profit (loss) for the period 85 422 104 036 73 773 50 780 – 75 810<br />

Attributable to shareholders of Saurer Ltd. 82 684 103 119 71 767 49 098 –77 506<br />

EBITDA (operating profit before depreciation and amortization)<br />

Total continuing operations 235 712 255 384 231 156 207 284 142 708<br />

of which Saurer Textile Solutions 150 336 177 813 151 146 116 070 61 869<br />

Transmission Systems 94 557 86 447 88 910 91 414 78 551<br />

Depreciation and amortization<br />

Total continuing operations 98 985 112 925 102 210 99 659 107 636<br />

as % of sales 4.1% 4.6% 4.1% 4.3% 4.8%<br />

of which Saurer Textile Solutions 53 005 60 405 56 560 61 472 72 943<br />

Transmission Systems 45 774 52 233 45 466 38 022 31 964<br />

Orders – continuing operations<br />

Order intake 2 266 874 2 609 611 2 426 177 2 467 740 2 006 912<br />

Orders on hand 609 612 710 102 609 751 656 483 546 087<br />

Cash flow<br />

Cash flow from operating activities 110 671 251 990 190 101 212 728 176 097<br />

as % of sales 4.6% 10.2% 7.6% 9.1% 7.9%<br />

Capital expenditure – continuing operations 121 259 91 308 71 818 71 141 88 919<br />

of which Saurer Textile Solutions 78 068 51 655 40 973 41 384 43 566<br />

Transmission Systems 43 122 39 597 30 620 29 219 44 187<br />

1) The year 2004 has been restated to take account of IFRS 2 (Share-based Payment).<br />

2) The years 2001 to 2004 have been restated to show discontinued operations separately in the income statement.<br />

Multiple year comparison Saurer 2005


MULTIPLE YEAR COMPARISON PAGE 77<br />

Balance sheet (CHF 000) 31.12.2005 31.12.2004 1) 31.12.2003 31.12.2002 31.12.2001<br />

Assets<br />

Liquid assets 257 972 410 474 171 036 146 459 198 613<br />

Accounts receivable, trade 390 867 350 228 430 245 409 338 387 323<br />

Inventories 360 659 360 659 322 814 318 512 362 396<br />

Prepayments, other receivables 96 449 145 125 121 350 101 346 81 232<br />

Current assets 1 105 947 1 266 486 1 045 445 975 655 1 029 564<br />

Financial assets, deferred taxes 75 962 83 062 101 321 103 730 111 641<br />

Property, plant and equipment 584 522 502 451 615 726 626 073 709 103<br />

Intangible assets 200 894 157 893 186 409 187 125 204 603<br />

Non-current assets 861 378 743 406 903 456 916 928 1 025 347<br />

Total assets 1 967 325 2 009 892 1 948 901 1 892 583 2 054 911<br />

Liabilities and shareholders‘ equity<br />

Short-term debt 45 201 143 126 26 162 65 062 221 427<br />

Accounts payable, trade 260 304 302 825 247 899 240 292 245 864<br />

Provisions, accruals and deferred income 220 253 248 232 262 406 269 319 246 532<br />

Other current liabilities 184 841 143 487 139 954 129 545 95 292<br />

Current liabilities 710 599 837 670 676 421 704 218 809 115<br />

Long-term debt 38 971 48 754 195 314 235 274 285 481<br />

Provisions, deferred taxes, other non-current liabilities 323 610 325 128 344 031 323 187 329 044<br />

Non-current liabilities 362 581 373 882 539 345 558 461 614 525<br />

Total liabilities 1 073 180 1 211 552 1 215 766 1 262 679 1 423 640<br />

Minority interests 17 874 4 539 4 237 3 556 16 399<br />

Shareholders‘ equity attributable<br />

to shareholders of Saurer Ltd. 876 271 793 801 728 898 626 348 614 872<br />

Total shareholders‘ equity 894 145 798 340 733 135 629 904 631 271<br />

Total liabilities and shareholders‘ equity 1 967 325 2 009 892 1 948 901 1 892 583 2 054 911<br />

Equity financing ratio 45.5% 39.7% 37.6% 33.3% 30.7%<br />

1) The year 2004 has been restated to take account of IFRS 2 (Share-based Payment).<br />

Employees (full-time equivalents) – continuing operations 1)<br />

Number of employees (year-end) 10 021 8 852 9 415 9 974 10 663<br />

of which Saurer Textile Solutions 7 099 5 861 6 443 6 929 7 632<br />

Transmission Systems 2 905 2 970 2 951 3 021 3 006<br />

Europe 7 483 7 278 7 936 8 717 9 536<br />

of which Switzerland 336 237 269 256 288<br />

NAFTA 233 226 251 289 323<br />

Asia 2 221 1 313 1 160 906 742<br />

Rest of world 84 35 68 62 62<br />

Personnel expenses (CHF 000) – continuing operations 2005 2004 2003 2002 2001<br />

Wages and salaries 189 906 205 649 230 579 251 945 247 558<br />

Social security and other personnel expenses 60 695 63 198 64 417 66 915 67 242<br />

Total 250 601 268 847 294 996 318 860 314 800<br />

1) 2005: including 1369 from acquisitions made in 2005.<br />

Multiple year comparison Saurer 2005


FINANCIAL REPORT OF SAURER LTD.


SEITE 80<br />

SAURER LTD. – INCOME STATEMENT for the years ended December 31,<br />

Revenues (CHF) Note* 2005 2004<br />

Revenues from investments 1 163 650 900 32 097 225<br />

Interest income 4 249 792 4 769 544<br />

Other income 2 1 393 023 7 811 490<br />

Total revenues 169 293 715 44 678 259<br />

Expenses<br />

Administration expense –2 936 725 –2 836 082<br />

Finance expense (including value adjustments) –552 264 –1 132 978<br />

Interest expense –5 378 864 –3 347 948<br />

Taxes –146 139 –143 764<br />

Other expenses 3 –126 150 276 –631 823<br />

Total expenses –135 164 268 –8 092 595<br />

Net income 34 129 447 36 585 664<br />

* For details see notes to the financial statements, page 82–83.<br />

Financial statements Saurer Ltd. 2005


SAURER LTD. – BALANCE SHEET as at December 31, PAGE 81<br />

Assets (CHF) Note* 31.12.2005 31.12.2004<br />

Cash 4 7 146 658 2 199 121<br />

Marketable securities 5 5 515 68 793 213<br />

Current accounts receivable<br />

Third parties 116 371 1 739 344<br />

Group companies 182 538 1 237 611<br />

Accrued income 387 767 545 884<br />

Current assets 7 838 849 74 515 173<br />

Loans<br />

Third parties 99 962 155 902<br />

Group companies 1 249 985 227 148 900 680<br />

Investments 3, 6 589 309 797 670 041 232<br />

Non-current assets 839 394 986 819 097 814<br />

Total assets 847 233 835 893 612 987<br />

Liabilities<br />

Short-term debt<br />

Third parties 4 7 784 254 1 776 764<br />

2 1 /4% convertible bond 2000–2005 7 – 129 655 000<br />

Group companies 3 653 933 1 567 246<br />

Short-term provisions 130 273 2 921<br />

Accruals and deferred income 1 121 849 2 000 733<br />

Current liabilities 12 690 309 135 002 664<br />

Long-term debt<br />

Group companies 8 233 611 329 93 921 033<br />

Long-term provisions 50 324 030 50 324 030<br />

Non-current liabilities 283 935 359 144 245 063<br />

Total liabilities 296 625 668 279 247 727<br />

Share capital 138 206 000 177 445 000<br />

General legal reserves 61 904 473 61 904 473<br />

Reserve for treasury shares 8 600 000 92 490 000<br />

Unappropriated retained earnings 341 897 694 282 525 787<br />

Shareholders’ equity 9 550 608 167 614 365 260<br />

Total liabilities and shareholders’ equity 847 233 835 893 612 987<br />

* For details see notes to the financial statements, page 82–83.<br />

Financial statements Saurer Ltd. 2005


PAGE 82<br />

Explanation to the financial statements<br />

Saurer shareholders participate legally in Saurer Ltd., which controls the companies listed on pages 71. The consolidated financial statements are of<br />

primary importance economically. The statutory financial statements of Saurer Ltd. are in this context to be viewed as a supplement.<br />

Notes (CHF)<br />

1 Revenues from investments<br />

SAC Saurer Automotive Components BV, Rotterdam, has declared a dividend distribution in the amount of CHF 125 963 100. This dividend distribu-<br />

tion was converted into a non-interest bearing loan, payable on December 31, 2009, at the latest.<br />

2 Other income<br />

Other income mainly consists of recharges to Saurer subsidiary companies related to bank guarantees granted to them. In the previous year, a profit<br />

of CHF 5 870 000 generated from the internal sale of an investment was included in this position.<br />

3 Other expenses<br />

Due to the dividend declared by SAC Saurer Automotive Components BV (see note 1) the investment in Saurer Automotive Components BV was<br />

written down by the same amount.<br />

4 Cash<br />

A portion of the purchase price for the majority shareholding in Jinsheng (China) in the amount of CHF 6 046 278 has been deposited in an escrow<br />

account.<br />

5 Marketable securities<br />

The cancelling of previously bought treasury shares based on capital redemption, which was approved by Saurer shareholders at the general assembly<br />

held on May 12th, 2005, was realized during 2005. A total of 882 000 Saurer treasury shares with an average price of CHF 77.99 per share were<br />

cancelled.<br />

6 Investments<br />

See page 71.<br />

7 2 1 /4% Convertible bond 2000–2005<br />

The 2 1 /4% convertible bond was fully repaid on June 27, 2005.<br />

8 Long-term debt<br />

SAURER LTD. – NOTES TO THE FINANCIAL STATEMENTS<br />

The significant increase in long-term debt with Group companies is due to repayment of the 2 1 /4% convertible bond, a capital redemption of<br />

CHF 29 096 000 as well as the purchase of majority shareholding in Jinsheng (China).<br />

Financial statements Saurer Ltd. 2005


9 Development of shareholders’ equity<br />

SAURER LTD. – NOTES TO THE FINANCIAL STATEMENTS PAGE 83<br />

General Reserve for Unappropriated<br />

Share capital reserves treasury shares retained earnings Total<br />

Balance as at 01.01.2004 177 445 000 61 904 473 101 130 000 237 300 123 577 779 596<br />

Net income for the year 2004 36 585 664 36 585 664<br />

Transfer from reserve for treasury shares –8 640 000 8 640 000 –<br />

Balance as at 31.12.2004 177 445 000 61 904 473 92 490 000 282 525 787 614 365 260<br />

Net income for the year 2005 34 129 447 34 129 447<br />

Capital repayment –29 096 000 –29 096 000<br />

Cancelling of treasury shares –10 143 000 –58 647 540 –68 790 540<br />

Transfer from reserve for treasury shares –25 242 460 25 242 460 –<br />

Balance as at 31.12.2005 138 206 000 61 904 473 8 600 000 341 897 694 550 608 167<br />

10 Authorized and conditional capital<br />

See Note 16 on page 65.<br />

11 Contingent liabilities 31.12.2005 31.12.2004<br />

Guarantees 491 145 000 459 662 000<br />

The guarantees are given in favor of Saurer subsidiary companies.<br />

12 Treasury shares<br />

Treasury shares are held by Saurer Ltd. and a subsidiary company. Details of treasury shares (including purchases and sales) are shown in Note 16 on<br />

page 65.<br />

13 Significant shareholders<br />

See Section 1.2 on page 86 of the Corporate Governance Report.<br />

Financial statements Saurer Ltd. 2005


PAGE 84<br />

Appropriation of retained earnings (CHF)<br />

Retained earnings brought forward 282 525 787<br />

Net income for the financial year 2005 34 129 447<br />

Transfer from reserve for treasury shares 25 242 460<br />

Unappropriated retained earnings 341 897 694<br />

The Board of Directors proposes to the General Meeting of Shareholders that the unappropriated retained earnings be carried forward to new<br />

account.<br />

SAURER LTD. – PROPOSAL TO THE GENERAL MEETING OF SHAREHOLDERS<br />

Instead of a dividend, the Board of Directors proposes a capital repayment of CHF 1.80 per registered share.<br />

Financial statements Saurer Ltd. 2005


Report of the statutory auditors<br />

to the general meeting of Saurer Ltd., Arbon<br />

SAURER LTD. – REPORT OF THE STATUTORY AUDITORS PAGE 85<br />

As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes on pages 80<br />

to 84) of Saurer Ltd. for the year ended December 31, 2005.<br />

These financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these financial statement<br />

based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.<br />

Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable<br />

assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the<br />

amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the over-<br />

all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.<br />

In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the<br />

company’s articles of incorporation.<br />

We recommend that the financial statements submitted to you be approved.<br />

PricewaterhouseCoopers AG<br />

Daniel Ketterer Beat Inauen<br />

St. Gallen, March 1, 2006<br />

Report of the statutory auditors Saurer Ltd. 2005


PAGE 86<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

CORPORATE GOVERNANCE<br />

1. GROUP STRUCTURE<br />

AND SHAREHOLDERS<br />

1.1 Group structure. Saurer Ltd. is a corporation organized under the laws of Switzerland<br />

with legal domicile in Arbon. The activities of the group are divided into two main operating<br />

divisions: Saurer Textile Solutions and Transmission Systems.<br />

All major companies of Saurer are set out in the list of principal companies and investments<br />

on page 71.<br />

Saurer registered shares (SAUN) are listed on the SWX Swiss Stock Exchange in Zurich (ISIN:<br />

CH0012345143). The market capitalization at year-end was EUR 812m (CHF 1 262m).<br />

1.2 Significant shareholders. At the end of 2005 the following shareholders were registered:<br />

Shareholders Number of shares Number of shareholders<br />

Individuals 9.25% 87.88%<br />

Corporate entities 28.15% 12.12%<br />

Treasury shares 0.82% –<br />

Shares in the process of transfer 61.78% –<br />

According to information available to the company, the following shareholders reported<br />

shareholdings above 5% of share capital and voting rights at December 31, 2005:<br />

Laxey Partners Ltd (Group) between 10% and 20% (reported on August 17, 2005: 15.02%),<br />

Zürcher Kantonalbank between 5% and 10% (reported on August 10, 2005: 5.86%)<br />

1.3 Cross-shareholdings. There are no cross-shareholdings of Saurer with another company<br />

or group of companies.<br />

2. CAPITAL STRUCTURE<br />

2.1 Capital. The issued share capital of Saurer Ltd. is CHF 138 206 000, comprising 14 548 000<br />

fully paid registered shares with a nominal value of CHF 9.50 each.<br />

2.2 Authorized and conditional capital. Details of the authorized and conditional capital are<br />

set out in note 16 on page 65.<br />

2.3 Changes of capital. Information on movements in the capital structure for 2005 and<br />

2004 are set out in the consolidated statement of shareholders’ equity on page 48.<br />

The movements for the year 2003 are set out in the consolidated statement of shareholders’<br />

equity on page 40 of the Annual Report 2004, which is available on the group’s homepage,<br />

www.saurer.com.<br />

100.00% 100.00%


GROUP STRUCTURE<br />

Corporate<br />

Communications<br />

S. Lalive d’Epinay<br />

Saurer Textile Solutions<br />

H. Fischer*<br />

H. J. Jaussi, S. Kross, J. Röttgering, C. U. Mai<br />

Spinning Systems<br />

M. Stillger<br />

Neumag<br />

Dr. C. Voigtländer<br />

Winding Systems<br />

G. Küsters<br />

Twisting Systems<br />

Dr. D. Burger<br />

Components<br />

J. Steiger*<br />

Finance, Controlling,<br />

CFO<br />

P. Stiefenhofer*<br />

Texturing Systems<br />

K. Karrasch<br />

Rotor Spinning Systems<br />

J. Cundill<br />

Ring Spinning Systems<br />

H. Kamp<br />

Embroidery Systems<br />

Dr. J. Henz<br />

Saurer Ltd.<br />

Board of Directors<br />

CEO and Delegated Member of the Board of Directors<br />

H. Fischer*<br />

CORPORATE GOVERNANCE PAGE 87<br />

2.4 Shares and participation certificates. Each registered share is entitled to one vote at the General<br />

Meeting of Shareholders. Voting rights may only be exercised after the shareholder has been registered<br />

in the share register. All shares are entitled to full dividend rights. The voting rights of treasury shares held<br />

by the company or its subsidiaries are suspended. In the event of a capital increase through the issue of<br />

new shares, the existing shareholders have subscription rights in proportion to their existing shareholding,<br />

unless the General Meeting of Shareholders restricts or excludes such rights for important reasons, especially<br />

in connection with the acquisition of investments or employee participation.<br />

Saurer Ltd. has not issued (non-voting) participation certificates.<br />

Business<br />

Development<br />

C. Ruckstuhl<br />

2.5 Bonus certificates. Saurer Ltd. has not issued bonus certificates.<br />

Transmission Systems<br />

Dr. M. Lamberto*<br />

G. Lehman**, G. Sarti, A. Prono, S. Puglisi<br />

Off-Highway<br />

M. Cettolin<br />

Automotive<br />

P. Mantelli<br />

Internal Audit<br />

H. Beumer<br />

Market<br />

Development<br />

J. Steiger*<br />

Fairfield**<br />

G. Lehman<br />

Gears & Components<br />

S. Piazza<br />

Jingsheng<br />

Pan Xue Ping * Member of Senior Management<br />

** Fairfield as from Jan. 28, 2006<br />

2.6 Limitations on transferability and nominee registrations. There are no restrictions for Swiss or for<br />

non-Swiss investors with regard to registration in the share register, insofar as they have acquired the<br />

shares for their own account. Nominees will be registered only if they disclose the identity of the beneficial<br />

owners. There are no limits regarding the number of shares eligible for voting rights to be registered.<br />

However, in accordance with the articles of incorporation and by the law, there is an obligation to report<br />

participations which exceed or fall below 5, 10, 20, 25, 33 1 /3, 50 and 66 2 /3 percent, respectively. In the<br />

event that a participation of 33 1 /3 percent is attained, the holder of this participation is obliged to<br />

submit a public tender offer (according to the articles of incorporation of the company as well as the<br />

Swiss Federal Act on Stock Exchanges and Securities Trading – SESTA – of 1995, Articles 20 and 32).<br />

Registered shares not physically in existence, including the rights associated therewith, may only be trans-<br />

Corporate Governance


PAGE 88<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

ferred by assignment. Saurer Ltd. must be notified for assignments to be valid. If registered shares not<br />

physically in existence are managed by a bank on the instruction of a shareholder, such registered shares<br />

may only be transferred with the cooperation of the bank.<br />

2.7 Convertible bonds and options. Details of the repaid convertible bond are set out in note 13 on<br />

page 62, and details of stock options are set out in note 19 on page 67 and 68.<br />

3. BOARD OF DIRECTORS<br />

3.1 Members. The articles of incorporation stipulate that the Board of Directors consist of a minimum of<br />

three and a maximum of nine members. At present, the Board of Directors is composed as follows:<br />

Name Nationality Position Date of first appointment<br />

Prof. Dr. Giorgio Behr Swiss Chairman, non-executive June 6, 1995<br />

Ulrich Schmidt German Deputy chairman, non-executive May 16, 2000<br />

Heinrich Fischer Swiss Delegated member, executive member May 18, 1998<br />

Heinz Bachmann Swiss Non-executive member May 14, 2003<br />

Alexis Fries Swiss Non-executive member May 16, 2002<br />

Hans-Georg Härter German Non-executive member May 16, 2002<br />

Prof. Dr. Günther Schuh German Non-executive member May 16, 2002<br />

3.2 Education, professional background, other activities and functions. None of the non-executive<br />

Members of the Board was a member of Saurer’s management in the three financial years preceding the<br />

current year, except for Heinz Bachmann. None of the non-executive Members of the Board has impor-<br />

tant business connections with Saurer, except as noted in 5.1 below (consulting). None of the Members<br />

of the Board exercises official functions or holds political posts.<br />

Prof. Dr. Giorgio Behr (1948)<br />

Education: Law School University of Zurich, Swiss Certified Public Accountant, Attorney, Visiting Scholar<br />

University of Washington.<br />

Professional background: After ten years with KPMG, he joined the industrial group Hesta. From 1984 on<br />

he built up the consulting company Behr Deflandre & Snozzi BDS (sold end of 2004). From 1991 takeover<br />

of various companies (Bircher, Reglomat, Cellpack and Celltec), since 2003 grouped together into Behr<br />

Bircher Cellpack BBC Group.<br />

Activities in governing and supervisory bodies: Professor at the University of St. Gallen Business School<br />

(HSG) until spring 2005, now honorary professor. Member of the Board of the Hilti Group, Liechtenstein.<br />

Chairman of the board of trustees of the commission Swiss GAAP FER. Since fall 2005 (until September<br />

2007) Chairman of the professional body of certified accountants and tax consultants of the Swiss Insti-<br />

tute of Certified Accountants and Tax Consultants. Chairman of the board of trustees of various non-pro-<br />

fit organizations in the field of sport and oldtimer railways.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: None.<br />

Special Board assignments: Chairman.<br />

Ulrich Schmidt (1940)<br />

Education: Degree in Engineering, Technical University of Hannover.<br />

Professional background: Head of Development, Imperial-Werke Bünde (1967 to 1972). Head of Devel-<br />

opment, AEG, Nuremberg (1972 to 1980). Head of Production, Cooling and Freezing, AEG, Nuremberg<br />

(1981 to 1986). Head of Drilling Division, Hilti AG, Schaan (1986 to 1993). Member of the Executive<br />

Board, Hilti AG, Schaan (1994 to 1999). Since 2000 consultant.


CORPORATE GOVERNANCE PAGE 89<br />

Activities in governing and supervisory bodies: Member of the Board of Plaston AG, Widnau, and Hilcona<br />

AG, Liechtenstein.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: None.<br />

Special Board assignments: Deputy Chairman. Member of the Audit Committee.<br />

Heinrich Fischer (1950)<br />

Education: Master of Applied Physics & Electrical Engineering, ETH Zurich, MBA, University of Zurich.<br />

Professional background: Four years R&D in electronics after obtaining Master’s degree. From 1980 to<br />

1990 Balzers Division of Unaxis Group: Director of Staff, Technology, and Vice President, Business Unit<br />

Coating Equipment. From 1991 to 1996 Unaxis (formerly <strong>Oerlikon</strong> Bührle Holding AG): Executive Vice<br />

President, Corporate Development.<br />

Activities in governing and supervisory bodies: Member of the Board of Schweiter Technologies AG.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: None.<br />

Special Board assignments: Delegated Member and Chief Executive Officer, Saurer (since April 1, 1996).<br />

Heinz Bachmann (1942)<br />

Education: Degree in Engineering, Technical University for Textile Industry, Reutlingen.<br />

Professional background: Member of Group Management and Technical Manager, Wellington Industries<br />

Ltd, South Africa (1967 to 1974). Managing Director, responsible for R&D and production, Lauffenmühle<br />

Group, Tiengen (1975 to 1980). Chief Representative of Schubert & Salzer Ltd, Ingolstadt. Director and<br />

Member of Group Management of Rieter Ltd, Winterthur (1981 to 1989). CEO, Saurer Textile Systems<br />

(1990 to April 30, 2003).<br />

Activities in governing and supervisory bodies: Member of the Board of Burckhardt Compression AG,<br />

Hunziker AG, Graf & Cie. AG (until October 31, 2005). Chairman Santex Group. Guest Professor, Donghua<br />

University, Shanghai. Academic Consultant of College of Textile Development Committee, Donghua Uni-<br />

versity, Shanghai.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: Chairman<br />

Swissmem. Until June 2004, Chairman Swissmem Textile Machinery Group. Swissmem. Board Member of<br />

CEMATEX (European Committee of Textile Machinery Manufacturers). Honorary Treasurer JTMF. Chair-<br />

man, Swiss Turkish Business Council.<br />

Alexis Fries (1955)<br />

Education: Degree in Physics, ETH Zurich.<br />

Professional background: From 1980 various positions with ABB (formerly BBC Brown Boveri) in Switzer-<br />

land, Philippines, Japan and Hong Kong. Executive Vice President, ABB Zurich, and Member of the Group<br />

Executive Committee of ABB (1993 to 1998), Head of Power Generation Division (1998 to 1999). Executive<br />

Vice President, ABB ALSTOM Power, Brussels, Manager of Gas Turbines Division (1999 to 2001). From<br />

2001 to 2003 President, ALSTOM Power, Paris, Member of the Group Management of ALSTOM. Since<br />

2004 Business Consultant.<br />

Activities in governing and supervisory bodies: none.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: None.<br />

Hans-Georg Härter (1945)<br />

Education: Training in Mechanical Engineering, State Technician’s Certificate in machine design, construc-<br />

tion and assembly at the Technicians’ Day School, Berlin, degree in Engineering from the Meersburg<br />

Academy.<br />

Professional background: From 1973 various management functions within the ZF Group. Member of<br />

Board of Management, ZF Group. From 2002 Chief Executive Officer, ZF Sachs AG, Schweinfurt.<br />

Activities in governing and supervisory bodies: Chief Executive Officer, ZF Sachs AG, Schweinfurt.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: none.<br />

Corporate Governance


PAGE 90<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

Prof. Dr. Günther Schuh (1958)<br />

Education: Dr.-Ing., Dipl.-Wirt. Ing., RWTH Aachen University. Postdoctoral lectureship qualification,<br />

University of St. Gallen Business School.<br />

Professional background: Lectureships and professorships at University of St. Gallen. From 2002 fully ten-<br />

ured Professor for Production Engineering, RWTH Aachen University. Member of the Board of Directors of<br />

the Laboratory for Machine Tools and Production Engineering (WZL) of RWTH Aachen University and<br />

Member of the Board of Directors of the Fraunhofer IPT Aachen and of Research Institute for Rationaliza-<br />

tion (FIR) e.V. of RWTH Aachen University, and permanent Guest Professor at the University of St. Gallen<br />

(HSG).<br />

Activities in governing and supervisory bodies: Member of the Board of Gallus Holding AG, St. Gallen,<br />

Deputy Chairman of Zwiesel Kristallglas AG, Zwiesel, Member of the Supervisory Board of ThyssenKrupp<br />

Xervon GmbH, Gelsenkirchen. Chairman of the Board of Virtuelle Fabrik AG, St. Gallen, and GPS AG,<br />

St. Gallen. Chairman of the Supervisory Board of WZL forum GmbH.<br />

Permanent management and consultancy functions for Swiss and foreign interest groups: none.<br />

Special Board assignments: Chairman of the Audit Committee.<br />

3.3 Cross-involvement. As mentioned above under 3.2 there is the following cross-involvement with the<br />

Boards of Directors of other listed companies: Schweiter Technologies AG (Heinrich Fischer).<br />

3.4 Elections and terms of office. The Members of the Board of Directors are generally elected for the<br />

period of one year, which is defined as the period between one Annual General Meeting of the Share-<br />

holders and the following Annual General Meeting. Members may continue to be re-elected until they<br />

reach the age of 70.<br />

3.5 Internal organizational structure. The Board of Directors of Saurer Ltd. (the “company”) has<br />

adopted written Internal Regulations for the management of the company and of its subsidiaries<br />

pursuant to article 716b of the Swiss Code of Obligations (Company Law), the rules of the SWX Swiss<br />

Exchange and the company’s Articles of Association.<br />

3.5.1 Allocation of tasks within the Board of Directors. The Board elects a Chairman and a Deputy<br />

Chairman. Until such election or in the absence of the Chairman and Deputy Chairman, the longest<br />

serving Director presides over the Board. The Chairman of the Board is also Chairman of the “Committee<br />

of the Board” if this is appointed (see 3.5.2). The Board also elects the Chairman of the Audit Committee.<br />

He must not be Chairman of the Board at the same time. The Head of Internal Audit and Risk Manage-<br />

ment reports to him. The Delegated Member of the Board is at the same time CEO of the company. The<br />

Board elects a Secretary to the Board and the company who need not be a Board Member. At present this<br />

function is assigned to the CFO.<br />

3.5.2 Committees.<br />

Audit Committee. The Members of the Audit Committee are:<br />

• Prof. Dr. Günther Schuh, Chairman<br />

• Ulrich Schmidt, Member<br />

• Günther Schultz, Member (until the Annual Meeting of Shareholders 2006)<br />

Günther Schultz, external consultant, who is not a Member of the Board of Directors, but has a contrac-<br />

tual consulting relationship. Mr. Schultz, Swiss Certified Public Accountant, is a retired partner of KPMG,<br />

Zurich. He was previously Head of Auditing Services of KPMG Switzerland and Chairman of the Swiss<br />

Institute of Certified Public Accountants.<br />

The Audit Committee advises and supports the Board in all matters related to external audit, internal<br />

audit, risk management, accounting policies and practices and compliance with adopted accounting<br />

standards.


CORPORATE GOVERNANCE PAGE 91<br />

Committee of the Board. A Committee of the Board, consisting of three members, can be appointed if<br />

the Board has seven or more members and if the Board so decides. The Board can delegate certain func-<br />

tions to this committee. While the Committee of the Board is defined in the Internal Regulations, in the<br />

past it has never been appointed.<br />

Other Committees. Given the small size of the Board, important matters such as nomination, compensa-<br />

tion and management development are discussed by the full Board of Directors. If fast and decisive action<br />

is required, the Board has on rare occasions in the past appointed ad hoc committees for certain limited<br />

tasks. For several months at the end of 2001 and early 2002 the Board established a committee to review<br />

restructuring projects.<br />

3.5.3 Work methods of the Board. The Board meets as often as the business requires, but no fewer than<br />

four times per fiscal year. Board meetings last from one to two days. In 2005, the Board met five times<br />

(for seven days in total).<br />

A quorum of a majority of the Directors is required for resolutions to be valid. Resolutions are adopted by<br />

simple majority, with the Chairman casting the decisive vote in case of a tie.<br />

The Audit Committee normally meets three times a year, but not less than twice. Meetings last a half or<br />

a full day. In 2005, the Audit Committee met three times. The Chairman of the Audit Committee reports<br />

about issues and decisions to the full Board at the next Board meeting.<br />

The CEO as Delegated Member attends Board meetings, as does the CFO who has been elected as<br />

Secretary.<br />

Heads of strategic business units and business unit managers are regularly invited to present their budgets<br />

and strategic plans to the full Board.<br />

3.6 Definition of areas of responsibility. While the Board of Directors has delegated the executive<br />

management of the company and the group to the CEO and to the Senior Management, the following<br />

responsibilities remain with the Board:<br />

• Define the ultimate direction and strategy of the group.<br />

• Determine the top-level organizational structure of the group.<br />

• Approve the yearly budgets and annual reports, reporting and accounting policies.<br />

• Based on recommendations of the Audit Committee and the work of Internal Audit, ensure that<br />

internal control systems of the group are adequate.<br />

• Determine the appropriate capital structure.<br />

• Appoint and remove members of the Senior Management, assess the next lower level of Senior<br />

Man-agement. Discuss on an annual basis as part of a strategic management development process<br />

(SMD) the reviews of upper management levels. The focus is on key management positions of Saurer<br />

and its business units.<br />

• Elect the Chairman and Deputy Chairman as well as the Chairman of the Audit Committee.<br />

• Decide about the establishment of Committees of the Board (see 3.5.2).<br />

• Decide about subsidiaries, investments, acquisitions, financial market transactions, financing, assuming<br />

liabilities and granting of guarantees if they exceed certain limits that have been delegated to the<br />

CEO. While the limit for raising external financing on an aggregate basis below CHF 50m has been<br />

delegated to the CEO, all other limits of delegation to the CEO are CHF 15m or lower.<br />

3.7 Information and control instruments. Saurer’s reporting system uses professional reporting and<br />

consolidation software. Income statements and full balance sheets are reported and consolidated on a<br />

monthly basis, including other information pertinent to an up-to-date controlling system, such as sales<br />

and margin details, headcount, cash flow and capital spending. Specific treasury information is reported<br />

on a weekly and monthly basis. While a yearly budget is established and approved in the period of October<br />

Corporate Governance


PAGE 92<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

to December of the prior year, updated year-end projections are reported several times a year. Business<br />

unit managers report trends and developments in business, revenues, costs and other relevant informa-<br />

tion on a monthly basis.<br />

The Saurer reporting system supports value management with a view to compensation programs (see<br />

Section 5). For all business units operating profit and net operating assets are reported, which allows the<br />

determination of asset turns and return on operating assets.<br />

In cases of specific initiatives, such as significant restructuring, the Board in the past has received special<br />

ad-hoc reporting.<br />

The Internal Audit function provides the Board of Directors with independent and objective assessments<br />

of the effectiveness of the internal control and risk management systems. The COSO framework is used<br />

for reviewing management’s risk management and internal control practices. In September, the Audit<br />

Committee approves the budget, resources and internal audit plan for the next year. The selection of In-<br />

ternal Audit projects is based on risk assessment, with a focus on operational processes, throughout the<br />

Saurer group. The results of Internal Audits are communicated to management in charge, to Group<br />

Management, to the Audit Committee, to the Chairman of the Board as well as to External Audit through<br />

formal Internal Audit reports. Regular follow-up is performed to ensure that risk mitigation and control<br />

improvement measures are implemented on a timely basis.<br />

The Head of Internal Audit and Risk Management, Hans Beumer, reports directly to the Audit Committee<br />

of the Board of Directors, to ensure independence from management. Mr. Beumer studied Business Ad-<br />

ministration (drs) at the Free University in Amsterdam and is a Dutch Certified Public Accountant (RA),<br />

Certified Internal Auditor (CIA) and Certified Information Systems Auditor (CISA). He trained in the public<br />

accounting practice with Arthur Andersen (Amsterdam and Zurich). He previously worked in Internal<br />

Audit and Finance Management at Boehringer Mannheim Group, Amsterdam, was Head of Internal<br />

Audit and Head of Group Reporting at adidas-Salomon, Herzogenaurach, and latterly CFO of Dutch<br />

Broadcasting Services, Hilversum.


4. SENIOR MANAGEMENT<br />

4.1 Members<br />

CORPORATE GOVERNANCE PAGE 93<br />

Name Nationality Function<br />

Heinrich Fischer Swiss CEO Saurer, Delegated Member of the Board of Directors,<br />

4.2 Education, professional background, other activities and functions. None of the members of the<br />

Senior Management is a member of governing and supervisory bodies of important Swiss or foreign or-<br />

ganizations outside of Saurer, with the exception of Heinrich Fischer, as noted in 3.2 above. None of the<br />

members holds permanent management or consultancy functions for important Swiss or foreign interest<br />

groups, and none of the members has official functions or holds political posts.<br />

Heinrich Fischer<br />

See 3.2 above.<br />

Peter Stiefenhofer (1953)<br />

Education: Degree in Economics and Business Administration, University of Zurich. Swiss Certified Public<br />

Accountant. Advanced Executive Course (Northwestern University, Kellogg).<br />

Professional background: Auditor and systems consultant with KPMG. Group Controller, Zellweger Group.<br />

Vice President Finance and Operations, Zellweger Analytics, Inc., U.S.<br />

Tasks previously carried out for Saurer: none.<br />

Dr. Marcello Lamberto (1951)<br />

Education: Doctor in Mechanical Engineering from Politecnico di Torino.<br />

Professional background: Metallurgist within the Product Development Department at Fiat Cars. Chief<br />

Metallurgist and Quality Manager at Rockwell CVC (joint venture between Rockwell International and<br />

Iveco, manufacturing axles for trucks). From October 1984 various positions at Graziano Trasmissioni<br />

(Quality Manager, Operations Manager, assistant to the Managing Director, General Manager and CEO).<br />

Tasks previously carried out for Saurer: none.<br />

Josef Steiger (1951)<br />

Education: Degree in Engineering, ETH Zurich. Degree in Business Administration from HSG (University of<br />

St. Gallen Business School).<br />

Professional background: Relationship Manager for Corporate Finance for Swiss multinational companies<br />

at Chase Manhattan Bank, Zurich. Managing Director of Multivac Export AG, Baar. Head of Sales at Rieter<br />

Ltd., Winterthur.<br />

CEO Saurer Textile Solutions<br />

Peter Stiefenhofer Swiss CFO Saurer<br />

Dr. Marcello Lamberto Italian CEO Transmission Systems<br />

Josef Steiger Swiss Head Market Development and CEO Components<br />

Tasks previously carried out for Saurer: General Manager, TEXParts GmbH, until December 31, 2003.<br />

4.3 Management contracts. Saurer does not have management contracts with third parties.<br />

Corporate Governance


PAGE 94<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

BOARD OF DIRECTORS<br />

Heinz Bachmann<br />

Alexis Fries<br />

Prof. Dr. Giorgio Behr<br />

Hans-Georg Härter<br />

Heinrich Fischer<br />

Ulrich Schmidt Prof. Dr. Günther Schuh


TOP MANAGEMENT<br />

Dr. Dirk Burger<br />

CEO Twisting Systems<br />

Heinz Kamp<br />

CEO Ring Spinning Systems<br />

Dr. Marcello Lamberto<br />

CEO Graziano Trasmissioni<br />

Josef Steiger<br />

Market Development<br />

John Cundill<br />

CEO Rotor Spinning Systems<br />

Klaus Karrasch<br />

CEO Texturing Systems<br />

Claus-Ulrich Mai<br />

CFO Saurer Textile Solutions<br />

Peter Stiefenhofer<br />

Chief Financial Officer<br />

Dr. Jürg Henz<br />

CEO Embroidery Systems<br />

Stefan Kross<br />

Chief Technology Officer<br />

Jan-Markus Röttgering<br />

Chief Commercial Officer<br />

Martin Stillger<br />

CEO Spinning Systems<br />

CORPORATE GOVERNANCE PAGE 95<br />

Hansjörg Jaussi<br />

Human Resources<br />

Gerard Küsters<br />

CEO Winding Systems<br />

Gianni Sarti<br />

Managing Director<br />

Graziano Trasmissioni<br />

Dr. Carsten Voigtländer<br />

CEO Neumag<br />

Corporate Governance


PAGE 96<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

5. COMPENSATION, SHAREHOLDINGS<br />

AND LOANS<br />

5.1 Content and method of compensation<br />

Non-Executive Directors<br />

For the Board of Directors, the following forms of compensation apply:<br />

• Board fees (cash)<br />

• Long-term bonus*<br />

• Other cash compensations (expense allowances)<br />

• Consulting fees for special projects**<br />

• Saurer employee stock option program<br />

*Non-Executive Board members do not normally receive fixed or variable bonuses. In the context of long-<br />

term option investment programs, entailing financial risk for the participant, long-term bonus contribu-<br />

tions are allocated. In 2007, the board of directors will receive retention bonuses under the 2007 long-<br />

term retention program. These bonuses are being accrued in the years 2004 to 2007.<br />

**Board members of Saurer have special experience in the areas of finance, process management, inno-<br />

vation management, Asian markets or textile and automotive industry. Saurer tries to make use of this<br />

experience beyond the limited framework of Board meetings. The resulting consulting assignments are<br />

limited to projects with an effort of a maximum of 40 workdays. Consulting assignments are compen-<br />

sated with fees comparable to market.<br />

Board fees and other cash compensations are approved by the full Board. The Chairman and the CEO<br />

decide about the allocation of stock options to Board members (last time in 2003).<br />

Senior Management (including Executive Director)<br />

The basic principles of compensation for Senior Management can be summarized as follows: While the<br />

overall compensation over the mid-term must be in line with the market, the yearly compensation should<br />

clearly reflect the financial results of the group or of the unit of responsibility. Variable elements (cash<br />

bonus and return from stock options) should constitute a significant portion of the total compensation.<br />

Compensation objectives of Senior Management and business unit managers are defined between the<br />

CEO and the Chairman, and approved by the full Board of Directors once a year.<br />

The following elements of compensation are applied on the level of Senior Management:<br />

• Base salary cash<br />

• Cash bonuses, also including payments under the stock option program for employees of Graziano<br />

(Transmission Systems)<br />

• Other cash compensations (expense allowances, company cars, etc.)<br />

• Saurer employee stock option program<br />

• Pension fund and other benefit allocations<br />

All senior managers and managers of business units have several individual and financial objectives<br />

defined yearly and serving within the defined ranges as a basis for cash bonuses. These cash bonuses have<br />

a range of zero to a maximum of 2.5 times a base salary.


CORPORATE GOVERNANCE PAGE 97<br />

Saurer measures operating profit and net operating assets for all business units on a worldwide consolidated<br />

basis, which allows financial bonuses to be linked to key financial figures such as returns on net operating<br />

assets or economic value added.<br />

Long-term bonuses can be tied to long-term strategic initiatives and are in excess of the yearly variable<br />

bonuses. For instance management (not the Board) is scheduled to receive additional long-term bonuses<br />

in 2006, as the TEMPUS cost saving targets were achieved in 2005.<br />

In 2007, management will receive retention bonuses under the 2007 long-term retention program. These<br />

bonuses are being accrued in the years 2004 to 2007.<br />

Saurer does not issue stock to employees or Board members, unless acquired through the stock option<br />

programs.<br />

Non-Executive Directors of the Board<br />

The Graziano stock option program pertains to Graziano stock. On a consolidated group level, the<br />

program in substance amounts to a phantom stock program resulting in cash compensation, since no<br />

Graziano stock is issued without being purchased back immediately.<br />

5.2 Compensations in detail<br />

Bonuses and retention accruals<br />

Bonuses as disclosed in the table are accrued values, related to the performance in 2005.<br />

The accruals for the 2007 long-term retention program are not included with the bonuses as shown above.<br />

These accrual amounts included in the income statement for 2005 are EUR 356k for non-executive<br />

directors and EUR 443k for Senior Management.<br />

Board Various Total<br />

(amounts in EUR 000) fees payments compensation<br />

Prof. Dr. Giorgio Behr (Chairman) 78 126 204<br />

Ulrich Schmidt (Deputy Chairman and Audit Committee) 77 12 89<br />

Prof. Dr. Günther Schuh (Audit Committee) 58 6 64<br />

Heinz Bachmann 55 73 128<br />

Alexis Fries 55 6 61<br />

Hans-Georg Härter 47 6 53<br />

Total 370 229 599<br />

Executive Director, Senior Management<br />

Various Total<br />

(amounts in EUR 000) Salaries Bonuses payments compensation<br />

Total 966 648 43 1 657<br />

Highest individual compensation 472 252 12 736<br />

Corporate Governance


PAGE 98<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

Contributions to pension funds<br />

The total of contributions to pension funds for Senior Management was EUR 329k. No pension contribu-<br />

tions are made on behalf of non-executive Board members.<br />

Payments to former Management and Directors<br />

There were no compensation payments to former members of the Board, nor of Senior Management,<br />

neither were options issued.<br />

Option programs on Saurer shares<br />

In 2005, no options were issued.<br />

All options entitle the holder to buy one Saurer share.<br />

Saurer shares and third party options held.<br />

Shares Options<br />

31.12.05 31.12.05<br />

Non-Executive Directors 207 100 214 000<br />

of the Board<br />

Senior Management 500 71 400<br />

(incl. Executive Director)<br />

Saurer does not issue shares to Board members or Senior Management, unless if acquired under the stock<br />

option program. Shares owned were therefore either acquired on the market or in connection with<br />

exercising options.<br />

The third-party options were issued in 2004 by a bank and were acquired by non-executive directors and<br />

by Senior Management and other top management at market value on a voluntary basis.<br />

Loans and advance facility to Senior Management.<br />

Options<br />

Year Options held Strike Compensation Duration<br />

issued issued 31.12.05 CHF value CHF (years)<br />

Non-Executive Directors 2003 18 000 15 000 50.25 3.30 5<br />

2002 21 000 7 000 21.25 4.39 5<br />

Total 22 000<br />

Senior Management 2003 29 000 26 500 50.25 10.90 5<br />

(incl. Executive Director)<br />

Former Members 2003 1 500 750 50.25 10.90 5<br />

of Senior Management<br />

In order to facilitate the acquisition of third-party call options on Saurer shares in 2004, the company gave<br />

an interest-free advance facility to Senior Management until July 2007, with a net balance at the end of<br />

2005 of EUR 615k (EUR 1 275k in 2004). No advance facilities or loans were given to Board members.<br />

207 600 285 400


CORPORATE GOVERNANCE PAGE 99<br />

6. SHAREHOLDERS’ PARTICIPATION<br />

RIGHTS<br />

6.1 Voting rights restrictions and representation. Each issued registered share has one voting right.<br />

The voting rights of treasury shares are suspended while they are under the control of Saurer Ltd. or its<br />

subsidiaries. A shareholder may be represented only by a written proxy, proxy by another shareholder, the<br />

by the independent representative of shareholders, the representative appointed by the company or the<br />

shareholder‘s custodian bank.<br />

6.2 Statutory quorums. In general the Shareholders’ Meeting passes its resolutions and conducts its votes<br />

by simple majority of the voting rights represented, without regard for the number of shareholders pres-<br />

ent or the share capital represented, unless the requirements of the law or the articles of incorporation<br />

are contrary.<br />

A requisite majority of at least two-thirds of the voting rights represented is required for the following<br />

resolutions:<br />

• Change in the company’s purpose<br />

• Introduction of voting shares or a restriction in voting rights<br />

• Restriction on the transferability of registered shares (“Vinkulierung”)<br />

• Authorized or conditional increase of capital<br />

• Increase of capital from reserves, in exchange for contributions in kind or the granting<br />

of special privileges<br />

• Restriction or exclusion of subscription rights<br />

• Transfer of the domicile of the company<br />

• Dissolution of the company<br />

A requisite majority of at least two-thirds of the whole share capital is required for the following resolutions:<br />

• Change or removal of the requirement to report participations in the company above certain thresh-<br />

olds, and the obligation to submit a public tender offer;<br />

• Change or removal of the regulation concerning minimum and maximum number of Members of the<br />

Board of Directors and their period of office, as well as the voting-out of a majority of the Members of<br />

the Board of Directors, if the resolution is proposed or supported by a shareholder or group of share-<br />

holders who have not reported their participations in the company in accordance with the requirement<br />

mentioned in 2.6 above, and have not submitted a public tender offer.<br />

6.3 Convocation of the General Meeting of Shareholders. The convocation of the General Meeting of<br />

Shareholders occurs at least 20 days before the General Meeting in the official publication organ of the<br />

company (“Swiss Official Gazette of Commerce”). In addition the Board of Directors sends an invitation<br />

by mail to the shareholders and beneficiaries of shares registered in the share register.<br />

6.4 Agenda. The invitation to the General Meeting of Shareholders mentions all business to be discussed<br />

as well as proposals of the Board of Directors or of shareholders who have asked for an item to be placed<br />

on the agenda. No resolution can be passed unless the business to be discussed and the related proposals<br />

have been properly announced, except for the convocation of an extraordinary General Meeting or the<br />

proposal for a special audit.<br />

Shareholders representing share capital of half a million Swiss francs nominal value may ask for an item<br />

to be placed on the agenda. The request must be submitted in writing, specifying the matters to be dis-<br />

cussed and the proposals made, within a time limit published by the company.<br />

Corporate Governance


PAGE 100<br />

Corporate Governance<br />

CORPORATE GOVERNANCE<br />

6.5 Registrations in the share register. The company maintains a share register in which the details of<br />

the owners and beneficiaries of the registered shares are recorded. Nominees will be registered only if<br />

they disclose the identity of the beneficiary owners of the shares.<br />

7. CHANGES OF CONTROL AND<br />

DEFENCE MEASURES<br />

7.1 Duty to make an offer. If an investor acquires a minimum of 33 1 /3 percent of the capital and voting<br />

rights of Saurer Ltd., there is an obligation to submit a public tender offer.<br />

7.2 Clauses on changes of control. There are no provisions for special compensation due to change of<br />

control for members of the Board, nor for Senior Management.<br />

8. AUDITORS<br />

8.1 Mandate and term of office. The group auditors PricewaterhouseCoopers AG, St. Gallen, were first<br />

appointed as group auditors for the financial year 1990. The auditor-in-charge, Mr. Daniel Ketterer, first<br />

took up office for the financial year 2003.<br />

8.2 Audit fees. The total audit fee charged by PricewaterhouseCoopers worldwide for the financial year<br />

2005 amounts to EUR 1 066 000 (2004: EUR 1 141 000). The audit fees charged by other auditors for the<br />

financial year 2005 amount to EUR 91 000 (2004: EUR 59 000).<br />

8.3 Other fees. Fees charged by PricewaterhouseCoopers in respect of non-audit work for the financial<br />

year 2005 amount to EUR 104 000 (2004: EUR 85 000).<br />

8.4 Supervisory and control instruments. The Board of Directors monitors the work and audit results of<br />

the external auditors through the Audit Committee, which meets at least twice a year with the external<br />

auditors. In 2005 the Audit Committee met three times with the external auditors. The Audit Committee<br />

further reviews the level of the external audit fees, and Internal Audit coordinates its work program with<br />

the external auditors.


9. INFORMATION POLICY<br />

CORPORATE GOVERNANCE PAGE 101<br />

In addition to full-year results, Saurer publishes condensed interim financial information for the first half<br />

of the fiscal year. The interim financial information is published in the form of a letter to shareholders.<br />

Saurer also provides stock-price-sensitive information in accordance with the ad hoc publicity require-<br />

ments of the Listing Rules of the SWX Swiss Exchange. All interested parties have the possibility to direct-<br />

ly receive from Saurer, via e-mail distribution list, free and timely notification of potentially price-sensitive<br />

facts. All this information as well as the registration form for the e-mail distribution service can be found<br />

on the group homepage www.saurer.com (sections Investor Relations and News). Further information is<br />

available on the homepage such as agenda and minutes of the Annual General Meeting of Share-<br />

holders.<br />

For further information, please contact Simone Lalive d’Epinay, Corporate Communications and Investor<br />

Relations, phone +41 52 264 09 14, fax +41 52 264 09 10, e-mail s.lalive@sgm.saurer.com.<br />

Important dates for 2006 are as follows:<br />

• Annual General Meeting of Shareholders: May 11, 2006<br />

• Publication of half-year results: July 25, 2006<br />

10. RISK MANAGEMENT<br />

Risk Management within Saurer is a fundamental requirement for sustaining the success of the company<br />

into the future and will help avoid threats that could jeopardize business continuity. The key objective of<br />

enterprise risk management is the protection and growth of shareholder value based on:<br />

• opportunity-focused, but risk-aware decision-making considering an optimal balance between chan-<br />

ces and risk avoidance, risk reduction, risk transfer and controlled risk acceptance.<br />

• identification and assessment of threats affecting the company’s asset value, earnings and cash flow<br />

strength, but also impacting intangible values such as brand image or the social and environmental<br />

record.<br />

The goal is not to avoid all potential risks, but to explore business opportunities optimally in a controlled<br />

and managed risk environment.<br />

Risk Management is conducted with a variety of instruments, such as strategic business planning, regular<br />

business reviews, financial planning and reporting at multiple levels within the organization, with the<br />

Board of Directors maintaining the oversight role. For business units as well as key corporate functions,<br />

specific risk maps have been determined. These risk maps provide two-dimensional transparency about<br />

the likelihood and impact of the most significant risks. They are accompanied by action plans for the ap-<br />

propriate mitigation of the risks. The risk maps are updated on a regular basis as a result of internal audits,<br />

risk reporting and periodic and systematic reviews by management.<br />

There are several central functions (such as Corporate Treasury, Legal Counsel and Internal Audit), which<br />

educate the organization with respect to the development and use of effective and cost-efficient risk<br />

management. Within the established Risk Management teams, regular meetings take place to promote<br />

best practices in order to further develop the embedded risk management culture.<br />

Corporate Governance


ADDRESSES WORLDWIDE


PAGE 104<br />

Saurer<br />

Saurer AG Textilstrasse 2 T +41 71 447 52 91 www.saurer.com<br />

CH-9320 Arbon F +41 71 447 52 88 info@sgm.saurer.com<br />

Saurer Management AG Bahnhofplatz 12 T +41 52 264 09 11 www.saurer.com<br />

CH-8401 Winterthur F +41 52 264 09 10 info@sgm.saurer.com<br />

Saurer Group Investments Ltd. Campbell Corporate Services Ltd. T +1 809 949 2648<br />

The Bank of Nova Scotia Building F +1 809 949 2648<br />

P.O. Box 268, George Town T +377 97 70 40 43<br />

KY-Grand Cayman F +377 97 70 40 44<br />

British West Indies<br />

Aktiengesellschaft Adolph Saurer Textilstrasse 2 T +41 71 447 52 91 www.saurer.com<br />

Saurer Textile Solutions<br />

CH-9320 Arbon F +41 71 447 52 88 info@sgm.saurer.com<br />

Saurer GmbH & Co. KG Landgrafenstrasse 45 T +49 2161 28 0 www.textile.saurer.com<br />

DE-41069 Mönchengladbach F +49 2161 28 2645 info@textile.saurer.com<br />

Postfach 100435<br />

DE-41004 Mönchengladbach<br />

Sales & Customer Support Jan Röttgering<br />

Technology & Logistics Stefan Kross<br />

Finance Claus Ulrich Mai<br />

Branch:<br />

ADDRESSES WORLDWIDE<br />

Company Address Telephon/fax Internet/e-Mail Management<br />

Allma Leonhardstrasse 19 T +49 831 688 0 www.allma.saurer.com Dr. Dirk Burger<br />

DE-87437 Kempten F +49 831 688 320 info@allma.saurer.com<br />

Postfach 2580<br />

DE-87415 Kempten<br />

<strong>Barmag</strong> Leverkuser Strasse 65 T +49 2191 67 0 www.barmag.saurer.com Klaus Karrasch<br />

DE-42897 Remscheid F +49 2191 67 1204 info@barmag.saurer.com Martin Stillger<br />

<strong>Barmag</strong>-Spinnzwirn Zwickauer Strasse 247 T +49 371 2388 0 www.barmag.saurer.com Martin Stillger<br />

DE-09116 Chemnitz F +49 371 2388 349 info@barmag-chemnitz.de<br />

Neumag Christianstrasse 168–170 T +49 4321 305 0 www.neumag.saurer.com Dr. Carsten Voigtländer<br />

DE-24536 Neumünster F +49 4321 305 212 info@neumag.saurer.com<br />

Schlafhorst-Rotorspinning Blumenberger Strasse 143–145 T +49 2161 28 2880 www.schlafhorst.saurer.com John Cundill<br />

DE-41061 Mönchengladbach F +49 2161 28 2803 info@schlafhorst.saurer.com<br />

Postfach 100435<br />

DE-41004 Mönchengladbach<br />

Schlafhorst-Winding Carlstrasse 60 T +49 2161 28 0 www.schlafhorst.saurer.com Gerard Küsters<br />

Addresses worldwide<br />

DE-52531 Übach-Palenberg F +49 2161 28 5302 info@schlafhorst.saurer.com<br />

Postfach 12 60<br />

DE-52527 Übach-Palenberg


Volkmann Weeserweg 60 T +49 2151 717 01 www.volkmann.saurer.com Dr. Dirk Burger<br />

DE-47804 Krefeld F +49 2151 717 478 info@volkmann.saurer.com<br />

Postfach 102365<br />

DE-47723 Krefeld<br />

Zinser Hans-Zinser-Strasse 1–3 T +49 7163 14 0 www.zinser.saurer.com Heinz Wilhelm Kamp<br />

Austria:<br />

DE-73061 Ebersbach F +49 7163 14 250 info@zinser.saurer.com<br />

Postfach 1480<br />

DE-73058 Ebersbach<br />

Fehrer GmbH Wegscheiderstrasse 15 T +43 732 37 39 0 www.fehrerag.com Gert Löhmer<br />

AT-4021 Linz (Leonding) F +43 732 38 16 72 office@fehrerag.com<br />

Saurer Holding GmbH Wegscheiderstrasse 15 T +43 732 37 39 0 www.fehrerag.com Peter Stiefenhofer<br />

Brazil:<br />

AT-4021 Linz (Leonding) F +43 732 38 16 72 office@fehrerag.com<br />

Saurer do Brasil – Máquinas Ltda. Av. Theodomiro Porto da Fonseca, T +55 51 3 579 8507 www.barmag.com.br Volker Lübke<br />

2123 F +55 51 3 588 1363 barmag@barmag.com.br<br />

Bairro Cristo Rei<br />

BR- 93032-000 São Leopoldo (RS)<br />

Schlafhorst do Brasil Ltda. Rua Domingos Afonso 460-térreo T +55 11 6101 2010 www.textile.saurer.com Günter Bammer<br />

China:<br />

Vila Santa Clara F +55 11 6916 6680 schlafhorst@schlafhorst.com.br<br />

BR-03161-090 São Paulo (SP)<br />

<strong>Barmag</strong> Beijing Machinery Co., Ltd. 18, Tian Shui Yuan Dong Jie T +86 01 6501 8821 www.barmag.saurer.com Dieter Abele<br />

Chaoyang District F +86 01 6501 9014 bbm@barmagpek.com.cn<br />

CN-100026 Beijing<br />

Saurer China Equity Ltd. Units 3806B–3807 T +852 2827 4314 www.saurer.com Peter Stiefenhofer<br />

38th Floor, Wu Chung House F +852 2827 5250 info@saurer.com<br />

213 Queen’s Road East<br />

HK-Wanchai<br />

Saurer China Investments Ltd. Units 3806B–3807 T +852 2827 4314 www.saurer.com Peter Stiefenhofer<br />

38th Floor, Wu Chung House F +852 2827 5250 info@saurer.com<br />

213 Queen’s Road East<br />

HK-Wanchai<br />

Saurer (China) No. 9 Chang Yang Street T +86 512 8188 5998 www.textile.saurer.com Xu Linfeng<br />

Technology Co. Ltd. Suzhou Industrial Park F +86 512 8188 5999 info@china.saurer.com Joachim Diezl<br />

CN-215024 Suzhou, Jiangsu Province<br />

Saurer Far East Ltd. Units 3806B–3807 T +852 2827 4314 www.textile.saurer.com Matthias Rudolph<br />

38th Floor, Wu Chung House F +852 2827 5250 wscasia@compuserve.com Peter Stiefenhofer<br />

213 Queen’s Road East barmaghk@netvigator.com Jan Röttgering<br />

HK-Wanchai<br />

ADDRESSES WORLDWIDE PAGE 105<br />

Company Address Telephon/fax Internet/e-Mail Management<br />

Addresses worldwide


PAGE 106<br />

Saurer Jintan Textile 98 Huacheng Road T +86 519 231 9966 office@cn-jtmw.com Pan Xue Ping<br />

Machinery Co. Ltd. CN-213200 Jintan Jiangsu F +86 519 231 9977 www.saurer.com<br />

Saurer Textile Machinery Changjiang Nan Road 28–75 T +86 510 5342 721 www.textile.saurer.com Tony Yung<br />

(Wuxi) Co., Ltd. Land Lord No. 100 F +86 510 5342 799 yung@btw.saurer.com<br />

CN-214028 Wuxi New District<br />

Wuxi, Jiangsu Province<br />

Saurer Trading + Service Ltd. Units 3806B – 3807 T +852 2866 35 01 www.saurer.com Peter Stiefenhofer<br />

Czech Republic:<br />

38th Floor, Wu Chung House F +852 2861 27 15 wscasia@compuserve.com<br />

No. 213 Queen’s Road East<br />

HK-Wanchai<br />

Saurer Czech Republic s.r.o. Lhota za C Kostelcem 261 T +420 491 469 200 www.textile.saurer.com Daniel Svrcina<br />

Denmark:<br />

CZ-549 41 Cerveny-Kostelec F +420 491 469 502 info@czech.saurer.com<br />

M&J Fibretech a/s Vejlevej 3 T +45 75 64 62 00 www.mjfibre.com Henning Skov Jensen<br />

Germany:<br />

DK-8700 Horsens F +45 75 64 59 00 mjfibre@mjfibre.dk<br />

Autefa automation GmbH Röntgenstrasse 1–5 T +49 821 2608 0 www.autefa.com Herwig Hirschek<br />

DE-86136 Friedberg F +821 2608 299 email@autefa.de Alfred Von-Rhein<br />

Dirk Falise<br />

Manfred Schäffler<br />

Enka tecnica GmbH Boos-Fremery-Strasse 62, T +49 349 762 82 0 www.enkatecnica.com Uwe Gaedike<br />

DE-52525 Heinsberg F +49 349 762 82 02 sales@enkatecnica.com<br />

ERMAFA Kunststofftechnik Zwickauer Strasse 247 T +49 371 9097 700 www.ermafa.de Uwe Hartmann<br />

Chemnitz GmbH DE-09116 Chemnitz F +49 371 9097 709 info@ermafa.de<br />

TEMCO Components GmbH Fuldaer Strasse 19 T +49 9732 87 0 www.temco.de Josef Steiger<br />

DE-97762 Hammelburg F +49 9732 87 310 sales@temco.de<br />

Texparts GmbH Marin-Merian-Strasse 8 T +49 711 585 21.0 www.texparts.de Josef Steiger<br />

DE-70736 Fellbach F +49 711 585 21-59 sales@texparts.de<br />

Schlafhorst Waldnieler Strasse 73 T +49 2161 28 0 www.schlafhorst-electronics.de Knut Richter<br />

Electronics GmbH DE-41068 Mönchengladbach F +49 2161 28 3575 info@schlafhorst-electronics.de Manfred Tillmann<br />

India:<br />

ADDRESSES WORLDWIDE<br />

Company Address Telephon/fax Internet/e-Mail Management<br />

Saurer India Pvt. Ltd. EIL Complex T +91 22 565 27 900 www.textile.saurer.com Khurshed M. Thanawalla<br />

Addresses worldwide<br />

414, Senapati Bapat Marg F +91 22 565 27 90 management@saurerindia.com<br />

Lower Parel<br />

IN-Mumbai 400 013<br />

`


Zinser Textile Systems Pte. Ltd. c/o A.T.E. Enterprises Pvt. Ltd. T +91 22 2287 2245 www.ateindia.com Kaushik Pate<br />

Italy:<br />

43, Dr. V.B. Gandhi Marg, Fort F +91 22 2204 1690 ate_fort@ateindia.com<br />

IN-Mumbai 400 023<br />

Fincarde S.p.A. Strade Campagné 16 T +39 015 848 41 11 www.fincarde.com Dr. Arnd Grimm<br />

Mexico:<br />

IT- 1390 Biella F +39 015 849 18 80 info@fincarde.com<br />

Saurer Mexico SA de C.V. Av. Sor Juana Inés de la Cruz T +52 55 5565 6200 www.saurer.com Manuel Herrero Dominguez<br />

Poland:<br />

No.14–7° piso F +52 55 55 65 6160 saurer@prodigy.net.mx<br />

Col. San Lorenzo C.P.<br />

MX-54000 Tlalnepantla<br />

SEP Sp z o.o. ul. Transportowa 1a T +48 68 4572 5500 www.sep-electronics.pl Claus Brunen<br />

Switzerland:<br />

PL-68-300 Lubsko F +48 68 4572 501 mw-sep@wp.pl Manfred Tillmann<br />

Saurer Hamel AG Textilstrasse 2 T +41 71 447 51 11 www.saurerhamel.com Dr. Jürg Henz<br />

CH-9320 Arbon F +41 71 447 54 11 info@saurerhamel.com<br />

Heberlein Fibre Technology Inc. Bleikenstrasse 11 T +41 71 987 44 44 www.heberlein.com Heinz Michel<br />

CH-9630 Wattwil F +41 71 987 44 45 hft@heberlein.com<br />

Electrotex AG Bleikenstrasse 11 T +41 71 987 43 00 www.electrotex.ch Heinz Michel<br />

Turkey:<br />

CH-9630 Wattwil F +41 71 987 43 01 info@electrotex.ch<br />

Saurer Middle East Tekstil Büyükdere Cad. Dergiler Sok. No:5 T +90 212 272 3820 www.textile.saurer.com Mustafa Gürpinar<br />

Makinalari Dis Ticaret A.S TR-80300 Esentepe / Istanbul F +90 212 267 38 37 fdurular@middleeast.saurer.com<br />

USA:<br />

Melco Industries Inc. 1575 West, 1245th Avenue T +1 303 457 1234 www.melco.com Peter Kern<br />

US-Denver, CO 80234 F +1 303 252 0508 info@melco.com<br />

Saurer Inc. 8801 South Boulevard T +1 704 554 08 00 www.textile.saurer.com Bob Sage<br />

P.O. Box 240828 F +1 704 554 73 50 info@saurerinc.com<br />

US-Charlotte, NC 28224<br />

ADDRESSES WORLDWIDE PAGE 107<br />

Company Address Telephon/fax Internet/e-Mail Management<br />

Addresses worldwide


PAGE 108<br />

ADDRESSES WORLDWIDE<br />

Company Address Telephon/fax Internet/e-Mail Management<br />

Transmission Technology<br />

Graziano Trasmissioni Group S.p.A. Via Cumiana 14 T +39 011 9570 1 www.grazianotrasmissioni.it Marcello Lamberto<br />

IT-10090 Cascine Vica Rivoli (TO) F +39 011 959 4803 info@grazianotrasmissioni.it<br />

Fairfield Manufacturing US 52 South T +1 765 772 4000 www.fairfieldmfg.com Gary Lehman<br />

Company Inc. US-Lafayette, IN 47909 F +1 765 772 4001<br />

China:<br />

Graziano Trasmissioni No. 9 Changyang Street T +86 512 818 85 118 www.grazianotrasmissioni.it Gianni Sarti<br />

Suzhou Operation – B.U. of Saurer Suzhou Industrial Park F +86 512 818 85 188 info@grazianotrasmissioni.it<br />

(China) Technology Co. Ltd. CN-Jiangsu Province, 215024<br />

India:<br />

Graziano Trasmissioni India Pvt. Ltd. Plot no. 14, Udyog Kendra T +91 120 235 0820 www.grazianotrasmissioni.it Marcello Lamberto<br />

Italy:<br />

Greater Noida, Gautam Budh Nagar F +91 120 235 0830 gtindia@grazianotrasmissioni.it<br />

IN-Uttar Pradesh 201 304<br />

Graziano Trasmissioni S.p.A. Via Cumiana 14 T +39 011 9570 1 www.grazianotrasmissioni.it Marcello Lamberto<br />

IT-10090 Cascine Vica Rivoli (TO) F +39 011 959 4803 info@grazianotrasmissioni.it<br />

I.T.T. S.r.l. Frazione Grinzano T +39 0172 471 511 www.grazianotrasmissioni.it Marcello Lamberto<br />

Switzerland:<br />

IT-12040 Cervere (CN) F +39 0172 474 601 info@grazianotrasmissioni.it<br />

Graziano Trasmissioni Group AG Textilstrasse 2 T +41 71 447 51 11 www.grazianotrasmissioni.it Salvi Piazza<br />

UK:<br />

CH-9320 Arbon F +41 71 447 54 11 info@grazianotrasmissioni.it<br />

Graziano Trasmissioni UK Ltd. 9, Harley Industrial Park, T +44 1480 403 453 www.grazianotrasmissioni.it Mike Finnigan<br />

USA:<br />

Paxton Hill F +44 1480 403 454 enquiries@grazianouk.com<br />

St. Neots-Huntingdon<br />

GB-Cambs PE19 6TA<br />

Fairfield Manufacturing US 52 South T +1 765 772 4000 www.fairfieldmfg.com Gary Lehman<br />

Company Inc. US-Lafayette, IN 47909 F +1 765 772 4001<br />

Graziano Trasmissioni 2222 Northmont Parkway, T +1 770 476 0496 www.grazianotrasmissioni.it Gianni Sarti<br />

North America Inc. Suite 300 F +1 770 623 3290 info@grazianotrasmissioni.it<br />

Addresses worldwide<br />

US-Duluth, GA 30096


SHARE STATISTICS


PAGE 110<br />

SHARE STATISTICS<br />

Saurer registered share 2005 2004 2003 2002 2001<br />

Symbol SWX: SAUN, Security No. 1 234 514 nom. CHF 9.50 nom. CHF 11.50 nom. CHF 11.50 nom. CHF 12.50 nom. CHF 12.50<br />

Nominal share capital<br />

Number of shares 14 548 000 15 430 000 15 430 000 15 430 000 15 430 000<br />

Nominal share capital (CHF) 138 206 000 177 445 000 177 445 000 192 875 000 192 875 000<br />

Conditional capital 1)<br />

Number of shares (for convertible bond) 3 000 000 3 000 000 3 000 000 3 000 000 3 000 000<br />

Nominal value (CHF) 28 500 000 34 500 000 34 500 000 37 500 000 37 500 000<br />

Number of shares (for stock option plans) 1 250 000 1 250 000 1 250 000 1 250 000 1 250 000<br />

Nominal value (CHF) 11 875 000 14 375 000 14 375 000 15 625 000 15 625 000<br />

Authorized capital 1) (for capital market transactions)<br />

Number of shares 3 000 000 3 000 000 3 000 000 3 000 000 3 000 000<br />

Nominal value (CHF) 28 500 000 34 500 000 34 500 000 37 500 000 37 500 000<br />

Shares issued (year-end)<br />

Number of shares 14 548 000 15 430 000 15 430 000 15 430 000 15 430 000<br />

Shares with rights to dividends (year-end)<br />

Number of shares 14 428 220 14 240 370 14 318 139 14 051 020 14 203 930<br />

Treasury shares (year-end)<br />

Number of shares 119 780 1 189 630 1 111 861 1 378 980 1 226 070<br />

Distributions<br />

Capital repayment per share (CHF) 1.80 2.00 – 1.00 –<br />

(in respect of the financial year shown; 2005: proposal to<br />

the General Meeting of Shareholders)<br />

Total distributions (CHF) 2) 29 096 000 13 682 122 15 430 000 – 12 344 000<br />

(shown for year of payment)<br />

Stock market capitalization<br />

Year-end (CHF) 1 262 469 250 954 104 790 786 065 831 432 068 865 426 117 900<br />

Key data per share (EUR) 3)<br />

Earnings (loss) per share (EUR) 3.72 4.71 3.33 2.37 -3.61<br />

Cash flow from operating activities (EUR) 4.98 11.52 8.83 10.28 8.20<br />

Shareholders‘ equity (EUR) 39.05 36.08 32.68 30.65 29.21<br />

Key data per share (CHF) 3)<br />

Earnings (loss) per share (CHF) 5.76 7.27 5.06 3.48 -5.46<br />

Cash flow from operating activities (CHF) 7.71 17.79 13.43 15.07 12.39<br />

Shareholders‘ equity (CHF) 60.73 55.74 50.91 44.58 43.29<br />

Stock market prices (CHF)<br />

High (CHF) 98.90 70.00 59.00 40.75 79.00<br />

Low (CHF) 67.80 54.00 22.45 22.50 21.00<br />

Year-end (CHF) 87.50 67.00 54.90 30.75 30.00<br />

1) The total of new shares issued must not exceed 5 000 000. See also Note 16, page 65.<br />

2) In respect of the year 2003 there was no cash dividend payment and no capital repayment. Instead, put option rights were issued in 2004 with an intrinsic value equal to the envisaged dividend<br />

2) level. 14 105 280 options were exercised with a volume-weighted average trading price of CHF 0.97.<br />

3) The key data for 2004 is restated. For details see pages 49 and 50.<br />

Share statistics


Imprint.<br />

Publisher: Saurer Ltd.<br />

Concept/Design: New Identity Ltd., Basel (CH)<br />

Text: Saurer Corporate Communications, Winterthur (CH)<br />

Photography: Raffael Waldner, Zürich (CH);<br />

Nic Hunger, Zürich (Pages 94/95), Saurer Ltd. (Page 15)<br />

Pre-press: WWS Medientechnik, Ditzingen (D)<br />

Print: Morf & Co. AG, Basel (CH)<br />

© Saurer Ltd. 2006

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