Annual Report 2002 - Funkwerk AG

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Annual Report 2002 - Funkwerk AG

Annual Report 2002


The Funkwerk AG

Funkwerk is leading in system solutions for mobile communications and logistics. We are one of

the most successful suppliers of infrastructures and technologies in these future markets.

Railroad companies, vehicle manufacturers, transportation and logistics companies, institutions

and manufacturers increasingly are counting on our innovative applications to achieve higher

profitability and security.

Statutory bodies of the Company

Supervisory Board

■ Rolf Rickmeyer (Chairman), B.A.M., Seeheim-Jugenheim

■ Niels Lund Chrestensen, Entrepreneur, Erfurt

■ Peter Schinkel, M.Sc., Berlin (until 06.12.2002)

Managing Board

■ Dr. Hans Grundner (Chairman),

Business Development and Business Field Private Networks

■ Herbert Meyer, B.A.M.,

Finances, Organisation and Investor Relations

■ Lutz Pfister, M.Sc.,

Business Field Commercial Mobile Radio Systems

■ Harald Steglich, M.Sc.,

Business Field Professional Mobile Radio Systems


Funkwerk at a Glance

Professional Mobile

Radio Systems

Hörmann Funkwerk

Kölleda GmbH

Kölleda

ALPHA meßsteuer-regeltechnik

gmbh

Neustadt/Wstr.

since

01.07.2002

Telemotion

FWK GmbH

Berlin

Commercial Mobile

Radio Systems

Funkwerk

Dabendorf GmbH

Dabendorf

Private

Networks

FUNKTEL GmbH

Salzgitter

since

01.10.2001

ARtem GmbH

Ulm

since

01.10.2002


Key Figures of Funkwerk AG

Turnover 1)

2000

2001

2002

EBIT 1)

2000

2001

2002

Incoming Orders 1)

2000

2001

2002

Employees 2)

2000

2001

2002

1) in million Euro

2) annual average

3.9

6.6

8.9

283

38.1

42.6

411

67.4

690

96.1

108.7

136.6


03 Letter to the shareholders

Report of the Managing Board

05 High-rate growth – our business model

07 The Funkwerk group: Three pillars for stable growth

09 Stable growth for today and tomorrow: mobile radio systems, logistics and more

13 Innovation “made by Funkwerk

15 2002 Group management report

27 Report of the Supervisory Board

29 The Funkwerk share

32 Financial Statements

41 Notes to the 2002 consolidated financial statements

68 Auditors’ report

Table of Contents

Annual Report 2002

01


Letter to the shareholders

Dear Sirs and Madams,

Looking back over the year 2002, many of the official reports are characterised by complaints

about economic difficulties and missed targets. With the 2002 annual report of Funkwerk AG,

which is hereby presented to you, we deliberately intend to make a counterpoint to the general

situation. An American gold medal winner once described the recipe for his success as “run your

own race”. Accordingly, we at Funkwerk once again “ran our race” in 2002. We stayed true to our

plans and have implemented our growth strategy with undeterred determination. The outcome – new

records in both sales and operating result:

■ Increasing by 61 per cent, the sales figures for 2002 amounted to 108,7 million Euro.

■ Despite additional expenditure due to the implementation of our growth strategy, the operating

result (EBIT) rose by around 35 per cent to 8.3 million Euro

■ To date, the last quarter of 2002 has been the best in company history, recording sales of 38.8

million Euro and an EBIT margin of 11.1 per cent.

■ The result per share increased from 0.75 to 0.84 Euro.

Not until you fall on difficult times will the quality of a business model and the sustainability of

a growth strategy be proven. Since Funkwerk AG went public in November 2000, times have become

harder, the worldwide general economic setting has rapidly deteriorated. The technology and telecommunications

sectors, in particular, recorded perceptible losses. And yet, in the past three

years, Funkwerk still managed to stay on course and to reach each and every one of its growth targets

without delays.

Especially in the general crisis-ridden year 2002, the business model of Funkwerk, resting on

three pillars and a solid foundation, proved successful. Our business segments, Professional Mobile

Radio Systems, Commercial Mobile Radio Systems, and Private Networks, are geared towards different

target groups that partly display opposite investment behaviour. Therefore, cyclical weaknesses

in one segment can be compensated for by the strengths of the other segments. Our business

segments are linked by a uniform company culture to release synergies, the sum total of this once

again being that Funkwerk secured above-plan business figures in 2002.

The basis for the success of our businesses even in difficult times are our innovative strength and

defensive investment policy.We very consciously anticipate technology changes in order to be able

to enter into new areas of growth and accordingly, adjust our product policy in good time. However,

we only invest in new technologies and products once we have established an adequate technical

competence and have received orders or there are definite initiations of business with potential

customers. Not only does this reduce the investment risk but also the time to market. This business

policy has proven successful in the past few years and has contributed to the recognised certainty

of our planning.

In addition to the financial targets, we also achieved our strategic objectives. In the Professional

Mobile Radio Systems segment, the internationalisation of our business progressed just as much

with new cooperation partners in Europe as did the establishment of Funkwerk as a supplier of telecommunication

equipment for the automobile industry in the Commercial Mobile Radio Systems >

Success through

innovative strength and

investment security

Letter to the shareholders

Annual Report 2002

03


04

Annual Report 2002

Dividends and

further growth

Letter to the shareholders

> segment.Within merely one year, the Private Networks segment advanced to an equally important,

strong supporting pillar of the Funkwerk group. In addition, we have adequately expanded our

technology and customer base through two acquisitions.

In many ways, the 2002 financial year was a year of transition. Thus, not only did we successfully

manage to introduce innovative products in all business segments, but we also created new structures

in development, production, and sales. In future, the sales division will be able to operate with

even greater market orientation thanks to the establishment of specialised project teams for foreign

markets and key customers. The production capacities already increased in 2001 were optimised

in order to ensure a greater profitability of the production sector. Our product range was further

modularised in 2002 to supply customer-oriented systems even more quickly and with greater

cost savings in the future.

Thus, Funkwerk combines the agility and flexibility of a medium-sized company with the productivity

and professionalism of industrial provenances. Just as reaching and exceeding the 100

million sales mark in 2002 documented our entry into a new dimension, setting the structural

course of Funkwerk for the future is to give the company further momentum for growth in the

next few years.

With the further development of this strategy and the resulting structural measures, we are consolidating

the reputation of Funkwerk as a profitable company with an intact growth story on the

capital market. However, our top priority is our commitment to giving our shareholders an interest

in the success of Funkwerk AG through price advances and distributions of earnings. As in the

previous year, therefore, the Managing Board intends to propose to the shareholders’ meeting a

dividend of 0.20 Euro.

In addition, we are quite confident that we will be able once again to increase the price of the

Funkwerk share through sustained growth in sales and revenue. This confidence is backed up by

the great motivation displayed by our staff, a high level of orders on hand, the success of our strategic

course set, and the imminent placement of new products onto the market. Therefore, based on our

proven, careful planning method, we anticipate growth rates of between 15 and 20 per cent in 2003,

despite the poor general political and economic setting.With orders on hand amounting to around

95 million Euro by the end of 2002, we have already secured in excess of 50 per cent of our anticipated

sales for 2003 by contracts. Already, we are working on our potentials beyond 2003. Therefore,

the growth of Funkwerk is not a hope or a vision, but a very realistic and predictable goal.

The race for market shares and contracts worth millions in 2003 has entered into yet another lap;

Funkwerk has started well and, as in the previous year, will continue to “run its race”. ■

Kölleda, 28 February 2003 For the Managing Board

Dr. Hans Grundner

Chairman of the Board


Report of the Managing Board

High-rate growth – our business model

Funkwerk AG is the technological leader in communication

systems used in vehicles, transport services, companies, and

institutions.With system solutions developed and produced by

us, we help our customers rationalise their industrial processes,

protect their staff and operating functions, and generate added

value. In addition, through constant innovations in hardware

and software, we ensure new useful effects, increased comfort,

and additional offers for both mobile and in-house communication.

The prerequisite for the market success of the Funkwerk products

and services is excellent technological competence and a

thorough understanding of the requirements and infrastruc- Lutz Pfister, Dr. Hans Grundner, Herbert Meyer, Harald Steglich

tures of the customer. Starting with the specification of the

application to the development, adjustment and production of

a customer-oriented solution to the implementation and commissioning, Funkwerk provides an

entire value-added chain while remaining a competent partner for its customer from start to

finish. This specialisation in user knowledge increases long-term customer loyalty while ensuring

competitive advantages.

Our innovative strength is the main driving force behind the growth of Funkwerk AG. More than

10 per cent of our sales are invested each year in our business infrastructure and the further development

of our technologies.Around 20 per cent of all Funkwerk staff are involved in development.

Their special know-how combined with our many years of customer relationships enable Funkwerk

to anticipate technological changes and adjust its product policy accordingly in good time.

We very specifically use technological changes to occupy early on market niches that are in the

process of development and to absorb any resulting above-average earning potential. In so doing,

we seek the cooperation of complementary partners in order to be able to overcome interface problems

and quickly surmount any entry barriers into the market.

However the highest priority is given to the security of our investments. The major criteria

of our investment decisions are sufficient competence in providing technical solutions

and already existing customer relationships shown in a definite demand, an intensive

dialogue with our customers, or already existing contracts. The feedback from the

market thus gained provides valuable information on the specification of the product

and prevents unprofitable investments. The economic efficiency must, in the

medium term, be measurable by the rate of return of the existing business. Thus,

our investments already pay off in the short term while technological adventures

with an uncertain outcome are avoided.

Flexibility and quick reaction times in regard to turning ideas into marketable products

are further success factors of Funkwerk. Here, the motivation and high competence of our

staff plays a substantial role.

This attuned network of factors creates the driving forces of growth that characterise the Funkwerk

business model – growth at high frequency. ■

User knowledge

technologies

Solutions

Collaboration

Report of the Managing Board

Cooperations

Customer

competence relationship

Investments New

Contracts

Orders on hand

Economic efficiency Technological changes

Annual Report 2002

05


The Funkwerk group: Three pillars for stable growth

As a specialist in tailored communication systems, Funkwerk concentrates on three future markets

with a high potential for growth while addressing three different target groups through clearly defined

business segments.

In the Professional Mobile Radio Systems segment, Funkwerk develops, produces, and sells solutions

that are leading in the field of technology and help rationalise business processes and in-house

communication while meeting the increasing requirements in regard to security. These highly specialised,

professional communication systems are predominantly aimed at railway companies,

transport and logistics businesses, and the industry. Thanks to the intelligent adjustment of innovative

technologies (such as GSM, GPS, GPRS, IP, and UMTS) to existing systems, Funkwerk contributes

here to the further development of an efficient traffic and communication infrastructure

all over the world.

The technology provided by Funkwerk also improves business processes and the security and

comfort of passengers and staff of transport and public utility undertakings. The main product

areas in this field are mobile radio terminals and management and information systems. Major

contracts from Deutsche Bahn AG and the French state railway, SNCF, and further forthcoming

orders of the GSM-R terminals of Funkwerk from other European railway companies mean that we

can look forward to above-average growth rates in this segment in 2003 and 2004.

In the Commercial Mobile Radio Systems segment, Funkwerk focuses on providing vehicle users

everywhere with every type of mobile communication possible without interference and with the

greatest level of security. Thus, the telecommunication equipment developed and produced for

vehicles is sold under the Funkwerk Dabendorf label. By means of hands-free systems, the patented

COMPENSER® amplifier technology, the communications box (KomBox), and GSM terminals,

Funkwerk optimises and extends the possibilities of using mobile radio networks for private and

business purposes.

Each Funkwerk product is characterised by the highest level of operating convenience and excellent

reception quality, as confirmed by numerous tests. Predominantly, the market targets of this segment

are vehicle manufacturers and the retrofitting market. In 2002, Funkwerk was once again able

to win leading international automobile and mobile phone manufacturers as cooperation partners,

thus securing for itself a good position in a newly developed supply segment of the automobile

industry that is expected to lead to a sharp increase in sales in 2004.

Funkwerk on the way to becoming a complete supplier

In the area of Private Networks, Funkwerk develops, produces, and sells customer-specific, configured

radio systems for companies, authorities, and institutions with special logistical requirements,

thus providing them with considerable rationalisation advantages as well as reliable operating processes,

personal security, and mobility. Thanks to the convergence of data and voice and the integration

of telematics functions, Funkwerk, as a system supplier, will in future be able to meet any

requirements companies and institutions may have in regard to communication, security, and process

control. Goal-oriented, Funkwerk has increased its technological base with the acquisition of the

wireless LAN specialist, ARtem GmbH. As a complete system infrastructure supplier, Funkwerk

hopes to see this segment grow particularly rapidly in the medium term.

This structure of Funkwerk AG, based on three independent pillars each with their own economic

activities, proved to be successful during the overall economic crisis in 2002. Since all three >

Report of the Managing Board

Forthcoming large

orders from railway

companies

Annual Report 2002

07


08

Acquisitions increase

technology base

Annual Report 2002

Report of the Managing Board

> operations aim at different target groups with partly opposite investment behaviour, the weaknesses

of one business segment can be compensated for by the strengths of the others.

Other synergy effects arise from the common technological platform, the wider customer base, and

the economies of scale in procurement, development, and production. Furthermore, all segments

are managed according to uniform principles, with EBIT as the result parameter, and have to contribute

to an increasing going-concern value. In this way, even in 2002, Funkwerk was able to see

stable growth.

Acquisitions that enable our company to improve its market positions and increase its technology

base form a component part of our growth strategy.We aim to make Funkwerk a complete supplier

of communication systems and network infrastructures for professional applications in every

business segment.With the acquisition of ALPHA meß-steuer-regeltechnik gmbh and the wireless

LAN specialist,ARtem GmbH, in the preceding financial year, we have taken yet another step ahead

and increased the productive capacity of the Funkwerk group in general by adding two important

technology and application areas.

Acquisitions provide new target groups and competences

With the acquisition of ALPHA msr in mid-June, Funkwerk took the first step towards expanding

professional mobile radio technology beyond transport companies to include industrial applications.ALPHA

msr develops and produces customer-specific applications in the area of radio-based

measuring technology and open- and closed-loop control technology, as well as automation and

process control technology. The customers of ALPHA include gas and energy suppliers and water

supply and distribution companies. Thus ALPHA is increasing the customer base of Funkwerk by

an important sector.

That ALPHA also contributes to the innovative strength of the Funkwerk group became obvious as

early as in September when the first contracts worth millions were won to result in technologically

sophisticated projects. Thus, for around 1.5 million Euro,ALPHA msr is in the process of equipping

the Waidhaus natural gas compressor station in the Bavarian Forest with automated switchgear

and control technology. But the special know-how of ALPHA msr is just as much in demand in

aerospace technology: For 0.8 million Euro, the experts from Neustadt an der Weinstraße automated

a power unit test stand for the Ariane 5 launch rocket of the European space authority, ESA, at the

Deutschen Zentrum für Luft- und Raumfahrt (DLR – German Aerospace Centre).

In the Private Networks segment, Funkwerk decisively increased its competence as a network infrastructure

supplier by means of acquiring ARtem GmbH in Ulm. Today, ARtem, a result of the data

radio activities of Daimler-Benz Aerospace AG in 1997, is a leading technology supplier of wireless

LAN solutions in Germany and, in particular, a pioneer in the area of outdoor networking. Thus

Funkwerk gained access to new technologies and customer groups in the areas of public hot Spots,

research & education, institutions, and industry. Every study has shown that wireless LAN generate

new applications and market niches and will thus become a growing market in the future. ■


Stable growth for today and tomorrow:

mobile radio systems, logistics, and more

All over the world, the economy is going into a tailspin; in Europe, growth rates are sinking and

Germany is heading straight for a recession. Contemporaneously, the telecommunication sector,

in particular, has slid into a crisis. In this environment, Funkwerk, which is classed as a telecommunication

company on the stock market, achieved the best result in its history and reached its

growth targets as per schedule. And in 2003, Funkwerk expects to see further extraordinary

growth rates. How is this possible?

This phenomenon is explained by analysing the market niches in which Funkwerk is active. On

looking more carefully, it turns out that the large telecommunication market has individual subsectors

that definitely show profitable growth – and that not only on a short-term basis. The art

is in identifying these sectors and cultivating them early on.At the same time, it is just as important

to adjust the course at short notice in order to adapt to the changing market conditions.

Even before the time of our stock market flotation, Funkwerk had already begun to exhaust the

potential in linking mobile radio systems and logistics. Merely a year later, Funkwerk was already

known in these sectors as a leading system supplier. And the growth rate continued to accelerate.

At the same time, the area of application of mobile radio technology expanded, with an increasing

demand for professional communication systems. In good time, Funkwerk had the right kind of

products and solutions on the market and profited outstandingly from the market growth in the

areas of Commercial and Professional Mobile Radio Systems. This recipe for success is now also

applied to Private Networks. Today, Funkwerk is in the topmost rank in every business segment

as a supplier of intelligent infrastructures and customer-specific technologies.

Growth rates of Professional Mobile Radio Systems exceed 20 per cent

In 2002, the market for mobile radio,

management, and information systems

for transport compa-nies that Funkwerk

addresses with its Professional

Mobile Radio Systems segment grew

by more than 40 per cent and is expected

to maintain a high growth rate

over the next few years. This must be

seen against the background of a progressing

change in technology, in particular

on the part of railway companies.

Thus, the technologies tried and

tested in the public mobile radio sector

(GSM) have become more refined and

secure so that the conventional analo-

Market

volume

in million €

600

500

400

300

200

100

0

gue radio communication and signalling technology in trains can be replaced by digital telematics

solutions. This development is accelerated by the advancing computerisation and convergence of

voice and data radio communication. Yet another driving force of the introduction of new technologies

is the necessity to harmonise rail traffic in Europe and to organise cross-border traffic

more efficiently.

A major milestone in this area is the introduction of the GSM-R (Global System for Mobile Communication

for Railways) standard for radio communication with trains which 32 European railway

companies have committed to. Here, Deutsche Bahn AG makes the running for others. In March >

135

168

242

275

400

500

16% 19% 19% 19% 19% 19%

2000 2001 2002 2003e 2004e 2005e

Professional Mobile

Radio Systems

Volume of the acquirable

market in Europe

CAGR (2000-2005e)

+ 24,4 per cent

Acquirable market

Market share Funkwerk

Source: own calculations

Report of the Managing Board

Annual Report 2002

09


10

Market share of around

20 per cent in Europe

Geschäftsbericht 2002

Report of the Managing Board

> 2001, Funkwerk was awarded a contract for the delivery of 5,000 GSM-R terminals to Deutsche

Bahn AG, amounting to an order volume of around 50 million Euro. By now, the company has already

supplied the 1,000th GSM-R terminal. At least another 4,000 units will follow by 2004. However,

the total requirement is much higher so that further orders are to be expected in the short term.

In the summer of 2002, the French state railway, SNCF, also opted for the GSM-R terminals from

Funkwerk in consortium with Alstom. The first French GSM-R terminals will be delivered at the

beginning of 2003, the total volume amounting to 40 million Euro for Funkwerk.

Technological lead and new customer target groups

Funkwerk has used the market opportunities presenting themselves to gain a technological lead

of around two years over its competitors in the area of mobile radio terminals. Based on the contracts

won in Germany and France, Funkwerk holds a market share of around 25 per cent in this area.

Then there is also the fact that, with some modifications, the solutions developed for the railway

companies could also easily be used in areas such as local public transport, logistics, and at airports.

This included, the market volume serviceable by Funkwerk even today amounts to roughly

700 million Euro for the years 2003 to 2008.

Other telematics applications can be added to this that further drive the growth of this product

sector. In future, the market volume will continue to increase as transport undertakings will

increasingly demand high-quality services to optimise and maintain their telematics systems.

Today, Funkwerk has already set up its own call centre in order to perform remote maintenance

and diagnosis services for Deutsche Bahn AG.

In the area of management systems (operating centres, business telecommunication systems) for

railway companies, Funkwerk gained a market share of around 20 per cent in Europe in 2002, with

a serviceable market volume of roughly 100 million Euro. Here, we also anticipate to see a further

increase in the volume over the next few years as the number of workplaces to be equipped is clearly

rising. Additional impetus for this product sector is to come from the acquisition of ALPHA

msr, which has helped Funkwerk to gain a foothold in the area of business control technology,

addressing a new target group for professional mobile radio systems.

However, Funkwerk anticipates the highest growth rates to be recorded in the information systems

product group (customer and passenger information, video monitoring systems). Here,

additional offers and increasing security requirements ensure a buoyand demand. By 2005, the

serviceable market volume in Europe is estimated to reach more or less 250 million Europe. We

intend to expand the serviceable market and continuously increase our competitiveness by

means of a consistent extension of our product range. By 2005, we aim to see a clear increase in

the market share of the information systems product group.

The result for the overall Professional Mobile Radio Systems segment in the next few years will be

an increase in sales which, up to and including the year 2005, will clearly exceed the 20 per cent

mark – with a constant market share of Funkwerk of around 19 per cent. However, new developments

such as the integration of video technology, image processing, wireless LAN, and a broadband

ATM transmission system create potentials that enable a further market penetration. Thus

Funkwerk optimally meets the requirements for opening up other markets.

>


New supply market for the automobile industry

At the beginning, mobile phones and

Commercial Mobile

hands-free systems were the only

Radio Systems

demands. Now, how-ever, for many, Market

Volume of the acquirable

the car is turning more and more into

a mobile office. Even for fleet control

at forwarding agencies and transport

companies and for business logistics

appropriate functional telecommuni-

volume

in million €

600

500

400

337

394

433

495

596

661

market in Europe

CAGR (2000-2005e)

+ 11,9 per cent

cation equipment in vehicles is beco- 300

ming increasingly indispensible. Initi-

200

ally, the only one to profit from this

was the retrofitting market with low-

100

0

5%

7% 7% 7% 7% 7%

Acquirable market

Market share Funkwerk

cost accessories. At least in the past

two years though, the automobile

manufacturers have jumped on the

2000 2001 2002 2003e 2004e 2005e

Source: own calculations

bandwagon and demanded telecommunication equipment such as hands-free systems and

amplifier units as original serial equipment. Today, the automobile industry has joined forces with

telematics specialists such as Funkwerk to develop its own platforms for telematics services for

serial installation.

This has created a new supply market for the automobile industry that records absolute growth

rates exceeding 20 per cent. Funkwerk has serviced this market right from the outset with its

Commercial Mobile Radio Systems segment. In regard to communication equipment (hands-free

systems, KomBox), Funkwerk is now one of the leading suppliers in Germany, boasting a market

share of around 10 per cent and sales clearly exceeding 100,000 units. With the COMPENSER®

amplifier technology, the first to allow an efficient transmission of mobile radio signals free from

interference in cars, Funkwerk continues to occupy a sole position and is an A-list supplier of the

automobile industry. Thus, the number of COMPENSER® sold by the company in 2002 is 381,000

and still rising. Thus, Funkwerk has become the approved cooperation partner of the automobile

industry. Now, Funkwerk supplies leading automobile manufacturers with products developed

according to their own specifications.

The company has also formed strategic partnerships with mobile phone manufacturers in order

to develop new mobile radio terminals. Owing to increasing requirements, a multitude of new

functions, such as voice control, board computer, and telematics, will have to be integrated. Here,

Funkwerk has already broken new ground when it launched its Universal Car Communicator,

AUDIO 3000, in September 2002. With this device, it will, for the first time, be possible to manage

communication requirements from vehicles, the voice control of certain functions already

being integrated. In the next couple of years, the first generation of the KomBox is to make a major

contribution to the growth of the Commercial Mobile Radio Systems segment.

The highest objective of Funkwerk in this area is to secure the market position already attained

and, if necessary, expand it through further cooperations. The international competition in this

new supply market, however, will increase. In this environment, Funkwerk intends to establish

itself as a system specialist with a high product quality in order in this way to ensure annual

growth averaging 15 per cent by 2007. In addition, the company plans to increase its international

presence and enter into strategic cooperations. >

Report of the Managing Board

Annual Report 2002

11


12

> Private Networks in the ascendant

Private Networks

IP and WLAN

Volume of the acquirable Market

volume

market in Europe

in million €

CAGR (2001-2005e)

600

+ 15,5 per cent

500

600

700

500

400

400

300

200

340

Acquirable market 100

8% 8% 8% 8% 8%

Market share Funkwerk

0

Source: own calculations

2001 2002 2003e 2004e 2005e

Geschäftsbericht 2002

Report of the Managing Board

Radio-based communication systems

adapted to the different requirements of

companies and institutions create cost

advantages and increase the security of

in-house information transfer. In addition,

new mobile radio standards and

technologies such as IP and wireless

LAN allow the convergence of voice,

image, and data transmission and the

linking of telematics and process control

functions.In the opinion of experts,

these developments will lead to an

annual growth in the area of radiobased

private networks of around 15

per cent in the next few years.

Funkwerk has a sound technological base in this area, with access to strong customer groups.

Thus, with a market share of 40 per cent, Funkwerk subsidiary FUNKTEL is the absolute market

leader in Germany in internal radio paging systems including personal security, with a market

volume in Europe amounting to around 70 million Euro. The large variety of coupling possibilities

makes internal radio paging systems compatible with telecommunication equipment, modern

DECT radio systems, and wireless LAN technologies. Thus it is possible to set up an integrated

business communication structure precisely as per customer requirements. One of the essential

features of our internal radio systems or messaging systems is the ability to locate subscribers

and trigger alarm functions.

Today, internal DECT systems are already fully operational and have proven their worth in the

industrial environment for many years in regard to the transmission of voice and data. Further

opportunities of growth for this product group arise from personal security, control technology,

and telematics functions. Already today, as a manufacturer of professional DECT equipment,

Funkwerk, including its OEM partners, has a market share of 15 per cent in Europe.

However, the future for Funkwerk clearly lies in the integration of radio paging systems, DECT,

wireless LAN, and IP technology.At the end of the development might be the standardisation and

automatic control of business systems. Especially for small to medium-sized companies and

institutions, this would mean enormous savings and simplifications. Thanks to its synergies with

other business segments, Funkwerk has an excellent starting position here from which to turn

this vision into reality and thus to make an above average profit from this future market. ■


Innovation “made by Funkwerk

Today, Funkwerk AG is the technology and innovation leader in communication systems used in vehicles,transport

undertakings,companies,and institutions.Its innovative strength,that is,its ability to

anticipate technology changes early on and quickly convert them into marketable products, has always

been the driving force behind the growth of our company. In the past few years, this was proven by the

above-average successes of Funkwerk on the market. Also in 2002, we further developed our product

range in every business segment and placed some rather promising innovations on the market.

GSM-R terminals a technological milestone

The most important technological innovation “made by Funkwerk” in the past few years has been

the new generation of mobile radio terminals for railway companies, the series production of

which commenced halfway through 2002. For rail traffic, the new dual mode GSM-R terminals

and the resulting possibility of radio-based operation means a quantum leap with regard to security

and efficiency. As a Europe-wide digital radio communication standard for trains, GSM-R terminals

are the technology platform for any communication services of the railways – integrated and

across borders. For this, Funkwerk has developed terminals for use in power units and has already

been chosen to be the sole supplier of Deutsche Bahn AG and the French SNCF.

As a pilot project for the use of these dual mode terminals that work both in the previous analogue

GSM-R radio communication mode for trains and in the new digital one, Funkwerk can refer to the

new ICE section between Cologne and Frankfurt, commissioned in August 2002. Following successful

tests and a trial phase lasting several months, the GSM-R terminals were, for the first time, used

in full operation. In so doing, particularly high demands on the service quality and stability of the

data and voice radio communication have to be met since the trains are travelling at a speed exceeding

300 km/h. Therefore, for Funkwerk just as much as for Deutsche Bahn AG, the smooth operation

of the new digital communication system in the ICEs was an important technological milestone.

To date, Funkwerk has supplied Deutsche Bank with more than 1,000 GSM-R terminals, thus

having successfully managed to enter into an emerging world market.

Funkwerk systems now also used for local public transport

Previously, the mobile radio and management systems from Funkwerk were primarily used for

long-distance rail transport. However, by the end of 2002, the benefits of the Funkwerk technology

had also been discovered for local public transport. In a pilot project with S-Bahn Berlin GmbH

Funkwerk is now developing and installing a system for the remote operation management of

suburban trains, based on a broadband transmission system integrating video, voice, and telematics

functions. On suburban line 1 in Berlin, the stations “Botanischer Garten“ and “Lichterfelde-West“

have already been equipped with this technology. The operation has been running

smoothly since last December.

Thanks to this, S-Bahn Berlin GmbH is able to rationalise railway traffic and save a considerable

amount of costs. If the introduction continues to be successful, Funkwerk can look forward to a

realisable sales volume of a double-figure amount in the millions. At the same time, the project

has immense strategic significance as it will provide Funkwerk with an important reference as a

system supplier for other suburban railway companies.

Funkwerk turns car into mobile office

Communicating on-line, sending faxes and e-mails – and all this from the car. This year, Funkwerk

has turned this future vision into a reality with its “Universal Car Communicator AUDIO >

Report of the Managing Board

Annual Report 2002

13


14

Core competencies

User knowledge

■ Railway operation

■ Vehicle electronics

■ Solution-oriented flexibility

Geschäftsbericht 2002

> 3000“. This new communication platform developed by Funkwerk turns the car into an office.

Thus, for the first time, any communication requirements can be managed from the vehicle. Laptop,

PDA, and similar equipment can be connected via a data cable while the mobile phone is used

as a modem, thus making it possible to establish an internet connection and send e-mails and

faxes.

Another valuable addition to the possibilities for the user is the integrated voice control system

where the system recognises all the necessary commands and spoken number selections regardless

of the speaker. Therefore, irrespective of who uses the system, the Universal Car Communicator

obeys every word.

With the Universal Car Communicator AUDIO 3000, Funkwerk provides a platform for many new

communication applications in vehicles at reasonable cost, for which reason the automobile

industry has already expressed great interest in this system solution. The Universal Car Communicator

is expected to make a major contribution to sales in the Commerical Mobile Radio Systems

segment as early as in 2003. And the next equipment generation (KomBox II) has already entered

the development stage. It allows the integration of a bluetooth interface and will presumably be

introduced by June 2003.

Integrated, customer-specific communication systems

On the basis of its distinct market leadership in the area of internal radio paging systems, Funkwerk

systematically extended its product portfolio in the Private Networks segment in 2002. Thus, an

innovative in-house security system (ISS) based on powerline technology was successfully tested and

placed on the market. This system allows large building complexes to be retrofitted with an integrated

in-house security system including simultaneous locating device without problem or costintensive

cabling. Further, the DECT security system was developed into a marketable commodity,

linking functions such as locating, emergency call, and group call with the proven DECT quality.

+ Technology

Enable integrated solutions for operating processes in transport and logistics:

rationalisation + increased security + greater convenience + additional services

We cover the entire value chain for our customers

Specification of

Development of

Production

the applications � hard- and software � and adaptation �

Report of the Managing Board

■ GSM, GPS, GPRS, IP, UMTS

■ Software technology

■ Transmission/receiving

technology

+ Production

■ CAD construction

■ The latest SMD manufacture

Implementation

and commissioning

The broadband network introduced at

the CeBIT 2002, which is based on ATM

(Asynchronous Transfer Mode), is also

nearly ready for the market. This technology

allows voice, data, video, and

telematics to be combined in one communication

system. By mid-2003, Funkwerk

will probably also have integrated

DECT and wireless LAN technologies

and telematics functions in one internal

communication system, thus making

the company one of the first complete

solution providers in this area. ■


2002 Group management report:

Corporate successes in times of worldwide economic crises

In 2002, Europe saw a rather considerable deterioration of the general business climate, with Germany

occupying an inglorious leading position: The growth in gross domestic product of 0.2 per

cent registered in 2002 was the lowest in almost three decades while at the same time the number

of insolvencies standing at around 40,000 reached a new record. For the first time in nine years,

industrial production was also down by just under two per cent.

In this environment, Funkwerk still managed to reach all of its growth targets, attaining new

record levels in sales and profit. Especially in 2002, a year characterised by worldwide economic

crises, the Funkwerk business model once again proved to be successful. In short, in the year 2002,

Funkwerk was able to record continuing stable growth with figures for the year that were once

again above plan.

For the first time, sales exceed 100-million-Euro mark

A characteristic aspect of the corporate success of Funkwerk was the fact that, despite the unfavourable

general economic setting, the company, for the first time, managed to exceed the 100million-Euro

mark in sales (sales in 2001: 67.4 million Euro) and achieve a growth rate of 61 per

cent. Furthermore, with 108.7 Euro, the target set by Funkwerk of 103.5 million Euro was surpassed

by 5.3 per cent. Taking into account the inventory changes and the internally produced and

capitalised assets, Funkwerk improved its gross performance in 2002 to reach 111.5 million Euro.

This means a plus of 58 per cent as against the previous year (70.6 million Euro).A particular success

for Funkwerk was its Mobile Radio Systems product group for transportation companies

(GSM-R terminals), which recorded an increase in sales of 134.3 per cent.

A key factor of this stable growth is the innovative strength of Funkwerk. Thus, more than 75 per

cent of sales are attributable to products younger than three years, with one in five staff of Funkwerk

working in the development sector.

In the fourth quarter, in particular, Funkwerk benefited from its long-standing customer relationships

and its technology leadership in communication systems in professional applications.

With 38.8 million Euro, the fourth quarter of 2002 turned out to be the best to date in company

history in terms of sales. As against the same quarter of the previous year (25 million Euro),

Funkwerk managed to gain 55 per cent.

Fourth quarter of 2002 the best in company history in terms of sales and profit

Around 20.8 million Euro (2001: 11.4 million Euro) or 54 per cent of quarterly sales were attribut-able

to the Professional Mobile Radio Systems segment, 6.9 million Euro (2001: 5.9 million

Euro) to Commercial Mobile Radio Systems, and 11.1 million Euro (2001: 7.7 million Euro) to Private

Networks. As predicted, it was in the Professional Mobile Radio Systems segment in particular

that the increased demand from European railway companies for mobile radio terminals from

Funkwerk and the finalising of several large projects came to fruition.

For the overall year 2002, Professional Mobile Radio Systems recorded an increase in sales of 44

per cent to reach 46.8 million Euro (previous year: 32.5 million Euro). Since Funkwerk started the

serial production of its GSM-R terminals halfway through 2002, the largest order volume in Funkwerk

history to date is handled in this area – the equipment of the locomotives and railcars of

Deutsche Bahn AG with this new digital communication system. On the whole, Funkwerk turned

over 13.0 million Euro (previous year: 5.5 million Euro) in mobile radio terminals for transportation

companies in 2002.

>

Report of the Managing Board

Three-quarter of sales

with “young products”

Annual Report 2002

15


16

Great demand for video

monitoring systems

Annual Report 2002

Report of the Managing Board

> Up to and including the year 2004, we anticipate further sales of at least 40 million Euro in this

product sector from the orders on hand. This is the first call of Deutsche Bahn AG, but the total

requirement is clearly higher. The contract for the development and supply of GSM-R terminals

for the French state railway, SNCF, signed in June 2002, presents Funkwerk with a potential volume

of around 40 million Euro. The first batch deliveries are expected to take place in 2004.

Funkwerk systems now also in demand for suburban trains

Yet another positive development was seen to be the business with management systems for

transport companies. Sales attributable to this product sector in 2002 rose by 52.2 per cent to 27.7

million Euro (2001: 18.2 million Euro). This development is based on the increasing implementation

of electronic interlocking projects and the initial consolidation of ALPHA meß-steuerregeltechnik

gmbh. Previously, the management systems from Funkwerk were primarily used in

long-distance railway traffic. With the expansion of the area of application to local public transport,

we anticipate significant increases in sales in 2003. In a pilot project with S-Bahn Berlin

GmbH, Funkwerk installed a system for the remote operation management of suburban trains

towards the end of 2002.

With 5.2 million Euro, Funkwerk subsidiary ALPHA meß-steuer-regeltechnik gmbh, initially consolidated

as of 1 July 2002, contributed to sales in the Professional Mobile Radio Systems segment

more greatly than expected, half of it being attributable to automation solutions for gas supply

companies. The orders on hand of ALPHA msr as at 31 December 2002 amounted to around 5.0

million Euro. Thus the new subsidiary has already secured for itself 70 per cent of its sales projections

for 2003.

Due to the cessation of production of older equipment generations, sales in the information systems

product group in 2002 recorded a decline, falling to 6.1 million Euro (2001: 8.8 million

Euro). The planned decrease in commercial transactions involving telecommunication systems

resulted in a loss of 0.7 million Euro for ITN, the subsidiary specialising in them.

In comparison, business with video monitoring systems showed a great increase. In 2002 in particular,

we found that the demand for solutions for mobile and stationary object protection in

local public transport was rising. These systems ensure that current events on buses and trains

are recorded by video cameras and, for the purpose of evaluation, transmitted from the vehicles

to the operating centres by means of wireless LAN. Pilot projects with transport companies in

Germany and Brussels are already under way and will contribute significantly to sales in 2003.

However, the start-up costs for the product placement of this system in 2002 resulted in a loss of

0.4 million Euro for Telemotion, the responsible subsidiary.

Funkwerk successful as supplier of original equipment for automobile industry

In 2002, Funkwerk managed to gain further ground as a supplier of the automobile industry.

Thus, vehicles from Audi, BMW, and DaimlerChrysler are now equipped with mobile communication

equipment as a standard and also VW, Toyota, Skoda, and smart are continuously supplied

by Funkwerk. Communication and telematics systems as original equipment are gaining in

importance in the automobile industry. The result for Funkwerk are growing market potentials.

Despite the declining economic activity in the automobile sector, Funkwerk was able to slightly

increase its sales in the Commercial Mobile Radio Systems segment as against the previous year.

On the whole, the company realised 28.4 million Euro in this area (previous year: 27.2 million

Euro). >


The main performer here was the patented COMPENSER® amplifier technology developed by

Funkwerk, designed such as to provide an interference-free reception of radio signals in vehicles.

With a total of 381,000 units, Funkwerk managed to reach its sales targets for 2002. Business with

the COMPENSER® increased by 11.7 per cent to 18.1 million Euro (2001: 16.2 million Euro).

This increase compensated for the falling sales volume of hands-free systems in the whole year,

with the demand once again normalising following the boom in the previous year due to an statutory

regulation. Still, owing to new partnerships with mobile phone manufacturers and suppliers

of original equipment, Funkwerk was able to develop further market potential in this product sector.

Compared with the previous year, the business with hands-free systems slightly decreased

while the KomBox, developed into a marketable commodity in 2002, recorded a significant increase.

On the whole, with 10.3 million Euro, sales in this product group fell 6.3 per cent below the

figures for the previous year (2001: 11.0 million Euro), while in the fourth quarter the figure for the

previous year of 1.6 million Euro was clearly exceeded by 100 per cent, recording 3.2 million Euro.

Private Networks with DECT on the up

In its first full financial year, the Private Networks business segment, set up in October 2001, contributed

to the sales revenue of Funkwerk with a volume of 33.5 million Euro or 31 per cent, the

biggest product group being DECT systems including wireless LAN solutions with sales amounting

to 15.7 million Euro. Thus Funkwerk is an established supplier of professional radio systems

based on DECT for business applications. In addition, the company supplies system integrators

with DECT equipment as OEM partners.

In 2002, the messaging systems product sector generated sales amounting to 13.8 million Euro.

Thus the company managed to increase its market leadership in the area of personal security systems

in Germany even further. In combination with newly developed products such as in-house

security systems (ISS) and DECT Security, we expect to see clear growth over the next few years.

In the production and service sector, sales amounted to 4.0 million Euro. There are no comparative

figures for the previous year available to us since the initial consolidation of this business segment

did not take place until the fourth quarter of 2001.

The acquisition of the wireless LAN technology provider, ARtem GmbH, meant that Funkwerk

could systematically extend its product portfolio in the area of Private Networks. Thus, the company

was able to take yet another step towards the planned integration of DECT and wireless LAN

technology and telematics functions and will probably make the appropriate innovative products

available around the summer of 2003. ARtem contributed to the sales revenue of the Funkwerk

group with a share of 1.2 million Euro.

Market positions reinforced

Thanks to the successful growth strategy of Funkwerk, the company could further reinforce its

market positions in each and every business segment in 2002. In the Professional Mobile Radio

Systems segment, its market share in Europe remained on a high level with 19 per cent. In the Commerical

Mobile Radio Systems segment, Funkwerk maintained a market share close to 7 per cent

while in Private Networks, the company even recorded a slight increase to more than 8 per cent.

Slight increase in export volume

As a technology leader in professional communication systems in industry, transport, and logistics,

Funkwerk is a much sought-after partner even on an international scale. Therefore, Funk- >

Report of the Managing Board

Market leadership in the

area of personal security

systems

Annual Report 2002

17


18

01

Annual Report 2002

Report of the Managing Board

> werk was able to increase its export volume in 2002, advancing from 8.0 to 9.4 million Euro. In

the Commercial Mobile Radio Systems segment in particular, export sales rose by over 50 per cent

to reach 3.5 million Euro due to an increasing demand on the part of foreign distributors for

Funkwerk hands-free systems. In the Professional Mobile Radio Systems segment, business with

telecommunication equipment for export was largely discontinued to gain sales capacities for its

core business, resulting in a decline in the export share of Professional Mobile Radio Systems.

In 2002, the most important partners in international business were the EU countries. Thanks to

the growing demand for GSM-R terminals on the part of European railway companies and the

internationalisation of business in the area of Commercial Mobile Radio Systems, we expect to see

export sales increasing more strongly from 2003.

Order Orders Order Order Change

development 1) received backlog backlog

Professional Mobile

2002 01.01.2002 01.01.2003

Radio Systems

Commercial Mobile

47.2 56.3 60.9 + 8%

Radio Systems 30.6 10.3 11.8 + 14%

Private Networks 18.3 36.6 21.9 – 40%

Total 96.1 103.2 94.6 – 8%

1) in million Euro

Incoming orders guarantee future

growth> Table 01

The success of the Funkwerk business

model is founded on long-term contracts

and secured orders on hand, the

latter including only such contracts with

our customers that are legally binding.

In this way, necessary investments can

be managed to be suitable in terms of

time and objectives, and the mediumterm

business potential precisely assessed.

Therefore, the incoming orders

trend is an exact indicator of the future

potential of success.

In 2002 on the whole, Funkwerk recorded

an incoming order volume exceeding 96 million Euro (previous year: 136 million Euro), 47.2

million Euro of which were attributable to Professional Mo-bile Radio Systems, 30.6 million Euro

to Commercial Mobile Radio Systems, and 18.3 million Euro to Private Networks. Compared with

the previous year, it must be added that the incoming orders in 2001 were characterised by two

special factors: On the one hand, by the first call of Deutsche Bahn AG in regard to GSM-R terminals,

and, on the other, by the major contract for OEM deliveries in the Private Networks segment.

With orders on hand amounting to 94.5 million Euro as at the end of 2002 (previous year: 103.2

million Euro), we are very confident in regard to the current financial year. From the existing

orders on hand, more than 50 per cent of the anticipated sales revenue for 2003 can already be

realised. And there are also definite initiations for orders that are recorded irrespective of this for

our corporate planning, such as the expected supply contract for GSM-R terminals for the French

SNCF.

64 per cent of the orders on hand, that is 60.9 million Euro (previous year: 56.3 million Euro), are

attributable to Professional Mobile Radio Systems, which means that also in 2003, this segment

will continue to be an engine of growth. As at the end of 2002, more than 100 per cent of sales in

this segment for 2003 were already secured by contracts. In the course of the coordination and

rationalisation of the European rail traffic, other European railway companies are expected to

order GSM-R terminals in 2003.

>


In spite of falling registration figures in the automobile industry, the development of the orders

on hand in the Commercial Mobile Radio Systems segment was satisfactory. Compared with the

excellent figure of 10.3 million Euro in the previous year, Funkwerk once again recorded an increase

to 11.8 million Euro. At the end of the year, the Private Networks segment was supported by

orders on hand amounting to 21.9 million Euro.

Operating result reaching record level

One of the key reference values in the Funkwerk business model is the operative earning power in the

form of EBIT. From the outset, Funkwerk has managed to increase its operating result year after year.

In 2002, the company reached a new record level, recording 8.9 million Euro. As against the previous

year, this means an increase of 35 per cent (2001: 6.6 million Euro). It also means that we reached and

exceeded our target of 8.8 million Euro. The 2002 EBIT margin, generally relative to sales, for the

Funkwerk group amounted to a total of

8.2 per cent (2001: 9.8 per cent). It must

be taken into account here that the new

business segment, Private Networks, is

still being established and could not yet

reach the margins of the other two business

segments.

Nonetheless, with EBIT of 2.4 million

Euro, Private Networks recorded an earnings

contribution above plan, corresponding

to an EBIT margin of 7.1 per

cent. In the Professional Mobile Radio

Systems segment, the company generated

EBIT of 3.9 million Euro (2001: 3.2

million Euro), with an EBIT margin of 8.4 per cent (2001: 9.9 per cent), while in Commercial

Mobile Radio Systems the high level of the previous year could not quite be maintained. Here, the

EBIT amounted to 2.6 million Euro (2001: 3.2 million Euro), with an EBIT margin reaching 9.1

per cent, after 11.6 per cent in the previous year.

Profitability of operating business> Table 02

02

Production and capacities

In the preceding financial year, the existing capacities in production were fully utilised. The Kölleda

location (Professional Mobile Radio Systems) even had to employ temporary staff in order to

bring peaks under control. In addition, the number of staff in the production sector was increased

by 28 as against 2001. The Kölleda production plant was also modernised and equipped with

the latest in testing facilities. It has been optimised for the manufacture of prototypes and the production

of small batches.

The production areas at the Dabendorf location (Commercial Mobile Radio Systems), the extension of

which was not completed until 2001, are also already fully utilised. Traceability and constant quality

assurance are important parameters for the success as a supplier of the automobile industry. Therefore,

the investment activities of Funkwerk in the production sector were focused on this area. The production

at Dabendorf is highly automated and designed particularly to handle large batches. >

EBIT 1) EBIT EBIT Capital

margin capital 1) 2) yield

Professional Mobile

Radio Systems

Commercial Mobile

3.94 8.4% 27.7 14.2%

Radio Systems 2.58 9.1% 9.8 26.3%

Private Networks 2.39 7.1% 8.4 28.5%

Total 8.91 8.2% 45.9 19.4%

1) in million Euro

2) for calculation compare page 62

Report of the Managing Board

Annual Report 2002

19


20

Annual Report 2002

Report of the Managing Board

> The Salzgitter location (Private Networks) also managed to record a satisfactory capacity utilisation

rate. Here, the latest production systems and test equipment ensure the competitiveness

of its production of walkie-talkies according to international standards and the mastery of highfrequency

technology.

Value added with upward tendency

The value added in the group continued to develop positively. It rose over-proportionately from

35.5 million Euro in 2001 to 58.1 million Euro in the preceding financial year. Thus the value

added quota relative to the overall performance amounted to 52.2 per cent in 2002, after 50.2 per

cent in 2001. The value added per employee thus increased from 86,000 to 89,000 Euro.

Procurement and inventory development

On the whole, the inventories in 2002 increased by 4.9 million Euro or 28.3 per cent, thus recording

clearly less of a gain than sales (61 per cent). This increase can be put down to the necessary

build-up of material for the production of the GSM-R terminals. Thus, from the total increase,

the lion’s share of 4.1 million Euro can be attributed to the material sector. However, in the fourth

quarter, the inventories reduced by 2.2 million Euro as against the previous year, since work in

progress decreased by 6.4 million Euro due to project invoicing.

The stocks assessment model already used in the previous years was also consistently used in

2002, thus ensuring continuity in inventory valuation and a comparability over several years.

In 2002, Funkwerk concluded an increased number of basic contracts with suppliers that secure a

high degree of flexibility and guarantee continuity in deliveries while at the same time permitting

more favourable procurement conditions. This was effected in every business segment.

Procurement bottlenecks due to long delivery periods led us to establish second-source suppliers

for certain components for the production of GSM-R terminals in the Professional Mobile Radio

Systems segment, in order to be able to react more flexibly to the requirements of our customers.

In the Commercial Mobile Radio Systems segment, complying with the high quality standards of

the automobile industry proved to be a particular challenge. This challenge was met by introducing

a new quality assurance system in the Procurement sector, thus ensuring a considerable

reduction of defects during production.

The company continued rigorously to make use of the possibilities of discount deductions. Due

to an increased procurement volume, the cash discounts received increased from 413,000 to

576,000 Euro.

Investments in new technologies > Table 03

For Funkwerk as a growth-oriented company and innovation leader in its industry, investments

play a particularly important role. In 2002, a total of 6.8 million Euro (previous year: 9.0 million

Euro) was invested in tangible fixed assets and intangible assets. In terms of sales, this corresponds

to a proportional share of 6.3 per cent. The investment activity at the Kölleda location (Professional

Mobile Radio Systems) was focused mainly on the procurement of special measuring

and testing technology for the GSM-R project and on investments in the extension of the production

areas. The Dabendorf location (Commercial Mobile Radio Systems) invested a total of 2.7

million Euro in the preceding financial year, concentrating on models, and production and test >


equipment. This guarantees that the high standard of quality in development and production

can be maintained.

In order to secure our future, 4.2 million

Euro (2001: 1.9 million Euro) were invested

in the development of new products,

and appropriately capitalised in

the 2002 balance sheet. Expenses for

product maintenance and for commissioned

developments were not included.

Approximately 1.7 million Euro were

allocated to the Professional Mobile Radio

Systems segment, 1.3 million Euro to

Commercial Mobile Radio Systems, and

1.2 million Euro to Private Networks.

Technical Technical Technical Develop- Acquisition

investment, investment, investment, ment costs

Replace- Expansion Rationalment1)

1) 03

Professional Mobile

isation 1) 1) 1)

Radio Systems

Commercial Mobile

0.3 1.4 0.3 1.7 1.5

Radio Systems 1.1 0.8 0.8 1.3 –

Private Networks 0.5 0.6 0.6 1.2 3.1

Total 1.9 2.8 1.7 4.2 4.6

1) in million Euro

New businesses and acquisitions

In June 2002, Funkwerk AG acquired 70 per cent of the shares in ALPHA mess-steuer-regeltechnik

gmbh seated in Neustadt an der Weinstraße, thus adding several important areas of automation

technology to its technological base. As at the end of the year, ALPHA msr employed 65 staff,

generating sales totalling 7.3 million Euro, 5.2 million Euro of which contributed to the total sales

of Funkwerk due to the initial consolidation. Even in the first year,ALPHA made a positive earnings

contribution with an EBIT of 0.4 million Euro.

In September, Funkwerk AG extended its Private Networks business segment and acquired 100

per cent of the wireles LAN specialist, ARtem GmbH in Ulm. Today, ARtem, a result from the data

radio activities of Daimler-Benz Aerospace AG in 1997, is a leading technology provider of wireless

LAN solutions in Germany and, in particular, a pioneer in the area of outdoor networking. In

2002, ARtem, with a staff of 35, generated sales of around 6 million Euro, 1.2 million Euro of

which poured into the Funkwerk sales due to the initial consolidation. With –0.3 million Euro,

ARtem GmbH records a negative operating result since both the expenses for the development of

the latest wireless LAN generation and restructurings for the integration into the Funkwerk group

burdened the result. Furthermore, the general recession in the telecommunications sector led to

a drop in sales also for ARtem.

To focus and increase our development competence, Funkwerk established HÖRMANN telco

GmbH. This company consolidates development teams from the group in order to implement

tele-communication solutions for small to medium-sized companies. As at 1 May 2002, HÖR-

MANN telco GmbH opened as a fully-owned subsidiary of HÖRMANN Funkwerk Kölleda GmbH.

Since this subsidiary is essentially the result of a dislocation of development capacities and required

expenditure to start up operation, it recorded a negative result of 0.7 million Euro.

Financial results and liquidity

In 2002, the financial results of Funkwerk clearly decreased as against the previous year, falling

from 1,241,000 to 913,000 Euro. In addition to the general drop in interest levels, this was due to

the increased resource requirement of the business segments, the clear decline in advance payments

by 4 million Euro to 1.3 million Euro, and the need for financial resources in connection

with the acquisitions effected. Due to these impacting factors, the net liquidity (liquid funds >

Report of the Managing Board

Three new subsidiaries

of Funkwerk

Annual Report 2002

21


22

One of five employees

in development sector

Annual Report 2002

Report of the Managing Board

> including securities less due to banks) available diminished from 35 million Euro to 20.3 million

Euro. The due to banks decreased further to 427,000 Euro.

The liquid funds are invested exclusively in Euro in strict compliance with security and availability

aspects in secure investments fungible at call.

Funkwerk creates new jobs and training opportunities

The continuing excellent business situation and orders position as well as the start of major projects

have led to the creation of new jobs and training opportunities in every business segment.

On the whole, the number of workforce employed at Funkwerk increased on average by 67.9 per

cent per year to 690 (2001: 411).

Thus, the Professional Mobile Radio Systems segment in Kölleda employed 33 new staff (plus 14

per cent) and increased its number of trainees by 6 (plus 33 per cent). In essence, this increase in

personnel was due to the starting serial production of the GSM-R terminals. Owing to the acquisition

of ALPHA msr, the number of workforce in this business segment increased by a further 65

staff towards the end of 2002.

The planned growth and the implementation of projects in the Commercial Mobile Radio Systems

segment also required an expansion of personnel. Thus in the course of the year, the number

of staff rose from 116 to 133, the number of trainees from 29 to 33. Further recruitments are

planned in the course of the projects involving BMW and DaimlerChrysler starting in 2003. The

main emphasis here will be on construction, development, and project management.

In the Private Networks segment, the staffing level rose to 258, due, in particular to the acquisition

of ARtem towards the end of the year.

The remarkable aspect in all of this is the high level of training and the extraordinary qualification

of Funkwerk staff: Of the total 800 staff at the end of 2002, 222 have a university degree, 487

have completed their vocational training, and only 44 are semi-skilled workers. With 47 trainees,

Funkwerk has secured for itself qualified and highly motivated junior staff. This excellent organisation

climate and the high level of satisfaction on the part of the workforce continues to find

expression in the extremely low fluctuation rate at Funkwerk: On the whole, the company recorded

a mere 33 staff leaving its services in 2002. Due to the increase in development and sales

expenditure, the personnel costs on the whole rose by 89.1 per cent, from 17.5 million Euro to 33.1

million Euro, thus increasing at a proportionately higher rate than the sales trend.

Innovations through research and development

For Funkwerk, innovative strength through research and development is a key factor contributing

to the success of the company. This is expressed in the fact that one in five Funkwerk

employees works in this sector. At the end of 2002, the number of staff working in the development

sector was 138 and still rising. Thanks to its increasing reputation and attractive job offers,

it is getting increasingly easy for Funkwerk to recruit qualified and motivated personnel, especially

in this area.

Owing to our increasing focus on software development in the area of Professional Mobile Radio

Systems, it was necessary to set up highly modern workplaces according to international standards.

The development work in 2002 concentrated on the GSM-R technology. The high level of >


technical competence thus acquired is the prerequisite for being able to provide an increasing

number of telematics solutions for railway companies.

In the Commercial Mobile Radio Systems segment, the development of innovative voice control

systems and the integration of the bluetooth technology in vehicles was to the fore. Major efforts

were also made in the implementation of the UMTS technology and the latest mobile radio

transmission processes, to prepare the next product generation.

The Private Networks segment was able to complete the development of the new DECT units, D3

and FC1, and start production. Today, the D3 is a major performer. Furthermore, the ISS (In-house

Security System with locating function via power cables) was tested successfully.With the ISS and

its extended functionalities, we expect to see a breakthrough with new customer groups in 2003.

Financial position

In 2002 on the whole, the balance sheet total of the Funkwerk group increased by 6.8 per cent to

93 million Euro (previous year: 87.0 million Euro). This increase and the major changes in the

balance sheet items can predominantly be put down to the majority participation (70 per cent) in

ALPHA msr and the acquisition of ARtem GmbH. The most important balance sheet changes are

as follows:

■ Compared with 2001 (54.8 million Euro), the equity capital increased by 4.3 million Euro to

59.1 million Euro in 2002. Thus, the equity ratio further improved from 63.0 per cent to 63.6

per cent.

■ As against the previous year (1.6 million Euro), the reported goodwill in 2002 saw a sharp rise

to 5.3 million Euro due to the company acquisitions.

■ The increase in stocks by 4.9 million Euro is mainly due to the necessary build-up of material

for the start-up of the serial production of GSM-R terminals in the Professional Mobile Radio

Systems segment.

■ The liquid funds including securities decreased from 35.4 million Euro to 20.8 million Euro as

against the previous year. In essence, this is due to the acquisition expenses and increased

resource requirements.

■ The accounts receivable in 2002 rose proportionately less than the growth in sales, from 12.7

million Euro to 19.2 million Euro. On the one hand, this is a reflection on the increased sales

volume in the original business segments, with a volume of around 2 million Euro can, on the

other hand, also be put down to the newly consolidated subsidiaries.

■ The provisions for pensions in the Private Networks segment increased by a further 0.5 million

Euro to 4.8 million Euro. Also, there are pension provisions on the part of ALPHA msr to

the amount of 0.3 million Euro.

■ Compared with the previous year (1.7 million Euro), the provisions for deferred latent taxes

rose by 1.3 million Euro to 3.0 million Euro.As against the previous year (1.7 million Euro), the

provisions for taxation increased by 0.5 million Euro to 2.2 million Euro. This is a result from

the improved performance in the current financial year.

>

Report of the Managing Board

Equity capital increased

Annual Report 2002

23


24

Sequel to success story

Annual Report 2002

>

Report of the Managing Board

■ The rise in accounts payable is due to minor increases in the existing business segments and

the initial consolidation of the new subsidiaries. In short, the result is a clearly under-proportionate

rise in relation to the growth in sales, from 1.7 million Euro to 7.3 million Euro.

Potential risks

Currently, the Managing Board cannot see any risks that could have a particular impact on the

financial or earnings position of Funkwerk AG or even be detrimental to the continued existence

of the company. However, there are a number of general risks for companies that the business

trend at Funkwerk is also subject to.

Thus, one of the features of heavily expanding markets such as Professional and Commercial

Mobile Radio Systems and Private Networks, in which Funkwerk is active, is their intense competitiveness.

This is why the further development of our business will always be dependent on the

extent to which Funkwerk is able to maintain or build up its market position and technology leadership

and react flexibly to any changes in the market.

In the area of Commercial Mobile Radio Systems in particular, we expect to see an increase in the

competition for market shares in the supply of communication equipment for the automobile

industry. Here, too, we must reckon on a greater concentration of market participants on the supplier

side. Further projects with the automobile industry should preferrably be implemented in

cooperation with mobile phone manufacturers or with system suppliers. Funkwerk has prepared

for this in time by forming appropriate partnerships.

The acquisitions made in 2002 will have to be integrated into the corporate structure and value

added chain of Funkwerk. Experience has shown that this can lead to considerable special expenses

that may in future burden our operating result and liquidity. Reaching the targets related

to the acquisitions always depends on the extent to which Funkwerk is able to effect the integration

process efficiently and harmoniously.

Due to its structure, Funkwerk has a great storage requirement in every business segment. Here,

in addition to the regular adjustments, further inventory adjustments contingent on technology

may be possible.

The effective management of all occurring risks is an inseparable part of the corporate policy of

Funkwerk. Therefore, in good time before the stock market flotation, the company set up a risk

management system for Funkwerk AG and its subsidiaries. In the 2002 financial year, we extended

our early risk diagnosis system. Thus we were able to further optimise the assessment, analysis,

and representation of the overall risk situation.Any risks which the group is subjected to are

systematically recorded, analysed, and processed by constantly evaluating information such as

details on the market, the competition, the technology, and the political situation. The central risk

management then discusses the current status with the Directors and Managers of the subsidiaries

responsible as per business plan, who ultimately are strategically responsible for the implementation

of risk management measures.

Prospects and 2003 business plan

The quality of the business model of Funkwerk AG and the sustainability of our growth strategy

have proven themselves in the past few years. Since our stock market flotation, the worldwide

general economic setting has rapidly deteriorated. Nonetheless, in the past three years, Funkwerk >


has managed to hold its course towards sound growth and reached all of its growth targets

without delays.

We intend to continue this success story throughout 2003. We will continue to hold on to our

growth targets even though we cannot expect to see an improvement of the basic conditions of

the world economy in 2003. This year, our level of orders on hand secured by contract is very

high, amounting to 94.6 million Euro. To this, we can add a number of promising initiations of

business and effects from possible further acquisitions.

Resting on this solid foundation, Funkwerk anticipates an above-average growth in sales and

revenue also in 2003. As a target figure, the Management intends to achieve sales amounting to

around 126 million EURO, with an EBIT of around 11 million Euro. This forecast is based on our

proven corporate planning method and is highly reliable. Against the background of our recognised

technology leadership, our renowned innovative strength, and our excellent positioning on

future markets, we expect this positive development to continue also in the years to come. ■

Kölleda, February 2003 The Managing Board

Hans Grundner Herbert Meyer Lutz Pfister Harald Steglich

Report of the Managing Board

Annual Report 2002

25


Report of the Supervisory Board

The Funkwerk group can once again look back on a very successful business year. In a year characterised

by a difficult general economic setting, our business model stood the test! We managed

to achieve both our economic and our strategic targets. For the first time, the company also exceeded

the 100-million-Euro mark in sales, while the operating result could once again be improved. In

all of this, our innovative strength and further internationalisation have proved to be engines of

growth.A further milestone was the commencement of the serial production of GSM-R terminals

in Kölleda.

During the entire 2002 financial year, the Supervisory Board acted in an advisory capacity to the

Managing Board of Funkwerk AG while monitoring its conduct of affairs. In the period under

review, the Supervisory Board did not set up any committees.

In five joint meetings, above all, however, through the regular written and verbal dialogue with the

Managing Board, the Supervisory Board looked in detail into the key areas of the business operations:

the general standing of the company, the trend of business, the corporate planning, and the main business

transactions. Even outside the Supervisory Board meetings, the Chairman of the Supervisory

Board conducted regular talks about important matters of business policy and development.

Besides its meetings, the Managing Board consulted the Supervisory Board in any matters of importance

relating to the company. Within the scope of the duties incumbent on it, the Supervisory

Board, in turn, was involved in the decision-making process. Any major investment decisions, in

particular in regard to planned or effected acquisitions of companies or operations and the establishment

of companies, were in this way checked and approved. This, in particular, applies to the

acquisition of 70 per cent of the shares in ALPHA mess-steuer-regeltechnik gmbh, and for the

acquisition of 100 per cent of the shares in ARtem GmbH.

With the acquisition of ALPHA, Funkwerk took a step beyond transport companies in Professional

Mobile Radio Systems, into the field of industrial applications, involving specific applications in

the area of radio-based measuring and automatic control technology as well as automation and

process control engineering. By acquiring ARtem GmbH, Funkwerk clearly increased its competence

as a network infrastructure supplier: ARtem is a leading technology supplier of wireless LAN

solutions in Germany.

In 2002, the financial and capital markets continued their downward trend. Compared with that,

the price of the Funkwerk share held up well.

In order to further increase the trust our investors put in Funkwerk AG, the Supervisory Board

and the Managing Board expressly declared their support for the recommendations of responsible

business management stipulated in the German Corporate Governance (CG) Code and, furthermore,

voluntarily committed to measures beyond these. This is to ensure that our shareholders

are informed even better in a more transparent way.

The annual accounts of Funkwerk AG as at 31 December 2002 including the annual report and the

report on the relationship with associated companies, and the group accounts as at 31 December

2002 including group management report were prepared by the Managing Board, and audited

and provided with an unqualified audit certificate by Rödl & Partner GmbH Wirtschaftsprüfungsgesellschaft,

Steuerberatungsgesellschaft, Jena. The financial reports submitted by the

Managing Board were also audited by the Supervisory Board.

>

Report of the Supervisory Board

Annual Report 2002

27


28

Annual Report 2002

>

The financial reports of the Managing Board and the audit reports of the auditing firm were

made available to all members of the Supervisory Board. The auditor took part in the balance

sheet meeting of the Supervisory Board on 10 March 2003 and reported on the key results of his

audit. The Supervisory Board agrees to the result of the audit of the annual accounts and the consolidated

accounts, raising no objections following its own audit.

The Supervisory Board approves of the annual accounts prepared by the Managing Board and the

consolidated accounts prepared by the Managing Board.

The Supervisory Board has checked the report on the relationship with associated companies.The audit

opinion of the auditor on the report on the relationships with associated companies reads as follows:

“Following our dutiful audit and assessment of the report on the relationship with associated

companies, we hereby confirm that

■ the factual details in the report are correct

■ the obligations of the company in regard to the legal transactions described in the report were

not inappropriately high and that no financial prejudices were made good

■ and that no facts in regard to the measures described in the report recommend a fundamentally

different assessment to that of the Managing Board“.

Neither the report of the auditor nor the auditor’s opinion result in objections. Following the final

result of its audit, the Supervisory Board raises no objections to the statement of the Managing

Board at the end of the report on the relationship with associated companies.

In addition, the Supervisory Board has checked the proposition of the Managing Board in regard

to the appropriation of the net profit for the year. The Managing Board and the Supervisory Board

propose to the shareholders’ meeting the following appropriation of the net profits for the year:

Report of the Supervisory Board

a. Distribution of a dividend to the amount of Euro 0.20 per share corresponding to an

amount of Euro 1,438,000.00.

b. Transfer of Euro 4,700,000.00 to earnings reserves, that is to other earnings reserves.

c. Remaining amount of Euro 12,257.64 carried forward to new account.

With effect from 7 December 2002, Mr. Peter Schinkel (M.Sc.) retired from the Supervisory Board

of Funkwerk AG. The Supervisory Board would like to thank Mr. Schinkel for his great commitment.

At the suggestion of the Managing Board, Mr. Maximilian Ardelt (M.Sc.) was appointed by

the district court in Erfurt as a member of the Supervisory Board.

The Supervisory Board would like to thank all shareholders for the trust put in the company. The

Supervisory Board would also like to thank the Managing Board and each employee for their contributions

in the preceding financial year. ■

Kölleda, March 2003

Rolf Rickmeyer

Chairman of the Supervisory Board


The Funkwerk share

Stable pillar on the bear market

Neither convincing corporate figures nor constantly good news nor all the positive assessments of

the analysts were able to spur on the Funkwerk share in 2002.Also the security with the new ISIN

number DE 0005753149 could not fully escape the general slump at

the stock market. Still, the Funkwerk share proved to be a stable pillar

at the Neuer Markt and continued to be one of the best performing

shares. While the NEMAX 50 index lost around 70 per cent of

its value, the Funkwerk share was able to hold up well with a minus

of 30 per cent and beat the index in the value trend by 40 points.

After the price in the first six months was still comparably stable in

a tight spread, ranging from 18 to 25 Euro, the sellout of shares in the

third quarter hit even Funkwerk. In the crash month of October, the

share reached a new all-time low of 10.60 Euro. Based on good corporate

figures and an intact growth story, this price soon recovered

again. Contrary to the general trend, it managed to rally from its low

by just under 50 per cent. Finally, at the end of the year, the Funkwerk

share was once again quoted at just under 16 Euro.

10

In the opinion of every expert regularly analysing Funkwerk, this

price is still below the fair value of the share and clearly below the

targets appropriate for the growth rate of the company. If Funkwerk AG continues to grow and the

environment does not deteriorate further, the share should once again be able to achieve a drastic

price advance in 2003.

th of November 2003 Disclosure of nine-monthly report

However, the shareholders of Funkwerk AG can also benefit from distributions of earnings. Against

the background of a continuing successful trend of business, the Managing Board and the Supervisory

Board of Funkwerk AG once again

Sharehholder structure

Shares in total 7,190,000 100.00%

HÖRMANN GmbH & Co.

Beteiligungs KG 4,500,000 62.59%

Diversified holdings 2,690,000 37.41 %

of which Managing Board 113,439 1.58%

Dr. Grundner 60,000 0.83%

Mr. Meyer 18,439 0.26%

Mr. Pfister 15,000 0.21%

Mr. Steglich 20,000 0.28%

Company calendar 2003

this year intend to propose to the shareholders’

meeting a distribution of

dividends of 0.20 Euro.

In December 2002, the German stock

market admitted Funkwerk AG as one

of the first companies to the new

Prime Standard Segment. Since the

beginning of January 2003, the share

has been quoted in this new quality

trading segment. This ended our

membership with the Neuer Markt of

the Frankfurt stock market which will

be dissolved in 2003.

Funkwerk implements Corporate Governance Code

The Managing Board and the Supervisory Board of Funkwerk AG have committed to putting the

extensive regulations of the German Corporate Governance (CG) Code into action. The standards of

responsible business management and transparency in communication with investors stipulated

therein have long since been put into practice by Funkwerk. However, beyond this, in a statement

signed in October 2002, the Managing Board and the Supervisory Board of Funkwerk voluntarily >

17 th of March 2003 Balance sheet press conference

in Frankfurt

18 th of March 2003 Analysts’ conference in Hanover

(CeBIT)

8 th of May 2003 Disclosure of quarterly report

14 th of May 2003 General Meeting

7 th of August 2003 Disclosure of half-yearly report

The Funkwerk share

Annual Report 2002

29


Performance

200%

180%

160%

140%

120%

100%

80%

60%

40%

20%

0%

Funkwerk share

Nemax-50

Nov-00 Jan-01 Mrz-01 May-01 Jul-01 Sep-01 Nov-01 Jan-02 Mrz-02 May-02 Jul-02 Sep-02 Nov-02 Jan-03


committed to even more extensive measures to further increase the trust put into Funkwerk

AG by its investors.

Authorisation to buy own shares used

The authorisation of the company to buy its own shares, a resolution of the extension of which

until 14 November 2003 was passed by the shareholders’ meeting in May, was made use of by the

Managing Board on several occasions in 2002. From June until September, 15,600 own shares

were bought. On the whole, shares up to 10 per cent of the current capital stock of 7.19 million

Euro, that is, a maximum of 719,000 units, can be purchased. ■

Options rights granted

We are happy to be available to you for additional

information:

> Funkwerk AG

Katrin Schwarz Telephone +49-3635-600-335

Investor Relations Fax +49-3635-600-399

Im Funkwerk 5 eMail ir@funkwerk.com

99625 Kölleda Internet www.funkwerk.com

Managing Board Managing

Directors of

affiliated

companies

Employees Total

executive other

Dr. Grundner Mr. Meyer Mr. Pfister Mr. Steglich staff staff

Opening balance January 1, 2002 10,000 10,000 10,000 10,000 16,000 38,300 64,200 158,500

+ Option rights granted 4,000 4,000 4,000 4,000 6,000 20,500 48,200 90,700

– Option rights exercised 0 0 0 0 0 0 0 0

– Option rights forfeited 0 0 0 0 0 0 (1,530) (1,530)

Closing balance December 31, 2002 14,000 14,000 14,000 14,000 22,000 58,800 110,870 247,670

The Funkwerk share Annual Report 2002

31


32

Consolidated Balance Sheet at December 31, 2002

ASSETS

Annual Report 2002

Consolidated Balance Sheet

31.12.2002 31.12.2001

Notes TEUR TEUR

A. Non-Current Assets (1)

I. Intangible assets

1. Franchises, trademarks, patents, licenses and similar rights

and licenses to such rights and values 1,344 420

2. Goodwill 5,300 1,579

3. Development costs 4,485 2,130

11,129 4,129

II. Property, plant and equipment

1. Land, leasing rights and buildings including those

on third-party land 6,477 6,335

2. Technical equipment, plant and machinery 5,793 5,650

3. Other equipment, operational and business equipment 3,176 2,574

4. Advanced payments and construction in progress 715 513

16,161 15,072

27,290 19,201

B. Current Assets

I. Inventories

1. Raw materials and supplies 12,898 8,628

2. Work in progress 5,370 5,014

3. Finished goods and merchandise 3,884 3,792

4. Advance payments 242 14

22,394 17,448

II. Accounts receivable and other assets (2)

1. Trade accounts receivable 16,198 12,668

2. Accounts due from projects in process 3,048 0

3. Accounts due from affiliated companies 18 8

4. Other assets 2,443 1,913

21,707 14,589

III. Securities (3)

Other securities 8,642 9,304

IV. Cheques, cash on hand, bank balances in credit (4) 12,108 26,081

64,851 67,422

C. Prepaid Expenses 84 84

D. Deferred Tax Assets (5) 735 340

92,960 87,047


Financial Statements

according to IAS

EQUITY AND LIABILITIES

31.12.2002 31.12.2001

Notes TEUR TEUR

A. Shareholders’ Equity (6)

I. Subscribed capital 7,190 7,190

II. Additional paid-in capital 38,000 38,000

III. Appropriated retained earnings 3,800 0

IV. Own shares (261) 0

V. Consolidated unappropriated retained earnings 10,417 9,614

59,146 54,804

B. Adjustment items for shares of other partners (7) 118 47

C. Special Line Item for Investment Subsidiaries (8) 2,578 2,471

D. Accrued Liabilities (9)

1. Deferred taxes 3,044 1,750

2. Accrued tax liabilities 2,200 1,725

3. Pension accrued 5,120 4,301

4. Other accrued liabilities 2,080 7,417

12,444 15,193

E. Liabilities (10)

1. Due to banks 427 733

2. Advance payments received on orders 1,306 5,943

3. Trade accounts payable 7,285 5,589

4. Accounts due to affiliated companies 18 43

5. Other liabilities (11) 9,638 2,223

– thereof for taxes: TEuro 1,749 (December 31, 2001: TEUR 1,268)

– thereof for social security: TEUR 871 (December 31, 2001: TEUR 710)

18,674 14,531

F. Prepaid Expenses 0 1

92,960 87,047

Consolidated Balance Sheet

Annual Report 2002

33


34

Consolidated Statement of Operations

for the financial year from january 1 to December 31, 2002

Annual Report 2002

Consolidated Statement of Operations

2002 2001 Changes

Notes TEUR % TEUR % TEUR

1. Revenues (12) 108,661 94.62 67,449 91,95 41.212

2. Increase in inventories of

finished goods and work in progress (1,413) (1.23) 1,223 1.67 (2,636)

3. Other own work capitalised 4,232 3.69 1,920 2.62 2,312

4. Other operating income (13) 3,353 2.92 2,758 3.76 595

5. Gross performance 114,833 100.00 73,350 100.00 41,483

6. Material expenses (53,475) (46.57) (35,183) (47.97) (18,158)

7. Personnel expenses (33,149) (28.87) (17,523) (23.89) (15,626)

8. Depreciation and amortisation (7,459) (6.50) (5,657) (7.71) (1,802)

9. Other operating expenses (14) (11,835) (10.31) (8,382) (11.43) (3,587)

(105,918) (92.34) (66,745) (91.00) (39,173)

10. Operating profit/loss 8,915 7.76 6,605 9.00 2,310

11. Financial income/loss (15) 913 0.79 1,241 1.69 (348)

12. Income/loss from ordinary operations 9,828 8.56 7,846 10.7 1,962

13. Extraordinary income/expenses (60) (0.05) 0 0,00 (60)

14. Taxes on income and earnings (16) (3,636) (3.17) (2,423) (3.30) (1,122)

15. Other taxes (37) (0.03) (30) (0.04) (7)

16. Consolidated net income 6,095 5.31 5,393 7.35 833

17. Dividend of minority interests (17) 10 0.01 10 0.01 10

18. Dividend distributions for minority interests (64) (0.06) (45) (0.06) (19)

19. Consolidated net income 6,041 5.26 5,358 7.30 764

20. Profit carried forward 9,614 8.37 4,256 5.8 5,358

21. Allocation in retained earnings (3,800) (3.31) 0 0 (3,800)

22. Distributions (1,438) (1.25) 0 0 (1,438)

23. Consolidated unappropriated retained earnings 10,417 9.07 9,614 13.11 884

Earnings per share according to IAS 33 (18)

Consolidated net income TEUR 6,041 5,358

Number of shares TStück 7,190 7,190

Earnings per share EUR 0.84 0.75


Consolidated Cash Flow Statement

for the financial year from january 1 to December 31, 2002

Notes 2002 2001 Changes

TEUR TEUR TEUR

1. Net income 6,041 5,358 683

2. Amortisation of development costs 1,877 2,082 (205)

3. Amortisation of property, plant and equipment and intangible assets 5,248 3,470 1,778

4. Appropriation of difference amount from capital consolidation 0 0 0

5. Amortisation of Goodwill 334 105 229

6. Increase/Decrease in deferred taxes 899 270 529

7. Increase/Decrease in accrued pension liabilities (425) 113 538

8. Increase/Decrease in accrued tax liabilities 455 1,547 (1,092)

9. Increase/Decrease in other accrued liabilities (5,842) 1,510 (7,352)

10. Increase/Decrease in the special line item 107 703 (596)

11. Profit from decrease of items of the non-current assets (23) (1) (22)

12. Increase/Decrease in inventories (1,694) (672) (1,022)

13. Increase/Decrease in trade accounts receiveable (2,354) (8,676) 6.322

14. Increase/Decrease in projects in process receiveable (2,815) 0 (2,815)

15. Increase/Decrease in accounts due from affiliated companies (10) 44 (54)

16. Increase/Decrease in other assets 519 (101) 620

17. Increase/Decrease in accured and deferred assets 59 0 59

18. Increase/Decrease in trade accounts payable 591 1,740 (1,149)

19. Increase/Decrease in advance payments received on orders (6,199) 1,355 (7,554)

20. Increase/Decrease in accounts due to affiliated companies (25) 42 (67)

21. Increase/Decrease in other liabilities 6,672 1,613 5,059

22. Increase/Decrease in other prepaid expenses 0 1 (1)

23. Increase/Decrease in adjustment item 71 47 24

24. Cash provided by operating activities (19) 3,486 10,550 (7,064)

25. Proceeds from decrease of items of the non-current assets 20 1 19

26. Payments for investments in development costs (4,232) (1,921) (2,311)

27. Cash paid for investments in intangible assets (1,008) (291) (717)

28. Cash paid for investments in property, plant and equipment (5,375) (6,456) 1.081

29. Payments for acquisition of consolidated companies (4,407) (2,096) (2,311)

30. Cash used by investing activities (20) (15,002) (10,763) (4,239)

31. Free Cash Flow (11,516) (213) (11,303)

32. Payment to the additional paid-in capital 0 0 0

33. Cash capital increase 0 0 0

34. Proceeds from outstanding contributions 0 0 0

35. Payment for repayment of (finance) loans (1,682) (1,929) 247

36. Distributions (1,438) 0 (1,438)

37. Cash used by financing activities (21) (3,120) (1,929) (1,191)

38. Change in cash (14,636) (2,145) (12,491)

39. Cash, beginning of the period 35,386 37,528 (2,142)

40. Cash, end of the period (22) 20,750 35,383 (14,633)

Composition of cash at the end of the financial year

Cash in hand and credit at banks 12,108 26,079 (13,971)

Securities 8,642 9,304 (662)

20,750 35,383 (14,633)

Consolidated Cash Flow Statement

Annual Report 2002

35


36

Development of consolidated non-current assets

for the financial year 2002 – figures shown are gross

Statement of changes in shareholders’ equity

Annual Report 2002

Development of consolidated non-current assets

Historical and manufacturing costs

As at Paid in Paid in Paid out Reposting As at

01.01.2002 initial

consolidation

31.12.2002

TEUR TEUR TEUR TEUR TEUR TEUR

I. Intangible assets

1. Software 1,416 867 1,008 204 0 3,087

2. Goodwill 1,684 0 4,199 87 (56) 5,740

3. Development costs 4,975 0 4,232 839 0 8,368

8,075 867 9,439 1,129 (56) 17,195

II. Property, plant and equipment

1. Land, leasing rights and buildings

including those on third-party land 7,732 197 274 0 (41) 8,162

2. Technical equipment, plant and machinery 13,804 569 2,736 78 384 17,415

3. Other equipment, operational

and business equipment 5,013 849 1,613 286 263 7,452

4. Advance payments

and construction in progress 513 0 752 0 (550) 715

27,062 1,616 5,375 364 56 33,745

III. Financial assets

1. Investments in affiliated companies 0 0 0 0 0 0

2. Investments 8 0 0 0 0 8

8 0 0 0 0 8

35,146 2,482 14,814 1,494 0 50,948

Subscribed Additional Appropriated Consolidated Own Total

capital paid-in retained unappropriated shares

capital earnings retained

earnings

TEUR TEUR TEUR TEUR TEUR TEUR

December 31, 2001 7,190 38,000 0 9,614 0 54,804

Consolidated net income 0 0 0 6,041 0 6,041

Allocation in retained earnings 0 0 3,800 (3,800) 0 0

Distributions 0 0 0 (1,438) 0 (1,438)

Purchase of own shares 0 0 0 0 (261) (261)

December 31, 2002 7,190 38,000 3,800 10,417 (261) 59,146


Amortisations/Depreciations accumulated Book value

As at Paid in Paid in Paid out Reposting As at As at As at

01.01.2002 initial

consolidation

31.12.2002 31.12.2002 31.12.2001

TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR

996 468 458 177 0 1,743 1,344 420

106 0 334 0 0 440 5,300 1,579

2,845 0 1,877 839 0 3,883 4,485 2,130

3,947 468 2,669 1,016 0 6,066 11,129 4,129

1,397 102 189 0 (3) 1,685 6,477 6,335

8,154 495 3,047 74 0 11,622 5,793 5,650

2,439 534 1,554 255 3 4,276 3,176 2,574

0 0 0 0 0 0 715 513

11,990 1,131 4,790 328 0 17,583 16,161 15,072

0 0 0 0 0 0 0 0

8 0 0 0 0 8 0 0

8 0 0 0 0 8 0 0

15,945 1,600 7,459 1,344 0 23,658 27,290 19,201

Development of consolidated non-current assets

Annual Report 2002

37


38

Schedule of Liabilities

Annual Report 2002

Schedule of Liabilities

31.12.2002

Residual Residual Residual Total Security by right

maturity up maturity maturity liabilities of lien or

to one year between one over five similar rights

and five years years

TEUR TEUR TEUR TEUR TEUR Type

1. Due to banks 311 116 0 427 750 1)

2. Advance payments received on orders 1,306 0 0 1,306 0

3. Trade accounts payable 7,149 136 0 7,285 0

4. Accounts due to affiliated companies 18 0 0 18 0

5. Other liabilities 9,638 0 0 9,638 0

– thereof from taxes (1,749) 0 0 (1,749) 0

– thereof from social securities (871) 0 0 (871) 0

– thereof from partners (66) 0 0 (66) 0

Total 18,422 252 0 18,674 750

1) From the liabilities due to banks TEUR 750 were secured by encumbrance on real property.


Previous year

Residual Residual Residual Total Security by right

maturity up maturity maturity liabilities of lien or

to one year between one over five similar rights

and five years years

TEUR TEUR TEUR TEUR TEUR Type

385 348 0 733 2,750 2)

5,943 0 0 5,943 0

5,589 0 0 5,589 0

43 0 0 43 0

2,223 0 0 2,223 0

(1,268) 0 0 (1,268) 0

(710) 0 0 (710) 0

14,183 348 0 14,531 2,750

2) From the liabilities due to banks, TEUR 2.750 were secured by encumbrance on real property. The remaining

securities concern assignments as securities, assignments of receivables and guarantees of payment.

Schedule of Liabilities

Annual Report 2002

39


40

Annual Report 2002

Segmentberichterstattung


Notes

to the 2002 consolidated financial statements according to IAS

A. General disclosure

Funkwerk AG was founded on 16 August 2000 and was officially entered in the Commercial Register

at the District Court of Erfurt under registration number HRB 11457 on 6 September 2000. With

62.59%, the majority shareholder is Hörmann GmbH & Co. Beteiligungs KG, Kirchseeon.

Seated in Kölleda, Funkwerk is the technology leader in the growth market of mobile radio applications

for transport operators and is divided into three business segments:

The “Professional Mobile Radio Systems” segment comprises the product groups mobile radio,

management, and information systems for transport undertakings such as railway companies

and airports. Due to its many years of development and business activities, Funkwerk is now a

technology leader in this growth market. Owing to several major contracts, the company holds an

excellent position in both Germany and France, in particular, in regard to the Europe-wide adaptation

to GSM-R radio technology in trains.

In the “Commercial Mobile Radio Systems” segment, the company develops, produces, and sells

telecommunication equipment for automobiles and commercial vehicles, with the Funkwerk products,

COMPENSER®, hands-free systems, and the KomBox, optimising the possibilities of use of

public mobile radio networks. The COMPENSER®, an amplifier technology for mobile radio systems,

provides Funkwerk with a good position due to initial equipment contracts with German

premium manufacturers. Supply contracts for the KomBox have been concluded with several

well-known automobile manufacturers, while hands-free systems are sold via the retrofitting

market.

The “Private Networks“ segment was established from the Mobile Security Communications (MSC)

sector acquired from Tenovis in autumn 2001. With this acquisition, Funkwerk gained a wide-ranging

and well-established customer base and, at the same time, a considerable market share in the

messaging systems sector (in particular personal security systems) and in the production (also for

OEM) and sale of DECT systems. Due to the convergence of voice, data, and telematics and the use of

the latest radio technology, a new growth market has opened up in the area of private networks.

The consolidated financial statement of Funkwerk as at 31 December 2002 was compiled on the

basis of the accounting rules of the International Accounting Standards (IAS).

The requirements of § 292a of the HGB (German Commercial Code) in regard to the exemption

from the duty to prepare a consolidated financial statement pursuant to the HGB (German Commercial

Code) have been met.

For the application of special IAS regulation, please refer to the explanations on the individual

balance sheet items further below in these Notes.

In addition to the profit and loss account and the balance sheet, this report comprises a consolidated

cash flow statement in accordance with IAS 7 and a shareholders’ equity trend account (IAS

1). The particulars in these Notes also contain a segmental report in accordance with IAS 14. The

profit and loss account is structured according to the aggregate cost method.

Unless indicated otherwise, all figures of the consolidated financial statement are stated in thousands

of EURO (TEUR).

Notes

Annual Report 2002

41


42

Annual Report 2002

Notes

In the 2002 consolidated financial statement, deferred debts are, for the first time, shown under

Other liabilities (2001 Other accrued liabilities) since in general these are much less uncertain.

The prior-year figures were not adjusted. Furthermore, a full comparison with the previous year

is not possible, since three more companies have been included in the consolidated group since

last year.

B. Change to reporting according to the International Accounting

Standards

The accounting and valuation methods applied to the individual German commercial accounts of

Funkwerk have, in some cases, changed due to the application of the IAS.

Changed accounting and valuation methods corresponding to German law:

■ The movable fixed assets are depreciated using a straight-line method. Half-yearly and multilevel

depreciations are left out of account. Special depreciation allowances for tax purposes are

not permitted in the IAS accounts.

Changed accounting and valuation methods deviating from German law:

■ According to IAS 38, the development costs must be carried as intangible assets where the production

of the developed products is expected to prove profitable to the Funkwerk group.

■ Pension liabilities are determined following the present-value method of an expectancy in

accordance with IAS 19, taking into account future increases in salaries and pensions.

■ Reserve for deferred repairs and maintenance must not be set up.

■ Medium- and long-term reserves are shown with their present value.

■ Securities are reported in the profit and loss account with their current market value, even if it

exceeds the purchase cost.

■ Deferred taxes are determined using the balance-sheet oriented liabilities method. For loss

carry-forwards, capitalised deferred taxes are taken into account where it is expected that they

may be used.

■ The income determination of production orders on an accrual basis is effected in accordance

with IAS 11 following the percentage of completion method or the zero profit earnings realisation.

■ Own shares are balanced with the equity capital.

■ Receivables and payables in foreign currencies are valued using the mean rate as at the balance

sheet closing date, not according to the imparity principle.

■ Shares of partners outside the group are shown outside the equity capital as a separate item.


TEUR

Equity capital according to HGB as at 31 December 2002 55,415

Changes to previous years 2,445

Capitalisation of development costs 2,356

Changed depreciation methods 0

Deviating valuation of financial instruments 113

Effect deferred taxes (899)

Changes of special line items 147

Changed valuation of pension and similar obligations (22)

Changed reporting of reserves

Changes caused by use of Percentage of Completion Methode 445

Other changes (854)

Equity capital according to IAS as at 31 December 2002 59,146

C. The consolidated group

1. Consolidated companies

In addition to the parent company, Funkwerk AG, the following operative subsidiaries were included

in the consolidated financial statement:

Direct subsidiaries Legal domicile Voting rights in%

Funkwerk Dabendorf-GmbH Dabendorf, Brandenburg 100

Hörmann–Funkwerk Kölleda (FWK) GmbH Kölleda, Thuringia 100

FUNKTEL GmbH Salzgitter, Lower Saxony 100

ALPHA meß-steuer-regeltechnik gmbh Neustadt/Wstr., Rhineland-Palatinate 70

ARtem GmbH Ulm, Baden-Württemberg 100

Indirect subsidiaries Legal domicile Voting rights in%

ITN Telemotion GmbH Berlin 60

Telemotion-FWK GmbH Berlin 60

Hörmann telco GmbH Kölleda 100

In 2002, the number of fully consolidated subsidiaries changed due to the first-time inclusion of

the companies Hörmann telco GmbH,ALPHA meß-steuer-regeltechnik gmbh and ARtem GmbH.

Through the inclusion in the consolidated financial statement, the following fully consolidated

affiliated companies were exempt from the duty to disclose their annual accounts pursuant to

§ 264b or § 264 section 3 of the HGB (German Commercial Code):

Funkwerk Dabendorf-GmbH, Dabendorf

■ Hörmann-Funkwerk Kölleda (FWK) GmbH, Kölleda

In addition, pursuant to § 291 section 2 of the HGB (German Commercial Code), Hörmann-Funkwerk

Kölleda (FWK) GmbH was exempt from the preparation of a consolidated financial statement.

Notes

Annual Report 2002

43


44

Annual Report 2002

Notes

Inactive or only vaguely active subsidiaries of but minor significance in regard to the financial

and earnings position were not fully consolidated. They are shown in the consolidated financial

statement with their respective purchase costs or lower fair market values.

Funkwerk AG has concluded a control and profit and loss transfer agreement with its subsidiaries,

Hörmann-Funkwerk Kölleda (FWK) GmbH and Funkwerk Dabendorf-GmbH. In addition,

Funkwerk subsidiaries FUNKTEL GmbH and Alpha msr gmbh also distribute the full amount of

their profit for the year.

The requirement of funds of the subsidiaries is controlled and monitored centrally via a cash

pool. The liquid funds are invested in compliance with the established investment rules exclusively

in the Euro money market or in government or corporate bonds in Euro with a rating of at least

BBB, and in an open-ended real estate fund. The investment in shares or in derivative financial

instruments is expressly excluded.

2. Balance sheet date

The uniform final reporting day for the year-end accounts of the consolidated companies and for

the consolidated financial statement was 31 December 2002.

3. Consolidation methods

The assets and liabilities of the companies included in the consolidated financial statement are

shown in compliance with the uniform accounting and valuation methods of the Funkwerk

group.

The assets and liabilities of subsidiaries consolidated for the first time were valued at their settled

value at the time of acquisition. Cost values of the investments exceeding the group share in the

equity capital of the respective company thus determined resulted in goodwill to be capitalised.

The disclosed hidden reserves and burdens were carried, depreciated, or appropriated within the

scope of the subsequent consolidation according to the corresponding assets and liabilities. Capitalised

goodwill was depreciated in a straight-line method over their expected utilisation period.

Both receivables and payables, and expenses and income between the consolidated companies

were offset against each other. The group inventories and the fixed assets were adjusted by intermediate

results. Consolidation processes affecting net income were subject to the adjustment of

deferred taxes, with deferred tax assets and liabilities being balanced if the period of payment and

the tax creditor agreed.

The same consolidation methods were used for the 2000 and 2001 financial statements.

4. Currency conversion

In the individual Euro accounts of the consolidated companies, monetary items in foreign currencies

(liquid funds, payables and receivables) were valued at their market price on reporting date in

accordance with IAS 21. Items with fixed exchange rates were not recorded. The currency differences

from the conversion were recorded in the profit and loss account.

5. Affiliated companies

Here, affiliated companies are defined as companies that are directly or indirectly dominated by

the corporation or by Hörmann GmbH & Co. Beteiligungs KG.


The corporation is the parent company of all direct and indirect subsidiaries, which are consequently

also considered affiliated companies within the meaning of § 271, section 2 of the Commercial

Code, and in accordance with IAS 24. All direct and indirect subsidiaries are considered

affiliated companies.

Within the meaning of § 271, section 2 in conjunction with § 290 of the Commercial Code, the

corporation itself is an affiliated company of Hörmann GmbH & Co. Beteiligungs KG, Kirchseeon,

and was listed in the consolidated financial statement of that company. Consequently, the following

subsidiaries of Hörmann GmbH & Co. Beteiligungs KG, Kirchseeon, are also affiliated companies

of Funkwerk AG:

Affiliated companies Legal domicile

Hörmann Industrietechnik GmbH Kirchseeon/Munich

Hörmann-Rawema GmbH Chemnitz

AIC-Ingenieurgesellschaft für Bauplanung Chemnitz GmbH Chemnitz

Hörmann Audifon GmbH Kölleda

Raytop Inc. Santa Cruz, USA

Hörmann GmbH Kirchseeon/ Munich

Hörmann Finance GmbH Kirchseeon/ Munich

Hörmann Kommunikationsnetze GmbH Kirchseeon/ Munich

Hörmann GmbH Stade Stade

In addition, Hörmann GmbH & Co.Beteiligungs KG consolidates other companies of lesser

importance.

D. Accounting and valuation principles

1. Intangible assets

Intangible assets acquired for a consideration were capitalised at purchase cost and their loss in

value calculated on a straight-line basis by planned depreciation throughout their economic life,

typically 3 years. Research costs are shown as current expenditure in accordance with IAS 38.

Development costs for future serial products and other intangible assets constructed by the company

for its own use were carried as assets in purchase or production costs, where the manufacture

of these products was expected to be of economic benefit to the Funkwerk group. Where the

requirements of capitalisation were not met, the expenditures were allocated to the year of their

accrual affecting net income.

The purchase or production costs here cover any costs directly attributable to the development process

and any appropriate shares of the development-related overhead. Financing costs were not included in

the assets. The depreciation was effected on a straight-line basis from the start of production over the

planned model life of the developed products, which, in general, was between 3 and 4 years.

In its first year of fully consolidation, the development trend of the MSC business segment acquired

by FUNKTEL from Tenovis was clearly positive, recording an operating result far above plan.

Against the background of new product ranges in development, the projection for the years 2003

to 2005 shows a continued considerable increase in sales and profit.

Notes

Annual Report 2002

45


46

Annual Report 2002

Notes

For these reasons, the utilisation period originally estimated very conservatively to be 4 years was

raised to 8 years as a realistic quantity.

For many years, ALPHA has been an established partner, in particular of energy suppliers and

public utilities. We can see long-term market potential here, in particular with gas suppliers. At

the same time, the company is actively preparing to enter the chemical industry market as yet

another customer segment.

These statements are confirmed by a clearly positive result for 2002 and sales expected to increase

according to plan in the coming years up to 2005. In addition, synergies with other companies of

the Funkwerk group are used. On these premises, the expected utilisation period was set at 10

years.

ARtem is one of the technology leaders in wireless LAN technology on the German market.According

to forecasts from experts, this market is expected to show a rapid expansion in the short

term. Through the integration of ARtem into the Private Networks segment, the company can

benefit synergetically from the existing customer relationships and the existing selling power.

These statements are supported by the projection of ARtem up to 2005, according to which the

company can expect a turnaround in 2003 and increasingly positive results from 2004. Against

this background, the expected utilisation period was set at 10 years.

2. Property, plant and equipment (fixed assets)

Fixed assets were valued at purchase or production costs, less planned and, where required,

unplanned depreciations. Investment subsidies are always shown as special items for investment

subsidies and allowances. Production costs were valued on the basis of directly allocable direct

costs and pro-rata material and production overhead including depreciations. Repair costs and

interest on borrowed capital were recorded as current expenditure. The fixed assets were depreciated

pro rata temporis on a straight-line basis over the expected utilisation period.

The planned depreciations were mainly based on the following utilisation periods:

Buildings 15 to 50 years

Technical equipment and machinery 3 and 12 years

Other equipment, operational and business equipment 1 and 10 years

In accordance with IAS 36, unplanned depreciations of fixed assets are effected if the net sales

price or the utilisation value of the asset in question falls below the book value. If the reasons for

an unplanned depreciation effected in previous years did not apply, we carried out the appropriate

appreciations.

When using rented fixed assets, the requirements of finance leasing in accordance with IAS 17 are

met if all major risks and chances in connection with the property have been transferred to the

respective group company. The fixed asset category does not include assets meeting the requirements

according to IAS 17.

3. Financial assets

The other investments were valued at their purchase costs or the lower settled values.


4. Inventories

Under Inventories, raw materials and supplies, merchandise, work in progress, and finished goods

were valued at purchase or production cost. In addition to the direct costs, the production costs

also include appropriate shares of the necessary material and production overhead and production-related

depreciations directly attributable to the production process. Administration costs

were taken into account where attributable to the production. Interest on borrowed capital was

not included in the assets. If the values were lower as at the closing date due to sagging prices on

the sales market, they were reflected. In principle, the valuation of similar items of inventories was

based on the average cost method. The value adjustments effected amounted to TEUR 6,004.

Advance payments for inventories as at 31 December 2002 were included in the purchase costs.

5. Reporting of production orders

Future accounts receivable from production orders were reported following the percentage of

completion method in accordance with IAS 11 where a customer-specific production order existed.

Here, profits were realised on a pro rata basis corresponding to the degree of completion where a

reliable determination of the degree of completion, the aggregate costs, and the total revenue of

the respective orders was possible within the meaning of IAS 11. The degree of completion of the

individual orders was determined using the cost-to-cost method. On the aforementioned conditions,

the total revenue of orders received was realised on a pro rata basis corresponding to the

degree of completion. Where a reliable estimate was not possible, the zero-profit method was

used. The order costs include any costs directly attributable to the order and, where appropriate,

shares of the overhead. Borrowed capital costs were included in the expenditure. Any advance

payments received for the orders carried in the balance sheet were deducted.

6. Receivables and other assets

Other receivables and assets were valued at net book value corresponding to their nominal value.

Recognisable individual risks and general credit risks were taken into account by making appropriate

value adjustments.

7. Securities

Pursuant to IAS 39, securities classified as current assets (held for trading) were valued at their

market value on the closing date. The amount of appreciation was taken into account to affect net

income and amounted to TEUR 99 .

8. Prepaid expenses

Discounts were valued at nominal value after deducting the planned depreciation on a straightline

basis. The deduction was spread over the loan period. The other items were valued at purchase

cost, related to the respective total amount, partly after deducting the planned depreciation

on a straight-line basis.

9. Special line items for investment subsidies and allowances

According to IAS 20.24, any investment subsidies from public funds received by the corporation

must be itemised as a separate liability item.The subsidies were recorded as revenue during the

periods necessary to balance them with the appropriate depreciation expenditures they are to offset.

The transfer was made on the basis of the statutory entitlement requirements and the appropriated

subsidies for investments effected by the corporation. The amortisation affected the profit and

loss account corresponding to the utilisation period of the subsidised fixed assets.

Notes

Annual Report 2002

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48

Annual Report 2002

Notes

10. Deferred taxes

Deferred taxes were recorded for any temporary differences between the valuation of the tax

balance sheet and the consolidated balance sheet (temporary concept). In addition, the deferred

taxes also reflected operating loss carry-forwards.

The deferred taxes were determined at the rate of the anticipated tax burden or relief of following

financial years on the basis of the tax rate effective at the time of applicability. Tax consequences

of dividend distributions were only taken into account at the time of the resolution on the disposal

of corporate profits.

11. Pension accrued

In accordance with IAS 19, these accruals were calculated using the project unit credit method

(PUCM). Here, future liabilities were valued using actuarial procedures with a conservative estimate

of the relevant impacting factors.

12. Tax and other accrued liabilities

All recognisable risks and contingent liabilities were listed under tax and other accrued liabilities

in the amount of their probable accrual. The valuation was based on conscientious estimates.

13. Liabilities

Trade accounts payable, due to affiliated companies, and other liabilities were valued at the amount

repayable. Long-term liabilities were included in the balance sheet at net book value. Differences

between historical acquisition costs and the amount repayable were taken into account according

to the effective interest rate method.

14. Adjustment items for shares of other partners

In accordance with IAS 27.26, the minority shares in the annual results of the integrated subsidiaries

must be listed separately.

Pursuant to IAS 10.11, dividends to minority shareholders are not recorded as debt on the closing

date if the shareholder resolution authorising the dividend payment is passed after this date. Rather,

they must be included in the item for shares of other partners.

15. Sales realisation

Sales are shown as revenue at the time of delivery or performance of service at the customer. The

sales realisation in regard to production orders is explained under item 5. The revenue was realised

after deducting price reductions such as cash discounts, customer bonuses, and rebates.

16. Subsidies

In its special field, the corporation carries out research and development work subsidised by state

institutions in Germany and the European Union. Prior to the start of research and development,

the research and development work and the amount of the subsidy must be approved by the subsidising

offices. Therefore, the revenue from research and development is realised once the corresponding

expenditure has accrued and the subsidy requirements, where stipulated, have been met.

17. Material expenses

This item lists the cost of purchased materials and of outside services. For the job costs recorded

according to performance progress, please refer to item 5.


18. Taxes on income and earnings

The taxes on income and earnings were calculated from the earnings before tax, based on the tax

rate applicable. Deferred taxes were valued such as to reflect the temporary differences between

the tax balance sheet and the consolidated financial statement as at 31 December 2002.

E. Notes to the corporate balance sheet

Assets

(1) Non-current assets

In regard to the composition and trend of the individual values of the non-current assets, please

refer to the fixed-asset movement schedule.

In accordance with IAS 20.24, public subsidies to the amount of TEUR 1,112 for investments in

property, plant and equipment in 2002 were listed as a separate liability item.

Intangible assets

With TEUR 5,300 (previous year: TEUR 1,579), the intangible assets mainly include goodwill

from the initial consolidation of the subsidiaries included in the consolidated financial statement.

In accordance with IAS 38, the intangible assets also report development costs in the current

financial year to the amount of TEUR 4,485.

Expenditure for research and development included as expense amounted to TEUR 4,401 (previous

year: TEUR 3,044).

Financial assets

The financial assets list shares not included in the consolidated financial statement by means of

pro equity consolidation due to their little significance. In detail, this refers to the following company:

Name and legal domicile Capital Capital Equity Earnings

of the company share share capital

in % in CZK in TEUR in TEUR

1) Tradicom a.s., Czech Republic 30 300 1 1

The reported book value of the shares was EUR 0.51. There were no financial obligations for the

company.

(2) Receivables and other assets

This item also shows orders in progress reported according to the percentage of completion

method or the zero profit method in accordance with IAS 11.

1) Figures not available.

Notes

Annual Report 2002

49


50

Annual Report 2002

Notes

The future receivables from production orders developed as follows:

Balance sheet TEUR P+L TEUR

Orders in process 7,271 Sales 6,829

Receivables 7,271 Cost (6,384)

Advance payments received (4,223)

Total 3,048 Profit share 445

The due from affiliated companies totalled TEUR 18.

The accounts receivable and other assets at all closing dates had a residual maturity of up to one

year. The other assets were composed as follows:

Other assets 31.12.2002 31.12.2001

TEUR TEUR

Tax return claims 240 45

Advances to personnel 85 84

Claims from subsidies,

grants and investment subsidies 1,877 1,533

Interest receivables 64 115

Compensation in damages 51 51

Miscellaneous 126 85

Total 2,443 1,913

(3) Securities

The securities serve as a precautionary liquidity reserve. The investments classified as current

assets include an open-ended real estate fund and a fund for corporate bonds.

(4) Cash on hand, cash in banking accounts, and cheques

The liquid asset trend forming the financial resources fund together with the investments classified

as current assets and the due to banks maturing at call (advances in current accounts) pursuant

to IAS 7 is shown in the consolidated cash flow statement (page 35).

The company has credit balances with various banks at interest rates of between 0.00% and 7% p.a.

(5) Deferred tax assets

The deferred tax assets resulted from the following future tax relief:

31.12.2002 31.12.2001

TEUR TEUR

Temporary differences between the valuations

of the tax balance sheet and the consolidated balance sheet 563 270

Future tax savings due to loss carry-forwards 172 70

Total 735 340


Liabilities

(6) Equity capital

Subscribed capital

This item shows the capital stock of Funkwerk AG at its nominal value.The capital stock amounts

to TEUR 7,190 and is divided into 7,190,000 shares in the form of bearer shares.

The resolution passed by the extraordinary shareholders’ meeting of Funkwerk AG, Kölleda, on 29

September 2000 authorised the Managing Board, with the approval of the Supervisory Board, to

increase the capital stock of the corporation once or in several stages to a maximum of TEUR

3,595 by 28 September 2005 by issuing new shares made out in the name of the buyer against cash

or non-cash contributions (approved capital).

Further, the capital stock of the corporation was increased conditionally to a maximum of TEUR

500 by issuing up to 500,000 shares in the name of the bearer to service option rights. The conditional

increase of capital stock will only be put into effect if option rights are issued and their

bearers exercised their option. The new shares will be eligible for dividends from the beginning

of the financial year during which they were created by exercising these options.

The resolution passed by the annual general meeting of Funkwerk AG, Kölleda, on 15 May 2002

authorised the corporation to acquire its own stock up to a share of 10% of the current capital

stock by 14 November 2003. The countervalue of these shares must not exceed the average closing

price of the share at the Frankfurt stock market in XETRA trade on the the previous five stock trading

days by more than 10% or fall below this price by more than 10%.The time limit only applies to

the purchase, not the holding of stock.

Option plan

The extraordinary shareholders’ meeting of Funkwerk AG on 29 September 2000 authorised the

corporation, inter alia, to issue option rights to a maximum of 500 thousand shares once or in

several stages to members of the corporate Managing Board, members of the executive management

of affiliated companies (§ 15 of the Stock Trading Act), executive staff at the second

management level of the corporation and affiliated companies, and to other employees of the corporation

and of affiliated companies (2000 Share Option Plan).

Instead of lapsed or not already exercised option rights, new options rights may be given. Members

of the Managing Board may be issued option rights to a maximum of 100,000 shares, while

members of the executive management of the affiliated companies may be issued option rights to

a maximum of 50,000 shares, executive staff of the corporation and the affiliated companies to a

maximum of 100,000 shares, and other employees of the corporation and the affiliated companies

to a maximum of 250,000 shares. In all cases, double subscriptions are excluded. Thus, members

of the corporate Managing Board who are also members of the executive management of affiliated

companies receive their option rights exclusively from the quantity reserved for members of

the corporate Managing Board. Other employees and executive staff of the corporation who are also

members of the executive management of affiliated companies receive their option rights exclusively

from the quantity reserved for other employees and executive staff of the corporation.

Up to half of the option rights granted at any one time may only be exercised for the first time

three years after their initial issuance. The remaining half of the granted option rights may be

exercised for the first time after a period of four years (“waiting period“). The following table

Notes

Annual Report 2002

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Annual Report 2002

Notes

reflects the movement of the number of granted share option rights in the course of the 2000 to

2002 financial years:

2002 2001 2000

As at 1 January 157,000 77,500 0

Allowance 90,700 80,000 80,000

Lapse of the subscription right (30) (500) (2,500)

As at 31 December 247,670 157,000 77,500

As the first tranche of the share option plan, 80,000 shares with an exercise price of EUR 20.00

were granted on 27 October 2000. The second tranche was granted on 17 September 2001 with

80,000 shares at an exercise price of EUR 25.47. The third tranche of 90,700 shares at an exercise

price of EUR 16.84 was granted on 2 September 2002.

The option right may only be exercised by the authorised parties within the exercise period if in

a period of ten trading days after the day of the shareholders’ meeting of the corporation or the

publication of the quarterly reports of the corporation as at 30 June or 30 September the average

closing price of the corporate share in floor trading on the Neuer Market of Deutsche Börse AG or,

if such a price cannot be verified, in XETRA trading has exceeded the exercise price by at least

45% after three years or at least 60% after four years (“exercise barrier“).

The option rights may be issued to the authorised parties once or several times during a period

of ten trading days, beginning twelve days after a shareholders’ meeting or after the publication

of an annual or quarterly report (“issuance period”). The decision as to whether and to which

extent to grant option rights to an employee is made at the discretion of the corporate management.

There is no legal claim to a future granting of option rights.

The option right has a life of five years, beginning with the end of the applicable issuance period. The

option right lapses without compensation on the last day of the life of the option right at the latest.

A trading day is defined as any day during which the Neuer Market of Deutsche Börse AG is open

for trading.

No option rights have been exercised so far since the earliest possible time to do so will be in 2003.

Representation of the acquisition and sale of own shares

In the following, the development of the portfolio of own shares:

No. of shares Purchase price

As at 1 January 2002 0

25.06.2002 3,000 17.98

26.07.2002 2,600 17.97

30.07.2002 400 17.94

06.08.2002 2,600 17.53

15.08.2002 2,000 16.75

10.09.2002 2,300 14.79

10.09.2002 700 13.74

13.09.2002 2,000 15.37

As at 31 December 2002 15,600 15.50


Capital reserves

The capital reserves as at 31 December 2002 came exclusively from premium amounts.

(7) Adjustment item for shares of other partners

In essence, the shares of other partners in the equity capital fell to the co-partners of ALPHA

meß-steuer-regeltechnik gmbh (shareholders: Mr. Engelhard and Ms. Marose).

(8) Special line item for investment subsidies and allowances

The inventory developed as follows in the financial year:

Investment subsidy Investment allowance

TEUR TEUR

As at 1 January 2002 1,469 1,002

Transfer 651 461

Reversal (544) (461)

As at 31 December 2002 1,576 1,002

The special line item with a time to maturity of up to 1 year was TEUR 658,

for 1 to 5 years TEUR 1,476,

and for terms exceeding 5 years TEUR 444.

(9) Accrued liabilities

Deferred taxes

The determined differences in methodology and the valuation between the results of the tax and

trade balances (HB II in accordance with the regulations of the IASC) of the consolidated companies

led to deferred tax liabilities in the following categories:

31.12.2002 31.12.2001

TEUR TEUR

Intangible assets 1,813 831

Property, plant and equipment 615 629

Use of Percentage of Completion Methode 341 0

Own shares 70 0

Advance payments 151 212

Pension accrued 54 70

Other accrued liabilities 0 8

Total 3,044 1,750

There were no consolidation measures affecting net income and, consequently, no deferred taxes.

The deferred taxes have a remaining term of more than a year.

The deferred taxes were determined on the basis of the tax rates that will be, or are anticipated to

be, in effect at the time of realisation. The future corporate income tax rate including the solidarity

surcharge and the applicable commercial income tax served as the basis for the calculation of the

deferred taxes. On the basis of this calculation, the tax rate will be 39%.

Notes

Annual Report 2002

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54

Annual Report 2002

Notes

Pension accrued

Based on three plant agreements of 18 November 1998, the employees of FUNKTEL GmbH were

granted benefits paid under a pension scheme. In the period from 1 January 1999 to 31 December

2006, the contribution is to be allocated to the personal pension accounts of staff in employment

for an indefinite period of time. In addition, the company has a pension obligation vis-à-vis members

of the management due to a salary change promise in the years 1998 and 1999 (to the amount of

a capital sum of EUR 29,861.49).

In accordance with IAS 19, these accruals were calculated according to the project unit credit

method (PUCM) with a variable interest rate (6.25%) and include future salary and pension

trends (2.0% p.a.), an income trend of 83.0% p.a., and an individual fluctuation rate (age-dependent:

decreasing from age 15 (16%) to age 54 (0.1%)). The calculated pension age was determined pursuant

to the Pension Reform Act of 1999 (60/62/63 years).

The balanced accrual expenditure for the employee pension scheme in accordance with IAS 19

(expense) amounted to EUR 466,114 and is composed of the current service cost to the amount

of EUR 189,819 (the present value of the expectancy increase for active staff determined by the

PUCM at the beginning of the financial year plus a payment of interest to the end of the year) and

the interest cost to the amount of EUR 276,295 (one-year payment of interest on the DBO 1) –

taking into consideration the benefit payments falling due during the year) determined at the

beginning of the financial year.

Furthermore, this item includes pension accrued for a Managing Director and a retiring Managing

Director of ALPHA meß-steuer-und regeltechnik gmbh to the amount of TEUR 297.

01.01. Reclassi- Utilisation Reversal Allocation 31.12.

2002 fication 2002

TEUR TEUR TEUR TEUR TEUR TEUR

Pension obligations 4,301 0 0 (84) 841 5,058

Accruals for similar obligations 0 58 0 0 4 62

Total 4,301 58 0 (84) 845 5,120

The pension accrued have a term to maturity of more than 5 years.

Other accrued liabilities

According to IAS 37, accrued liabilities are only set aside where there is a current obligation

towards third parties due to a past event that is expected to lead to an outflow of resources and

that can be estimated reliably.

For the first time, accrued liabilities according to HGB (German Commercial Code) were transferred

to other liabilities according to IAS.

Accrued liabilities for warranty claims were set aside in accordance with IAS 37, taking the previous

or the estimated future loss experience of the products sold as the basis.

1) Defined Benefit Obligation – the present value of the total future, dynamic pension payments attributable to the years of service already

completed according to the PUCM


In accordance with IAS 37, the other accrued liabilities were also taken into account for any recognisable

risks and for contingencies to the amount of their probable occurrence instead of being

offset against recourse claims.

Accrued liabilities that will not lead to an outflow of resources in the following year were valued at

their settlement amount discounted as at the closing date, with the market interest rates forming

the basis for the discounting. The settlement amount also covers any increases in costs to be taken

into account on the closing date.Accrued liabilities in foreign currency were converted using their

current rate.

01.01. Reclassi- Claims Reversal Allocation 31.12.

2002 fication 2002

TEUR TEUR TEUR TEUR TEUR TEUR

Warranties

Accrued liabilities

1,782 0 1,344

for personnel

Remaining other

6,601 (6,601) 0 0 0 0

accrued liabilities 2,534 (2,039) 0 0 265 760

Total 10,917 (8,640) 0 0 265 2,104

(10) Liabilities

Remaining maturities

The remaining maturities ensue from the overview of liabilities (page 38).

Due to affiliated companies

The due to the majority shareholder, Hörmann GmbH & Co. Beteiligungs KG, amounted to TEUR 6

(31 December 2001: TEUR 26).

(11) Other liabilities

31.12.2002 31.12.2001

TEUR TEUR

Taxes 1,749 1,268

Social security liabilities 871 710

Payments in transit 0 32

Options dealings 0 135

Due to employees 0 10

Outstanding holiday entitlements 714 0

Overtime claims 312 0

Anniversary bonus liabilities 434 0

Partial retirement 737 0

Profit-sharing bonus 1,236 0

Other personnel liabilities 646 0

Therof from partners 66 0

Miscellaneous 2,874 68

Total 9,638 2,223

Notes

Annual Report 2002

55


56

Annual Report 2002

Notes

In accordance with IAS 21.9 and 21.11, payables in foreign currencies were converted at the rate

in effect on their due date. Differences resulting from currency exchange fluctuations were included

in the revenue.

G. Profit and loss account

(12) Sales revenues

The sales revenues were divided by corporate segments and regions. The revenues determined

here resulted from normal business activities.

Breakdown into corporate segments

31.12.2002 31.12.2001

TEUR % TEUR %

Professional Mobile Radio Systems

Mobile radio systems for transportation companies 12,993 11.96 5,546 8.23

Management systems 27,759 25.55 18,176 26.95

Information systems 6,072 5.58 8,806 13.05

46,824 43.09 32,528 48.23

Commercial Mobile Radio Systems

Mobile radio terminals 10,226 9.41 10,959 16.25

COMPENSER® 18,126 16.68 16,229 24.06

28,352 26.09 27,188 40.31

Private Networks

Messagingsystems 15,665 14.41 3,495 5.18

Mobility systems 13,786 12.69 3,293 4.88

Production and service 4,034 3.72 945 1.40

33,485 30.82 7,733 11.46

Total 108,661 100.00 67,449 100.00

Breakdown into geographic markets

31.12.2002 31.12.2001

TEUR % TEUR %

Domestic 99,283 91.37 59,427 88.11

EU 7,685 7.07 3,865 5.73

Other foreign countries 1,693 1.56 4,157 6.16

Total 108,661 100.00 67,449 100.00

Within the scope of segment reporting, the sales revenues of the group are shown according to

group division.


(13) Other operating income

2002 2001

TEUR TEUR

Income from fixed assets retirements 23 1

Income from reversal of accrued liabilities 624 1,124

Income from reversal of special line item for

investment subsidies and allowances 1,006 640

Expense allowances/subsidies 565 487

Income from rent 79 0

Remuneration in kind 163 0

Partial retirement increase 89 0

Income from reversal of allowances for

doubtful accounts 52 0

Other charges passed on 499 215

Miscellaneous 123 190

Compensations 27 10

Income from price differences 103 91

Total 3,353 2,758

(14) Other operating expenses

2002 2001

TEUR TEUR

Space and building expenses 1,807 744

Administrative expenses 2,949 2,180

Selling expenses 3,025 2,065

Allocation to reserve for warranties 249 956

Operating expenses 1,003 591

Losses on receivables 91 172

Current-asset valuation adjustments 648 121

Vehicle expenses 913 474

Structural adjustment measures 0 9

Expenses unrelated to accounting period 49 76

Reserves for anticipated losses 0 184

Miscellaneous 1,101 810

Total 11,835 8,382

The increase in administrative expenses was primarily the result of:

■ rapid organic growth

■ additional expenditure due to acquisitions

■ growing requirement of group controlling and consolidation

On the whole, this increase by 35.3% as against the previous year clearly was proportionately less

than the increase in sales.

Notes

Annual Report 2002

57


58

Annual Report 2002

Notes

The increase in the selling expenses was caused by

■ Extension of international sales activities in the existing business segments

■ Sales activities of the acquired companies

On the whole, the increase in selling expenses by 46.5% as against the previous year was clearly

below the corresponding increase in sales by 61.1%.

Essentially, the increase in operating expenses was the result of the maintenance and repair costs

for Private Networks included for the first time.

(15) Financial results

2002 2001

TEUR TEUR

Other interest and similar revenue 1,034 1,437

Write-up of financial assets 113 0

Interest and similar expenses (220) (171)

Amortisation of investment classified as current assets (14) (25)

Total 913 1,241

(16) Taxes on income and earnings

Composition of the tax expenditure:

31.12.2002 31.12.2001

TEUR TEUR

Current tax expenditure 2,737 2,154

Deferred tax expenditure of temporary differences 899 (297)

Deferred tax expenditure of fiscal utilised loss carry-forwards 0 566

Taxes on income and expenditure 3,636 2,423

In addition to the corporation income tax and the commercial income tax, the income taxes included

deferred taxes.


The following deferred tax accruals and liabilities shown in the balance sheet were attributable to

differences in methodology and valuation in regard to the individual balance sheet items and to

tax loss carry-forwards:

31.12.2002 31.12.2001

Deferred Deferred Deferred Deferred

tax tax tax tax

accruals liabilities accruals liabilities

TEUR TEUR TEUR TEUR

Intangible assets 0 1,813 0 831

Property, plant and equipment 0 615 0 629

Accounts receivable and other assets 0 341 0 0

Own shares 0 70 0 0

Advance payments received 0 151 0 212

Pension accrued 0 54 0 70

Other accrued liabilities 134 0 0 8

Investment subsidies 100 0 155 0

Tax loss carry-forwards 172 0 70 0

Other assets 329 0 115 0

Balance sheet figure 735 3,044 340 1,750

Transition from the anticipated to the reported income tax expenditure:

31.12.2002 31.12.2001

TEUR TEUR

Result before taxes on income 9,731 7,816

Anticipated income tax expenditure (tax rate of 35.7%) 3,474 3,048

Transition:

Tax share for:

– tax-free income (294) (213)

– expenditure not subject to tax deductions 560 16

Tax credits (40) 0

Effective taxes unrelated to accounting period 204 0

Other tax effects (268) (428)

Reported income tax expenditure 3,636 2,423

Effective tax rate 37.3 31.0

Notes

Annual Report 2002

59


60

Annual Report 2002

Notes

(17) Share of the minority shareholders in profits and losses

31.12.2002 31.12.2001

TEUR TEUR

Share of the minority shareholders in losses 10 10

Share of the minority shareholders in profits (64) (45)

Total (54) (35)

The share of the minority shareholders in the profits for the 2002 financial year is principally

attributable to shareholders of ALPHA msr gmbh.

(18) Earnings per share according to IAS 33

According to IAS 33, the earnings per share are determined by dividing the consolidated results

for the year by the average number of shares. This figure may be diluted by what is known as

potential ordinary shares (especially share options). However, this does not apply to the periods

under review. The following data show the undiluted earnings per share.

2002 2001

Consolidated net income for the year TEUR 6,041 5,358

Number of shares 1000 shares 7,190 7,190

Earnings per share EUR 0.84 0.75

H. Cash flow statement

The cash flow statement was structured according to the cash flow from operating, investing, and

financing activities (page 35).

(19) Cash flow from operating activities

The inflow of funds from current business operations is shown as cash flow from operating activities.

(20) Cash flow from investing activities

The cash flow from investing activities includes investments in intangible assets, tangible assets,

the acquisition of consolidated companies, and the capitalised development costs.

(21) Cash flow from financing activities

The cash flow from financing activities relates to the amount paid out for the redemption of loans

and dividend payments.

(22) Funds at the end of the period

The composition of the financial resources fund corresponds to the cash and cash equivalents

(IAS 7.6) shown in the balance sheet as liquid assets (31 December 2002) and investments classified

as current assets less the immediate liabilities on current account in the due to banks (31

December 2002).


I. Segment reporting

This reporting format by division-related segments has been the structural reporting format of

the corporation since 1999. Consequently, segment reporting is in compliance with IAS 14.

Calculation of EBIT-capital

Year Prosfessional Commercial Private Group

Mobile Radio Mobil Radio Networks

Systems Systems

TEUR TEUR TEUR TEUR

Non-current assets (investments) 2002 10,125 8,613 8,552 27,290

2001 7,391 7,727 4,083 19,201

Inventories 2002 15,315 2,989 4,090 22,394

2001 10,036 3,298 4,114 17,448

Advance payments received on orders 2002 (505) (60) (741) (1,306)

2001 (4,428) 0 (1,515) (5,943)

Balance of current liabilities/current 2002 2,721 (1,735) (3,477) (2,491)

non-interest-bearing liabilities 2001 (700) (1,310) (2,148) (4,158)

Trade accounts receivable 2002 13,070 2,228 3,948 19,246

2001 12,668

Due from affiliated companies 2002 16 0 2 18

2001 8

Other receivables 2002 1,731 589 123 2,443

2001 1,913

Due to affiliated companies 2002 (18) 0 0 (18)

2001 (43)

Other liabilities 2002 (4,054) (1,318) (4,266) (9,638)

2001 (2,223)

Trade accounts payable 2002 (5,062) (1,539) (684) (7,285)

2001 (5,589)

Accrued tax liabilities 2002 (950) (412) (838) (2,200)

2001 (1,725)

Deferred tax accruals 2002 (1,605) (517) (922) (3,044)

2001 (1,750)

Other accrued liabilities 2002 (436) (783) (861) (2,080)

2001 (7,417)

EBIT capital 2002 27,656 9,807 8,424 45,887

2001 12,299 9,715 4,534 26,548

generated EBIT 2002 3,943 2,584 2,388 8,915

2001 3,208 3,157 240 6,605

EBIT margin (capital-related) 2002 14.26% 26.35% 28.35% 19.42%

2001 26.08% 32.50% 5.29% 24.88%

Notes

Annual Report 2002

61


62

Annual Report 2002

Notes

Calculation of EBIT

Year Prosfessional Commercial Private Total

Mobile Radio Mobile Radio Networks

Systems Systems

TEUR TEUR TEUR TEUR

Revenues 2002 46,824 28,352 33,485 108,661

2001 32,528 27,188 7,733 67,449

Inventory changes of finished goods 2002 (380) 150 (1,183) (1,413)

and work in progress 2001 1,617 (10) (384) 1,223

Other operating income 2002 1,416 1,436 501 3,353

2001 1,086 940 732 2,758

Own work capitalised (development) 2002 1,669 1,355 1,208 4,232

2001 943 977 0 1,920

Gross performance 2002 48,113 29,857 33,510 111,480

2001 35,088 28,155 7,349 70,592

Material expenses 2002 24,045 16,697 12,733 53,475

2001 16,386 15,609 3,188 35,183

Personnel expenses 2002 13,928 5,882 13,339 33,149

2001 9,921 4,830 2,772 17,523

Depreciation of non-current assets 2002 1,556 2,197 1,495 5,248

2001 1,340 1,738 392 3,470

Depreciation of goodwill 2002 137 0 197 334

2001 0 0 105 105

Depreciation of development work 2002 852 1,005 20 1,877

2001 1,249 833 2,082

Other operating expenses 2002 5,068 2,928 3,839 11,835

2001 4,070 2,928 1,384 8,382

EBIT 2002 3,943 2,584 2,388 8,915

2001 3,208 3,157 240 6,605

A list of sales revenues according to geographic markets is contained on page 56.


J. Other disclosures

1. Contingencies

There were no contingencies resulting from liabilities to affiliated or other companies.

2. Contingent liabilities and other financial obligations

There were no contingent liabilities as at 31 December 2002.

Other financial obligations comprised various rental and leasing obligations:

■ Long-term rental agreements TEUR 2,337

■ Long-term leasing agreements TEUR 905

The following proposal on the appropriation of the net profits for the 2002 financial year of Funkwerk

AG to the amount of EUR 6,150,257.64 will be put to the shareholders’ meeting:

a) Distribution of a dividend to the amount of EUR 0.20 per share, corresponding to an amount

of EUR 1,438,000.00,

b) Transfer of EUR 4,700,000.00 to earnings reserves, that is to other earnings reserves,

c) Remaining amount of EUR 12,257.64 carried forward to new account.

3. Average number of employees by category during the financial year

2002 2001 1)

Managing Board 4 4

Management 8 2

Administration 55 72

Development 129 106

Sales/project management 150 131

Production 306 241

Trainees 38 25

Total 690 581

1) In 2001, the FUNKTEL GmbH staff were fictiously included in the average calculation for the entire year.

4. Relationships with affiliated companies and persons

Relationships with “related parties”within the meaning of IAS 24 existed particularly with affiliated

companies not included in the consolidated financial statement and with the majority shareholder,

Hörmann GmbH & Co. Beteiligungs KG.

Notes

Annual Report 2002

63


64

Annual Report 2002

Notes

The following legal transactions were entered into with Hörmann GmbH & Co. Beteiligungs KG:

EUR

Support services for the acquisition of interests 24,000.00

Pass-on of Managing Board travelling expenses 156.41

Pass-on of insurance expenses 1,030.23

Total 25,186.64

The service exchange among the affiliated companies was subject to normal market conditions,

as among unrelated third parties.

Legal transactions at the instigation or in the interest of Hörmann GmbH & Co. Beteiligungs KG

were not arranged or entered into in the interest of that company or a company affiliated with it.

5. Major risks and uncertainties

In principle, legal risks are taken into account by setting up reserves to the amount of the expected

burden. Besides the risks sufficiently covered by reserves, no other risks or uncertainties are

recognisable to date.

6. Statement on the German Corporate Governance Code pursuant to § 161 of the

German Stock Corporation Law

Pursuant to § 161 of the German Stock Corporation Law, the Managing Board and the Supervisory

Board have made the required statement concerning the current and future compliance with

the recommendations of the “German Corporate Governance Code Government Commission”

published by the Federal Ministry of Justice in the official section of the electronic Federal Official

Gazette, and have made this statement available to the shareholders.

7. Details on the Managing Board and the Supervisory Board

Managing Board

■ Dr. Hans Grundner, M.Sc. Anzing, Chairman

■ Mr. Herbert Meyer, B.A.M., Weimar

■ Mr. Lutz Pfister, M.Sc. (Tech. Coll.), Zossen

■ Mr. Harald Steglich, M.Sc., Straußfurt

In the year under review, Dr. Hans Grundner, M.Sc., was a member of following Supervisory

Board within the meaning of §125 section 1 sentence 3 of the German Stock Corporation Law:

■ CIDEON-Systemhaus AG, Nussbaumstr. 1, 85757 Karlsfeld

Supervisory Board

■ Mr. Rolf Rickmeyer, B.A.M., Seeheim-Jugenheim, Chairman

■ Mr. Jost C. Fischer, B.A.M., Brannenburg, Vice Chairman

(until 14 February 2002)

■ Mr. Karl Doniat, Taufkirchen (14 February 2002 to 15 May 2002)

■ Mr. Niels Lund Chrestensen (from 15 May 2002)

■ Mr. Peter Schinkel, M.Sc., Berlin (until 6 December 2002)

Cost


In the year under review, Niels Lund Chrestensen, was a member of following Supervisory Boards

within the meaning of § 125 section 1 sentence 3 of the German Stock Corporation Law:

■ Deutsche Bahn AG Berlin

■ Thüringer Aufbaubank AG Erfurt

Substitute member of the Supervisory Board in the period under review:

■ Mr. Karl Doniat, Taufkirchen (until 13 February 2002)

Emoluments of the Fixed salary Variable pay Total emoluments

Managing Board EUR EUR EUR

Dr. Hans Grundner, M.Sc. 104,319 132,106 236,425

Mr. Herbert Meyer, B.A.M. 90,898 63,920 154,818

Mr. Lutz Pfister, M.Sc. (Tech. Coll.) 92,033 86,959 178,992

Mr. Harald Steglich, M.Sc. 92,033 63,920 155,953

Emoluments of the members of Fixed salary Variable pay Total emoluments

the Supervisory Board EUR EUR EUR

Mr. Rolf Rickmeyer, B.A.M. 20,000 0 20,000

Mr. Karl Doniat 2,500 0 2,500

Mr. Niels Lund Chrestensen 6,278 0 6,278

Mr. Peter Schinkel, M.Sc. 9,328 0 9,328

As at the closing date, the members of the Supervisory Board did not hold any shares.

As at the closing date, the members of the Managing Board held the following number of company

shares:

Managing Board 2002 2001

shares shares

Dr. Hans Grundner, M.Sc. 60,000 60,000

Mr. Herbert Meyer, B.A.M. 18,439 20,000

Mr. Lutz Pfister, M.Sc. (Tech. Coll.) 15,000 15,000

Mr. Harald Steglich, M.Sc. 20,000 20,000

Kölleda, February 2003 The Managing Board

Hans Grundner Herbert Meyer Lutz Pfister Harald Steglich

Notes

Annual Report 2002

65


66

Annual Report 2002

Auditors’ report

Auditors’ report

As a result of our audit, we hereby issue the following certificate for the attached consolidated

financial statement of Funkwerk AG, Kölleda, as at 31 December 2002 and the attached group

management report for the 2002 financial year:

We hereby certify that we have audited the consolidated financial statement compiled by Funkwerk

AG, consisting of the balance sheet, the profit and loss account, the shareholders` equity

trend account, the cash flow statement, and the Notes for the financial year from 1 January 2002

to 31 December 2002. The compilation and content of the consolidated financial statement are the

responsibility of the Managing Board of the corporation. Based on the audits we have conducted,

it is our task to assess whether the consolidated financial statement meets the specifications of the

International Accounting Standards (IAS).

Our group audit complied with the German auditing regulations with due regard to the generally

accepted German auditing practices defined by the German Auditors Institute (IDW) and, additionally,

the International Standards on Auditing (ISA). These regulations state that an audit must

be planned and conducted such that it allows a sufficiently reliable assessment as to whether the

consolidated financial statement contains any material errors. In determining the auditing

methods, we have taken into account the type of business, the economic and legal environment of

the corporation, and any anticipated errors. Within the scope of the audit, the supporting documents

for the valuations and the details in the consolidated financial statement were evaluated on

the basis of random sample audits. The audit comprised an appraisal of the accounting principles

applied and the essential estimations of the legal representatives together with an assessment of

the overall preparation of the consolidated financial statement. We are of the opinion that our

audit constitutes a sufficiently reliable basis for our evaluation.

We are convinced that the consolidated financial statement gives a true and fair view of the company’s

assets, liabilities, financial position, profit and loss, and the cash flow of the financial year

in conformity with the IAS.

Our audit, which also included the group management report prepared by the Managing Board

for the financial year from 1 January 2002 to 31 December 2002, has not resulted in any objections.

In our opinion, the group management report, together with the other details of the consolidated

financial statement, is an accurate representation of the business situation of the company and

appropriately describes the risks of future developments.

We further certify that the consolidated financial statement and the group management report for

the financial year from 1 January 2002 to 31 December 2002 meet the requirements for an exemption

of the corporation from the preparation of a consolidated financial statement and a group

management report under German law.

Jena, 28 February 2003 Rödl & Partner GmbH

Wirtschaftsprüfungsgesellschaft

Steuerberatungsgesellschaft

Alexander Jaenisch Kerstin Maaß

Wirtschaftsprüfer Wirtschaftsprüfer


Annual Report 2002

67


68

Annual Report 2002


Imprint

Publisher

Funkwerk AG

Im Funkwerk 5

99625 Kölleda/Thüringen

Telephone +49-3635-600-0

Fax +49-3635-600-399

eMail info@funkwerk.com

Internet www.funkwerk.com

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