p. 1

annual report 2007/08

[close]

p. 2

at a glance five-year financial summary

[close]

p. 3

at a glance chf million bookings operating revenue ebit net income cash flow shareholders equity roe roce 2007/08 228.2 223.4 26.7 16.8 23.6 107.9 15.6 30.7 2006/07 221.6 215.7 20.2 11.5 18.8 98.9 11.7 19.1 +3.0 +3.6 +32.2 +46.1 +25.5 +9.1 ­ ­ revenue distribution by business unit 12 automation components computing solutions revenue distribution by geographical region emea north america asia 23 6 71 88 distribution of employees by activity 90 manufacturing sales marketing administration r&d 474 640 distribution of employees by geographical region 146 emea north america asia 148 910

[close]

p. 4

five-year financial summary chf million bookings order backlog operating revenue gross profit ebitda ebit earnings before taxes net income from continuing operations net income including discontinued operations cash flow depreciation and amortisation additions to fixed assets accounts receivable inventories net working capital current assets fixed assets net intangible assets net interest-bearing debt net current liabilities long-term liabilities minorities shareholders equity total liabilities and shareholders equity number of employees average 2007/08 228.2 49.5 223.4 109.4 31.3 26.7 23.7 16.8 16.8 23.6 4.7 4.3 55.5 31.2 47.3 124.6 16.5 28.6 ­21.1 53.4 9.9 ­ 107.9 171.1 1 204 2006/07 221.6 50.8 215.7 100.9 25.0 20.2 19.0 14.9 11.5 18.8 4.8 5.1 59.3 40.4 58.7 126.8 23.2 29.7 7.2 71.3 11.9 ­ 98.9 182.2 1 192 15.5 4.3 5.4 63.1 32.7 52.3 128.7 23.9 33.8 ­ 5.1 66.3 13.2 ­ 111.6 191.2 1 126 10.7 4.4 4.6 64.3 31.4 52.2 111.3 22.5 32.6 8.3 61.5 13.1 0.1 100.8 175.5 1 041 10.4 5.3 3.5 57.7 30.9 46.0 111.6 22.8 33.0 17.4 74.1 16.2 0.2 95.9 186.4 999 2005/06 216.8 44.9 216.5 94.5 19.9 15.6 15.7 12.2 2004/05 207.0 45.5 201.8 84.2 14.4 10.0 8.9 6.8 2003/04 206.5 43.2 203.8 81.7 13.8 8.5 6.8 5.2 not comparable with previous periods due to discontinuance of channel access fulfilment activity net income depreciation amortisation change in provisions ­ gain loss on sale of investments or assets

[close]

p. 5

to be better be competitive to be great be cooperative vedanta

[close]

p. 6

carlo gavazzi group annual report 2007/08

[close]

p. 7

index corporate letter to the shareholders review of operations group profile global presence 4 6 8 10 business units automation components computing solutions 12 22 corporate governance 26 consolidated financial statements statements of consolidated income consolidated balance sheets statements of changes in equity statements of consolidated cash flows notes to consolidated financial statements report of the group auditors 36 37 38 39 40 55 financial statements statements of income balance sheets statements of changes notes to financial statements report of the statutory auditors 58 59 60 61 64 carlo gavazzi group 3

[close]

p. 8

letter to the shareholders for the fifth consecutive year the carlo gavazzi group improved its economic performance ­ operating revenue increased by 3.6 from chf 216 million to chf 223 million adjusted for currency effects operating revenue remained stable ­ gross profit margin improved from 46.7 of revenue to 49.0 ­ ebit stood at chf 26.7 million up from chf 20.2 million in the previous financial year as a percentage of revenue it reached 11.9 9.4 in 2006/07 well ahead of the 10 target set to be achieved in 2009/10 ­ net income amounted to chf 16.8 million representing a return on equity of 15.6 net income of chf 11.5 million in 2006/07 with a return on equity of 11.7 ­ net financial debt which stood at chf 7 million at the end of the previous financial year turned into a cash surplus position of chf 21 million most of the above performance is to be credited to the automation components business unit acbu performance of the business units the relevant sections of this annual report describe the major events of the reporting period and present a comparative analysis of the main financial data acbu has improved significantly and progressively its performance over the last five years revenue increased from chf 139 million in 2002/03 to chf 197 million in 2007/08 42 while ebit improved from chf 8.5 million chf 26.3 million a more than three-fold increase with a return on sales ros increasing from 6.1 to 13.4 the computing solutions business unit csbu saw a significant reduction of its business volume from chf 66 million in 2002/03 to chf 31 million in 2007/08 because of the continuing crisis affecting the telecom infrastructure market which represented about 60 of the business unit`s sales at the beginning of the period over these years csbu successfully refocused its activity to the industrial and defence sectors which today represent 85 of total revenue and are more profitable than telecom from a negative value of chf 6.0 million in 2002/03 ebit has now turned positive and reached chf 0.2 million in 2007/08 the turnaround is now completed and the business unit is starting to push business as shown by the 14 higher bookings over the previous year and the chf 7 million backlog as at march 31 2008 most of the backlog consists of repeat orders from prime customers which augurs well for further improvement in economic performance strategy the above developments corroborated by an in-depth analysis and assessment of present market positioning and growth prospects have led the board of directors of carlo gavazzi holding ag to map out the following path for its two business units in respect of csbu considering that the turnaround has been successfully completed and sound foundations have eventually been laid to foster growth various possibilities are currently been considered to create value the business unit continues to be regarded as non-core but thanks to its positive development and favourable prospects the company s focus is now on securing the maximum medium-term return from invested capital for carlo gavazzi holding ag and its shareholders regarding acbu and considering the ­ excellent progress made over time ­ sound production and sales organisations in place ­ strength of the management structure ­ existence of unexploited growth potential in current and new markets the board has decided to foster growth in order to consolidate the presence in the existing markets and geographical areas and to take advantage of the unexploited potential of fast-growing markets and dedicated applications to further enrich acbu s product portfolio this will call for more investments in r d the sales organisation and the product offering all of which can be achieved either through organic growth or external lines 4 carlo gavazzi group

[close]

p. 9

corporate letter to the shareholders review of operations group profile global presence business units corporate governance consolidated financial statements financial statements outlook having reached an ebit of 12 2 percentage points higher than the set target of 10 and two years ahead of the planned date the company now aims at stabilising its economic performance for the medium-term the board is fully aware that such performance is satisfactory in consideration of the economic growth deceleration which is currently affecting all regions of the world to a larger or a smaller degree in order to lay the foundations for sustained long-term profitability the group intends to deploy every effort to increase revenue it strongly believes that sales growth in carefully selected geographical areas and product/application markets together with enhanced r d to maintain a state-of-the-art product portfolio are essential ingredients to achieve the set goal in particular acbu s customer base will need to be further leveraged to extract more value in order to offset the diminishing returns resulting from the continuing price erosion furthermore new products shall be introduced and additional customers acquired the present structure could easily handle a much-increased sales volume with a minor enlargement of the sales organisation this means that new customers and/or new automation components complementing the current offering could be handled at a marginal cost this would make the commercial strategy of the «one-stop-shop» for customers more effective while diluting the incidence of the relevant fixed costs associated with the sales network finally the group will investigate the market potential of countries that are recording economic and industrial growth rates far in excess of those of the more mature countries where carlo gavazzi presently operates opening up sales outlets in those countries may prove very rewarding in the long-term today the group finds itself in a unique position to afford such moves the company has a capable and dedicated management a sound financial structure and sound cash flow generation growth opportunities have been identified and are now being prioritised and carefully evaluated if appropriate concrete actions will be communicated in due time the group has recorded a strong operational performance and attained a solid financial position accordingly the board of directors will propose to the annual shareholders meeting the payment of a dividend of chf 10 per bearer share for the reporting period corresponding to a pay-out ratio of 42 special thanks go to all of our employees for their creativity and commitment which resulted in the recent years progressively positive results we would also like to thank our customers and shareholders who have shown confidence in the carlo gavazzi group giulio pampuro chairman of the board carlo gavazzi group 5

[close]

p. 10

corporate review of operations structure the organisational structure of the group remained unchanged during the year under review the group is composed of the two business units automation components with its head office in lainate milan italy and computing solutions with its head office in brockton ma usa currencies as the group operates in more than 20 countries and generates substantially all of its revenue in currencies other than the swiss franc foreign exchange rate movements are of particular importance compared with the previous year the euro strengthened against the swiss franc and the us dollar weakened the weighted positive currency effect for the group amounted to 0.8 on bookings operating revenue and cost of sales the currency exposure for the group on profitability is limited as local revenues are matched substantially with corresponding expenses in the same currencies bookings and backlog in 2007/08 consolidated bookings from continuing operations increased by chf 6.6 million or 3.0 0 adjusted for currency effect from chf 221.6 million to chf 228.2 million bookings exceeded revenue by chf 4.8 million for a book-to-bill ratio of 102 the automation components business unit increased its bookings by chf 4.4 million or 2.3 0.4 adjusted for currency effect from chf 191.3 million to chf 195.7 million bookings of the computing solutions business unit increased in us dollars by 13.8 whereas in swiss francs they increased by 7.3 to chf 32.5 million group order backlog at year-end amounted to 22.2 of operating revenue corresponding to work-on-hand of almost three months operating revenue consolidated revenue from continuing operations increased by chf 7.7 million or 3.6 0 adjusted for currency effect from chf 215.7 million to chf 223.4 million the automation components business unit increased its revenue by chf 10.0 million or 5.4 3.4 adjusted for currency effect from chf 186.6 million to chf 196.6 million affected in the second half by the slight slowdown in bookings revenue at the computing solutions business unit decreased in us dollars by usd 0.4 million or 1.7 and in swiss francs by chf 2.3 million or 7.9 from chf 29.1 million to chf 26.8 million automation components represented 88.0 of group revenue compared with 86.5 in the previous year gross profit margin the consolidated gross profit margin improved by 2.3 percentage points from 46.7 to 49.0 in the reporting period in the automation components business unit the gross profit margin increased by 1.6 percentage points from 50.6 to 52.2 while it increased at computing solutions by 3.4 percentage points from 21.9 to 25.3 due to efficiency improvements and more profitable business the excellent margin performance at automation components was assisted by the substantial efficiency improvements at all manufacturing locations operating expenses operating expenses as a percentage of operating revenue amounted to 37.5 compared with 36.9 in the previous year operating expenses including selling general administrative and r d expenses increased by chf 5.3 million or 6.7 3.8 adjusted for currency effect from chf 79.6 million to chf 83.8 million the automation components business unit increased operating expenses by chf 5.4 million or 7.7 5.4 adjusted for currency effect from chf 70.4 million to chf 75.8 million reflecting the increased investment in sales marketing and r d personnel operating expenses of the computing solutions business unit were reduced by chf 0.9 million or 14.5 0 adjusted for currency effect from chf 6.2 million to chf 5.3 million other income/expense net of chf 1.1 million positive includes gains from the sale of two buildings no longer required of chf 0.6 million and a provision no longer required of chf 0.6 million whereas the previous year included net costs of chf 1.0 million 6 carlo gavazzi group

[close]

p. 11

corporate letter to the shareholders review of operations group profile global presence business units corporate governance consolidated financial statements financial statements ebit consolidated ebit increased by chf 6.5 million or 32.2 from chf 20.2 million to chf 26.7 million as a percentage of operating revenue ebit amounted to 12.0 an improvement of 2.6 percentage points over the previous year net interest expense remained stable at chf 0.7 million this year there was an exchange loss of chf 2.3 million compared with a loss of chf 0.5 million in the previous year mainly due to the further devaluation of the us dollar the nominal tax rate increased by 7.3 percentage points from 21.8 to 29.1 due to the reduced availability for usage of tax loss carry forwards net income net income increased by chf 5.3 million or 46.1 from chf 11.5 million to chf 16.8 million earnings per share grew from chf 16.25 to chf 23.81 return on equity increased from 11.7 to 15.6 while return on capital employed improved from 19.1 to 30.7 balance sheet and cash flow trade accounts receivable net decreased by chf 3.8 million or 7.0 from chf 54.6 million to chf 50.8 million corresponding to a collection period of 81 days a slight decrease over the 82 days of the previous year inventories decreased by chf 9.2 million from chf 40.4 million to chf 31.2 million corresponding to 3.6 turns compared with 3.3 turns in the previous year this decrease returns the inventory to a more normal level following the substantial increase in the previous year necessitated by the transfer of production from denmark to lithuania and malta net working capital decreased by chf 11.4 million from chf 58.7 million to chf 47.3 million for the same reason net fixed assets decreased mainly due to the sale of two buildings the company turned net cash positive during the year to reach a position of chf 21.1 million compared with net interest-bearing debt at the end of the previous year of chf 7.2 million shareholders equity increased from chf 98.9 million to chf 107.9 million or 63.1 of total assets after net income of chf 16.8 million translation losses of chf 3.9 million payment of dividends of chf 4.9 million and a net decrease in own shares of chf 1.0 million cash flow from operating activities before net working capital changes amounted to chf 23.6 million an increase of chf 4.8 million over the previous year cash flow from operating activities including changes in net working capital increased by chf 24.0 million from chf 8.0 million to chf 32.0 million caused primarily by the inventory decrease described above taking net capital expenditure into account free cash flow increased by chf 28.3 million from chf 5.0 million to chf 33.3 million carlo gavazzi group 7

[close]

p. 12

corporate group profile our mission carlo gavazzi is a diversified internationally active electronics group designing manufacturing and marketing electronic equipment targeted at the global markets of industrial automation and information processing our structure under the umbrella of a holding company headquartered in switzerland carlo gavazzi is organised in two business units it is the function of the holding company to ensure planning and development of the group s business portfolio choose a coherent set of strategies and objectives monitor their implementation and the efficiency of the corresponding management tools and processes select the upper-level management manage corporate finance tax planning management information systems communication and investor relations the business units operate separately within the framework of defined strategies and objectives they are responsible for research and development manufacturing quality marketing and sales human resources logistics finance and control group executives lead their business units in line with the holding s objectives as businessmen with strong entrepreneurial drive and responsibility our objectives to provide our customers with technologically innovative high quality and competitive solutions in compliance with their requirements and expectations to create an environment conducive to our employees professional and personal development to obtain a fair and equitable return for our shareholders through sustained development of our core activities our principles to create added value for our customers with our products and services in order to strengthen their market positions and establish long-term partnerships to adapt structures and processes to market needs and delegate responsibility to promote an environment conducive to mutual respect and cooperation to mark clear leadership and integrity by doing what we say our activities the automation components business unit designs and manufactures electronic control components for the global industrial automation markets in its iso 9001 certified factories in italy lithuania malta and the people s republic of china the products sensors monitoring relays timers energy management systems solid-state relays electronic motor controllers safety devices and fieldbus systems provide automation solutions for the factory and building automation markets typical customers are original equipment manufacturers of packaging machines plastic-injection moulding machines food and beverages production conveying and material handling equipment door and entrance control systems lifts and escalators as well as heating ventilation and air-conditioning devices system integrators and distributors are other effective channels to the market the products are marketed across europe north america and asiapacific through a network of 20 own sales companies and through more than 40 independent national distributors in addition the business unit designs and manufactures signalling equipment and safety relays for the italian state railways the computing solutions business unit designs manufactures and markets in the usa standard and custom products supporting open architecture bus structures such as vme compactpci advancedtca compacttca and microtca as well as switch fabric technologies the products include enclosures and high-speed backplanes fabric connectivity solutions as well as embedded computer systems the unit s system integration expertise provides customers with complete fully tested and certified systems the computing solutions business unit operates an iso 9001 certified manufacturing facility on the east-coast of the usa the unit s main customers are manufacturers of commercial and military telecommunications equipment mass-storage units for data processing speciality computers and medical equipment 8 carlo gavazzi group

[close]

p. 13

corporate letter to the shareholders review of operations group profile global presence business units corporate governance consolidated financial statements financial statements our strategy solution-packages for the vertical market segments automation components plastic renewable energy elevators priority market segments factory building sensors packaging fieldbus product systems lines control devices smart building solid-state switching devices food beverages automatic doors hvac computing solutions telecom priority market segments vme compact tca technologies advanced tca micro tca industrial military carlo gavazzi group 9

[close]

p. 14

global presence sectors r d and manufacturing centres logistic centres sales and marketing independent distributors 1 1 north america revenue chf 52 million 1 logistic centre 2 sales companies 5 area managers 2 emea europe middle east africa revenue chf 159 million 4 r d competence centres 4 manufacturing facilities 2 logistic centres 14 sales companies 5 regional offices 3 asia-pacific revenue chf 12 million 1 r d competence centre 1 manufacturing facility 1 logistic centre 4 sales companies 3 regional offices 10 carlo gavazzi group

[close]

p. 15

corporate letter to the shareholders review of operations group profile global presence business units corporate governance consolidated financial statements financial statements carlo gavazzi is a diversified internationally active electronics group designing manufacturing and marketing electronic equipment targeted at the global markets of industrial automation and information processing 2 3 carlo gavazzi group 11

[close]