Ypsomed Holding AG Annual Report 2014 / 15

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1 Ypsomed Holding AG Annual Report 2014 / 15

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3 Ypsomed Holding AG Annual Report 2014 / 15 3

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5 Ypsomed Annual Report Contents 6 Key figures 8 Letter to shareholders 11 How the unpegging of the Swiss Franc from the Euro impacts the results 12 mylife Diabetescare 14 mylife Diabetescare 14 mylife Clickfine DiamondTip pen needles 15 mylife YpsoPump 16 Ypsomed subsidiaries 20 YDS Ypsomed Delivery Systems 22 New customers, new projects 23 Strong growth 24 Dynamic expansion in Solothurn 27 Ypsomed in the Far East 28 Sustainability Report 30 Sustainability and social responsibility 30 Employees in professional training 31 HR policy 32 Employee survey Operational safety 34 Corporate social responsibility 35 Sustainable use of resources 36 Financial Report 38 EBIT increased by over Consolidated income statement 41 Consolidated balance sheet 42 Consolidated statement of cash flows 43 Consolidated statement of changes in equity 44 Basis for the consolidated financial statements 49 Notes to the consolidated financial statements 64 Statutory closing of Ypsomed Holding AG 71 Five-year overview 72 Corporate Governance 74 Corporate Governance 76 Capital structure 78 Shareholder structure 80 Board of Directors 88 Executive Management 91 Compensation, participations and loans 92 Shareholders rights of participation 93 Change of control and blocking mechanisms 93 Auditors 94 Information policy 95 Compensation Report 102 Glossary 5

6 Ypsomed Annual Report Key figures Sales of goods and services Ypsomed Group Segment Delivery Devices In million CHF Segment DDB Segment Others / / / / 15 EBIT Ypsomed Group 5.7 Segment Delivery Devices Segment DDB In million CHF Segment Others EBIT margin Group / / / / Net profit, free cash flow & dividend payment 19.4 In million CHF / / / / 15 Net profit Free cash flow Dividend payment

7 Ypsomed Annual Report Investments Balance sheet structure In million CHF In million CHF / / / / / / / / 15 In fixed assets R&D expenditures Depreciation / amortisation of fixed and intangible assets Total assets Equity Equity ratio Employee headcount Identification of employees Employee headcount Average (rated on a scale of 100) / / / / Switzerland International Total Identification: I feel a strong sense of identification with this company Development of YPSN In CHF April 2014 March

8 Growth trajectory continues Outstanding business year 2014/15 In business year 2014 / 15, the Ypsomed Group posted consolidated sales of CHF million, which represents an increase of 11 year on year. The operating result (EBIT) rose by more than 80 to CHF 28.5 million in comparison with the previous year (CHF 15.6 million). Net profit came to CHF 19.4 million. At the EBIT level, Ypsomed s profitability now lies at 9.3 (prior year: 5.7 ) and at the net profit level at 6.3 (prior year: 4.9 ). The rise in profitability is primarily due to a consistent and ongoing cost and process optimisation process. Broken down by segments, the result can be presented as follows: In Diabetes Direct Business, sales increased by 16.3 from CHF million to CHF million. In addition, following the turnaround in 2013 / 14 (EBIT CHF 6.3 million) the operating result more than doubled, with CHF 13.0 million being posted for 2014 / 15, showing that the investments of the previous years are paying off in a most impressive manner. The Delivery Devices segment posted an increase in sales of 6.9 from CHF million to CHF million for 2014 / 15, which confirms that the growth trajectory started in 2012 still continues. In addition, there was a marked improvement in the EBIT segment. This rose from CHF 9.3 million in the previous year to CHF 13.4 million. Excellent result despite negative currency effects The result is all the more impressive given the background of the unpegging of the Swiss Franc from the Euro by the Swiss National Bank on 15 January Although admittedly only the last 2.5 months of the reporting year were affected by this challenging situation for all export-oriented Swiss companies, there is no doubt that the results would have been even better if the Euro exchange rate of CHF 1.20 had been retained. In this case, sales would have been CHF million and EBIT CHF 30.3 million. In view of the structural problems in the eurozone, Ypsomed now faces the challenge of adjusting to a strong Swiss Franc both for the business year 2015 / 16 and for the longer term. However, it was not as a reaction to the thunderbolt in January that our company put in place appropriate measures. It has been doing this for a long time as part of an ongoing process. We try to ensure that the costs and sales of a business and / or business segment are always incurred in the same currency wherever possible. In addition, we carry out investments in property, plant and equipment with suppliers in the eurozone. In this respect, the Swift programme for process optimisation is extremely important. A detailed account of the effects of exchange rate fluctuations on Ypsomed s business can be found on page 11. The segment Others this contains the precision mechanics supplier Ypsotec and the non-operationally-used properties posted a slight increase in sales from CHF 16.0 million to CHF 17.2 million and an improvement in EBIT from CHF 0.1 million to CHF 2.1 million. The sale of land at the Solothurn site resulted in a profit of CHF 1.5 million. 8

9 Ypsomed Annual Report mylife Diabetescare Under the mylife Diabetescare brand, Ypsomed has successfully built up its direct business with products and services for people with diabetes mellitus. The product with the highest turnover in the mylife portfolio is the tubeless mylife OmniPod insulin patch pump, sales of which have risen by around 50 in comparison with the previous year. But sales with blood glucose monitoring systems also increased in this area by 8.5, despite zero global growth, in particular due to good results in the tendering business. mylife launches new products: Since the end of February 2015, Ypsomed s new needles for its mylife Clickfine DiamondTip injection pen have been on the market in Germany, Austria and Switzerland. Our new pen needles feature some amazingly innovative characteristics: A 6-bevel precision needle tip improves the smoothness and glide of the needle, the result being a noticeably more pleasant and reliable injection. This was confirmed in an independent user study carried out in Germany with more than 100 participants. The prospects are highly promising, since 91 of the users questioned said they would switch to the DiamondTip in the future or would consider doing so. The mylife Clickfine DiamondTip will gradually replace the former 3-bevel Clickfine needle in all our markets in business year 2015 / 16. Find out more on page 14. With the mylife YpsoPump, we are introducing a new insulin pump in business year 2015 / 16: This is the result of more than 30 years of experience in the field of diabetology combined with the latest technology and tailored to current customer needs. The launch will mark the culmination of an intensive development phase, whereby not only the central pump unit, but all the components of the whole insulin pump system had to be redesigned and fully coordinated with each other: insulin pump, infusion set, compatible inserter, optional fillable or pre-filled insulin cartridges as well as treatment management software. For the first time in the history of insulin pump treatment, it is possible to identify a clear segmentation of the market. On the one hand, patients increasingly opt for the freedom of the patch pump mylife OmniPod. On the other hand, a growing trend towards even greater metabolic control by means of the complex functions and algorithms of standard, tube-connected insulin pumps can be observed. Between these two extremes, there is a broad market for easy-to-use, easy-to-understand, potentially more cost-efficient, pure insulin pumps. The mylife YpsoPump was developed with this market segment in mind. As the only insulin pump manufacturer, Ypsomed is also in the happy position of being able to offer the ideal solution for two of the three segments and is thus unique with its offering. Find out more about mylife YpsoPump on page 15. Ypsomed Delivery Systems Our pharmaceutical and biotech customers obtain injection systems and associated services from the YDS brand Ypsomed Delivery Systems. YDS has enjoyed an intensive and successful year and the well-filled project pipeline means we can look to the future with full confidence. The following describes a selection of our current major projects: The long-standing partnership between the French pharmaceutical company Sanofi and Ypsomed has been further strengthened by a major new project: From the end of 2016, components for injection systems will be manufactured on an additional production line at the Solothurn site. In the first quarter of 2015, operations began at the Solothurn site on the automated production of the UnoPen injection pen. The special feature of the UnoPen system is its flexibility. It is possible to produce a wide variety of UnoPen styles, which means that all the different customer requirements can be taken into account. It 9

10 Ypsomed Annual Report is remarkable that the development and commissioning of this complex plant took less than two years. The Russian company Pharmstandard will be the first of Ypsomed s customers to use the UnoPen as the injection system for its medication. In general, disposable injection systems are a strong future market. Find out more about the importance and the development of the UnoPen and its production site on page 24. The market for glucagon-like peptide-1 (GLP-1), a drug that is becoming increasingly important in the treatment of type 2 diabetes, is growing fast. In the reporting year, two Ypsomed pens based on GLP-1 products for our pharmaceutical partners GlaxoSmithKline and AstraZeneca were successfully brought to market. Forecast In the coming business year 2015 / 16, the expenses for the launch of the mylife YpsoPump and the opening up of new markets will have an impact on results. We anticipate growth in sales of around 10 and an operating result (EBIT) of around 35 million, depending on the currency trend. It is worth stating that, if the Euro exchange rate had remained at CHF 1.20 the result would be around CHF 9.0 million higher. We wish to thank you, our valued shareholders, for your confidence in us. Lupin, one of the largest pharmaceutical companies in India, is now using the YpsoPen from Ypsomed to market its insulin preparation named Lupisulin. This project is an excellent example of a whole raft of projects with pharmaceutical partners from the newly industrialising countries. They are particularly responsive to solutions for price-sensitive markets and Ypsomed has precisely the right offering. The globally active Japanese medical technology company Terumo Corporation has integrated the autoinjector YpsoMate from Ypsomed into its pre-fillable polymer syringe systems. In the reporting year, Terumo has gained two pharmaceutical customers with this combination. The list of further promising autoinjector projects with prominent pharmaceutical partners is long. Dr. h. c. Willy Michel Chairman of the Board of Directors Simon Michel Chief Executive Officer 10

11 Ypsomed Annual Report How the unpegging of the Swiss Franc from the Euro impacts the results The unpegging of the Swiss Franc from the Euro by the Swiss National Bank on 15 January 2015 took the Ypsomed Group by surprise and presented us with some significant challenges: Ypsomed sells its products worldwide, primarily in the eurozone. Ypsomed is keen to minimise the impact of exchange rate fluctuations on the business result by means of a natural hedge and The unpegging of the Swiss Franc from the Euro had only a limited impact on the business year 2014 / 15, since only two and a half months were affected by the lower Euro / Franc rate. The impact will be felt in full in the business year 2015 / 16. Details of this are set out in the overview below: Sales structure USD 5 GBP 7 Other currencies 3 EUR 60 CHF 25 Cost structure Other currencies 2 GBP 2 USD 15 EUR 40 CHF 41 in CHF million Sales 311** 307* 337*** 359** EBIT / / / / 16 makes every effort to ensure that sales and costs are incurred in the same currency. In the graphic entitled Currency impact on Ypsomed product categories, the sales and manufacturing and / or purchase costs are broken down into the relevant currencies. The greatest currency impact can be seen with the pen needles, where the majority of sales are made in Euros but the manufacturing costs are primarily incurred in Swiss Francs. In the pump business with the mylife OmniPod, the exchange rate trend between the Euro and the US dollar is decisive and in future the Euro rate will have an even greater impact on the result with the growth of the mylife YpsoPump. In the other business and / or production categories the result can be almost completely hedged. Currency effect EBIT margin *EUR = CHF 1.18; **constant exchange rate: EUR = CHF 1.20; ***Budget rate of EUR = CHF 1.07 In the reporting year, the negative currency effect on the result and the operating result amounted to CHF 4.6 million and CHF 1.7 million, respectively. In the business year 2015 / 16, the negative currency effect will account for around CHF 22.0 million and CHF 9.0 million, respectively. Currency impact on Ypsomed product categories YDS mylife Diabetescare Injection systems Pen needles YpsoPump Infusion sets Blood glucose monitoring OmniPod DiaExpert Sales CHF EUR / USD EUR / other EUR / other EUR / other EUR / other EUR Manufacturing / purchase costs CHF CHF CHF USD EUR USD EUR 11

12 Yorkshire Dales United Kingdom

13 Strong mylife distribution network in 12 countries Diabetes Care Under the brand mylife Diabetescare, Ypsomed successfully deals in direct business with products and services for people with diabetes mellitus. The product portfolio includes: Insulin pumps Infusion sets Pen needles Blood glucose monitoring systems mylife OmniPod continued growth Patient base 2011 / / / / / 16 Business year Diabetes pandemic growth over the next 20 years 387 million people (8.3 of the global population) 592 million people According to estimates of the International Diabetes Federation, by million people will be suffering from diabetes an increase of over one-third Undiagnosed diabetes cases worldwide 46 Source: IDF Diabetes Atlas, 2014

14 Ypsomed Diabetes Care mylife Diabetescare Successful in patient service Under the brand mylife Diabetescare, Ypsomed successfully deals in direct business with products and services for people with diabetes mellitus. The product portfolio includes: mylife Clickfine and Penfine Classic pen needles, manufactured by Ypsomed at its Solothurn site. The blood glucose monitoring systems mylife Unio and mylife Pura, manufactured by the Taiwanese company Bionime according to Ypsomed specifications and distributed by Ypsomed sales companies. The tubeless insulin patch pump mylife Omni- Pod, manufactured by the American company Insulet, for which Ypsomed holds global distribution rights (excluding the USA, Canada and Israel). Soon to be launched: insulin pump mylife YpsoPump with the infusion sets mylife Orbit soft and Orbit micro, which have been completely redesigned by Ypsomed. mylife Clickfine DiamondTip pen needles 6-bevel needle tip receives best marks in user study Since the end of February 2015, Ypsomed s new needles for its mylife Clickfine DiamondTip injection pen have been on the market in Germany, Austria and Switzerland. Our new pen needles feature some very innovative characteristics: A 6-bevel precision needle tip improves the smoothness and glide of the needle, the result being a more comfortable and reliable injection. This was confirmed in an independent user study carried out in Germany with more than 100 participants. User questionnaire on pain perception Highly promising prospects As well as maximum injection comfort, the new needle features tried-and-tested Clickfine thin wall technology for an optimum, faster flow of medication. The prospects are highly promising, since 91 of the users questioned said they would switch to the DiamondTip in the future or would consider doing so. The mylife Clickfine Diamond- Tip will gradually replace the former 3-bevel Clickfine needle in all our markets in business year 2015/16. Felt a lot less pain Felt less pain 34 Didn t notice any difference Felt more pain mylife Clickfine DiamondTip in three lengths 14

15 Ypsomed Diabetes Care mylife YpsoPump Simple to learn, simple to use, beautifully discreet Diabetes Care Ypsomed is launching the new mylife YpsoPump insulin pump in the autumn of This is the result of more than 30 years of experience in the field of diabetology, combined with the latest technology and tailored to current customer needs. The launch marks the culmination of an intensive development phase, whereby not only the central pump unit, but all the components of the insulin pump system were redesigned and fully tailored to each other: insulin pump, infusion set, appropriate piercing head, optional fillable or pre-filled insulin cartridges as well as diabetes management software. Simple for doctors and patients The needs of patients take centre stage. Due to this, many meticulous tests were carried out with pump users and medical specialists during the development phase. The result is an insulin pump that focuses on the essential functions. The new insulin pump system is easy to learn and leaves doctors and patients with more time for treatment management. The symbol-based menu and state-of-theart touch screen of the mylife YpsoPump mean that its operation is simple, intuitive and fast. Thanks to the option of inserting pre-filled insulin reservoirs into the mylife YpsoPump, there is no longer the necessity to spend precious time filling the cartridges. In addition, the light and discreet design of the YpsoPump means that it is an unobtrusive companion in all everyday situations. This is a particularly important point in user tests and always generates very positive feedback. An excellent insulin pump The good impression is not simply a spontaneous reaction, but is also verified by in-depth studies. In the case of the central user study on mylife YpsoPump, in which 30 patients and carers had to complete numerous tasks after a short training session, the mylife YpsoPump clearly came out on top: 88 of patients and 87 of carers rated the pump as excellent. Ypsomed covers several segments For the first time in the 30 year history of insulin pump treatment, it is possible to identify a clear segmentation of the market. On the one hand, patients are increasingly opting for the freedom of the patch pump mylife OmniPod, with the corresponding positive effects on mylife market share and turnover. This latest segment in the pump market has become firmly established over time with a market share of up to 20 in some countries. On the other hand, a growing trend towards even greater metabolic control by means of the complex functions and algorithms of standard, tube-connected insulin pumps can be observed. Between these two extremes there is a broad market for easy-to-use, easy-to-understand, potentially more cost-efficient, pure insulin pumps. The mylife YpsoPump was developed with this market segment in mind. Ypsomed is the only insulin pump company and manufacturer in the unique market position of being able to offer the ideal solution for two of the three segments. 15

16 Ypsomed Diabetes Care Ypsomed subsidiaries The organisation and the people behind mylife success It is not just the ground-breaking products that are crucial for the great success of mylife Diabetescare, but also the know-how and prestige of our sales organisation. Via a close network currently comprising twelve subsidiaries and dozens of distributors, we are able to reach a constantly growing customer base. The way the sales organisations operate strategically and tactically differs from country to country because there are highly different, market-specific rules in each of the specific countries and regions. These are described in the following brief portraits of our subsidiaries. This contribution is illustrated with photos of the global Ypsomed campaign for World Diabetes Day (WDD) on 14 November, WDD was set up by the International Diabetes Federation (IDF) with the aim of raising awareness about diabetes and its consequences and in order to increase the public perception of this disease, which is the fastest-growing worldwide. Germany Ypsomed GmbH in Liederbach near Frankfurt a. M. is responsible for the German market with its around one million insulin-dependent diabetics. The subsidiary, which was formed from a subsidiary of Disetronic in 2003, currently employs 87 members of staff headed up by General Manager (GM) Dirk Scherff. Scherff also serves as GM for Switzerland and Austria, which means that the synergies in the DACH area can be exploited as fully as possible. The sale of mylife products is carried out via doctors, pharmacies, the mail-order business of the Ypsomed subsidiary, DiaExpert, as well as via our own web shop mylife-shop.de, which went live in the autumn of The German healthcare system is primarily based on public sector health insurance schemes, which reimburse the costs for insulin treatment in full, with just a minimal deductible. There are tangible trends towards the consolidation of the health insurance system and towards a flat-rate insurance model. The reporting year marked the kick-off of the restructuring of Ypsomed activities in Germany, starting with the complete separation of the two companies Ypsomed and DiaExpert. In addition, the focus on the support of doctors practices relevant for insulin pumps has been strengthened, resulting in an extra patients being acquired for the mylife OmniPod insulin patch pump solution. This increase in pump patients is around two and a half times greater than in the three preceding years and corresponds to an increase in market share from around 8 in 2013 to around 12 today. Switzerland Ypsomed has been active on the Swiss market since Switzerland has approximately insulin-dependent diabetics. We currently service this market with 12 employees. In Switzerland, our sales force focusses on doctors, wholesale distributors and pharmacies. The private health insurance system reimburses the treatment costs in full, less a deductible. As in Germany, Ypsomed Switzerland sells mylife products directly to end users via a web shop. mylife OmniPod has established itself as a force to be reckoned with in the Swiss insulin pump market, with a market share of around 22 and, as of the reporting year, it is represented in all relevant diabetes centres. Austria Ypsomed has been active on the Austrian market, which has some insulin-dependent patients, since 2011, currently with a workforce of six. In Austria, the public social insurance for the federal states and professional groups conclude contracts directly with the manufacturers, whereby pharmacies and the wholesale trade are largely circumvented. The patient is reimbursed in full, but has little freedom of choice. In the past business year, by focusing on the relevant doctors and patients for insulin pump treatment, Ypsomed Austria was able to achieve a market share of approximately 15 with the mylife OmniPod. The high quality of the product and the associated patient satisfaction had a very positive effect on the success of the treatment. One of the targets in the new business year is to make the health insurers even more aware of this fact. In addition, there has been a switch to internal logistics processes and central delivery from the Ypsomed Central Warehouse in Rheinfelden. 16

17 Ypsomed Diabetes Care Diabetes Care Switzerland, France, Germany and Italy Netherlands The Netherlands, with its approximately insulin-dependent diabetics, has been an important Ypsomed subsidiary for many years. The Dutch branch was set up in 2003, based on the former Disetronic subsidiary. Dave Herkelmann heads up the 10-strong team, having taken over from the long-standing GM Bram van Bergen in The health system in the Netherlands is based on private health insurance and full reimbursement of costs, but currently finds itself in the middle of a transformation to a market determined by the health insurers, including the introduction of a tendering process for care contracts. Therefore, despite its good position with more than 20 market share in the pump business, Ypsomed Netherlands is facing challenges in this traditionally strong pump market. The effectiveness of pump treatment must be proven once again as far as the health insurers are concerned. Price pressure is clearly increasing, in particular in the market for blood glucose monitoring systems. Ypsomed Netherlands is therefore in intensive negotiations with the health insurers and is positioning itself as the partner for insulin pump treatment. Our branch hopes to reinforce this claim by continuing the growth of the mylife OmniPod and by increasing its pump portfolio via the unique and newly developed mylife YpsoPump. The Netherlands is a pilot market for this new product and the team is determined to help mylife YpsoPump break into the market and lay the foundations for further expansion. France Ypsomed has been active in France since 2003 and currently has 23 employees led by the GM, Jean-François Flamant. France is a large diabetes market with approximately of insulin-dependent patients. The Health system is based on a public health insurance scheme that guarantees the full refund of costs. Sales from the manufacturer to the patient are made exclusively via pharmacies and direct selling is actually forbidden. The system is subject to huge economic pressure and Ypsomed France is reacting to this by adjusting its product range and prices. mylife Unio and mylife Pura blood glucose monitoring systems and mylife Clickfine pen needles are primarily sold. In particular with regard to the blood glucose monitoring systems, continued further development in collaboration with pharmacies is essential a factor that Ypsomed France will continue to pay special attention to in the coming business year. The mylife Clickfine DiamondTip pen needles that are about to be launched will also benefit from this. 17

18 Ypsomed Diabetes Care (India (top/bottom) and the Netherlands (middle) Italy The latest addition to the Ypsomed group of subsidiaries is Ypsomed Italy, which was founded in The potential here is huge: around people are insulin dependent, which makes Italy the third largest diabetes market in Europe. Driven by the massive interest in the patch pump mylife OmniPod, Peter Haag, the GM, quickly found his team had expanded to 10 employees. After an intensive development phase, Ypsomed Italy launched the mylife OmniPod, its first product, in August 2014, and is growing fast. The environment is challenging: It is true that national insurance covers all the costs incurred by patients, but the Italian health system is severely fragmented and the sometimes extremely different approval procedures generate high costs. Some regions solve their care problems through tender processes and the distribution system is organised differently depending on the region. Further savings rounds will place the health system under even more pressure. Despite this, Ypsomed Italy is optimistic for the future and in the coming business year it will build up a second mainstay in its portfolio with the introduction of the mylife Clickfine pen needles. United Kingdom Together with his 20 employees, the GM, Gary Davies, serves another important diabetes market. Around people in the UK require subcutaneous insulin because of their diabetes. They are cared for by the centralised National Health Service, which has been subject to major restructuring and cost reduction pressures for a long time now. Budget responsibility is now held by regional procurement committees, which sometimes means that the full costs cannot always be taken on everywhere in the country. Supply contracts with manufacturers are awarded regionally in tendering processes, which means that pharmacies and wholesalers are sometimes circumvented. Ypsomed UK, which was founded in 2010, had an eventful year: In the area of pen needles, it won 27 new supply contracts for mylife Penfine Classic, exceeding the budget significantly. In the pump business, the market share was increased by more than 11 and an important supply contract was won in the Central Manchester region. In the area of blood glucose monitoring systems, the focus is currently on winning further market share within the existing supply contracts. In addition, in the coming business year, it is anticipated that Scotland and Ireland will be included in mylife OmniPod supply. 18

19 Ypsomed Diabetes Care Diabetes Care Scandinavia Since 2003, Ypsomed has also been represented in the Scandinavian countries of Norway, Denmark, Sweden and Finland. Around people in this area are insulin dependent. Ypsomed Nordics serves this massive region with a team of 11 employees. The health system functions in all four countries with national social insurance schemes and more or less full cost coverage. The Scandinavian countries are at the top of the table for a market determined by the health insurers with regard to the development of their health systems. Accordingly, many regions and even whole countries (Sweden and Finland), have adopted a system with tendering processes and supply contracts between manufacturers and the social insurance system. The cost pressure on Ypsomed Nordics is high. In view of this challenge, our subsidiary focuses on excellent customer service in order to firmly establish Ypsomed and the mylife products with patients, diabetes counsellors and doctors for the long term. In the past business year, the 10 share in the Norwegian and Swedish pump market was exceeded and in Norway the 15 mark is even within range. In the coming business year, Ypsomed Nordic hopes to really boost the sales of pen needles and blood glucose monitoring systems and to optimally prepare the introduction of mylife OmniPod in Finland and Denmark as well as mylife YpsoPump in all Nordic countries. Ypsomed India has introduced additional services such as the mylife Academy diabetes training programme for medical specialists to counter the increased price sensitivity of its customers. In the coming year, Ypsomed India hopes to further expand its market share with new, innovative methods to consolidate a strongly growing market. Sales of mylife OmniPod India As can be seen from the market portraits above, the markets in Europe already function extremely heterogeneously. It is one of Ypsomed s greatest strengths that, thanks to a high level of flexibility and in-depth market knowledge, its sales organisations are able to optimally adapt to the local situation. This competence is being particularly tested in the market in India. It is estimated that there are around 8.5 million insulin-dependent diabetics in India. Although this market is immense, its exploitation faces the challenges of a turbulently developing emerging market, high bureaucratic hurdles and immense price sensitivity. Since 2008, Ypsomed India and its GM, Sanjay Rajpal, together with his nine employees, has been wrestling with this task. This subsidiary concentrates on major customers in the economy and national institutions. In the past business year, for example, mylife pen needles and blood glucose monitoring systems were successfully introduced into all the administrative regions of the Indian army and in two further large regions of the Indian railway company. Active sales Germany, United Kingdom, the Netherlands, Switzerland, Austria, Norway, Sweden and Italy Sales as of business year 2015/16 Finland, Denmark, Luxembourg and Ireland 19

20 Panorama landscape in Bavaria Germany

21 Ypsomed expands production Our pharmaceutical and biotech customers obtain injection systems and associated services from the YDS brand Ypsomed Delivery Systems. Ypsomed is the recognised industry leader in this field, since it is the largest global developer and manufacturer of pens with which patients can inject themselves subcutaneously with their liquid medication. Delivery Systems New products product launches and studies Studies Product launches 2012 / / / / 16 Global growth in pharmaceutical market in Source: IMS Health, 2014 Investments in production capacities for injection systems in million CHF Solothurn Burgdorf / / 15

22 Ypsomed Delivery Systems New customers, new projects Pipeline remains well stocked Our pharmaceutical and biotech customers obtain injection systems and associated services from the YDS brand Ypsomed Delivery Systems. Ypsomed is the recognised industry leader in this field, since it is the largest global developer and manufacturer of pens with which patients can inject themselves subcutaneously with their liquid medication. This good result is also confirmed when you look at the project portfolio. In the reporting year, Ypsomed announced the following new contracts and cooperation agreements: The long-standing partnership between the French pharmaceutical company Sanofi and Ypsomed has been further strengthened by a new major project: From the end of 2016, components for injection systems will be manufactured on an additional production line. The line will be able to manufacture several different types of components for injection systems. The new production line will be of a similar complexity and size as the one already in place. Since July 2014, the British company GlaxoSmith- Kline has been selling its GLP-1 product Eperzan / Tanzeum in a LyoTwist device from Ypsomed. The British company AstraZeneca uses a LyoTwist device from Ypsomed for the subcutaneous administration of its GLP-1 product Bydureon. The product has been available in the USA since September 2014 and it will be available on the market in Europe this year. The globally active Japanese medical technology company Terumo Corporation has integrated the autoinjector YpsoMate from Ypsomed into its PLAJEX pre-fillable polymer syringe systems to complement its product and service offering. In the reporting year, Terumo has gained two pharmaceutical customers with this combination. Lupin, one of the largest pharmaceutical companies in India, is now using the YpsoPen from Ypsomed to market its insulin preparation named Lupisulin. Thus our pharmaceutical partner has found the ideal pen solution for the price-sensitive Indian market. The Russian company Pharmstandard will be the first of Ypsomed s customers to use the Uno- Pen as the injection system for its drugs. The company will bring to market its two medications Biosulin (insulin) and Rastan (growth hormone) using the Ypsomed disposable pen under the name БиоматикПен 2 (BiomatikPen 2). The American company Palatin Technologies, Inc. has started the third clinical phase for its new medication Bremelanotide using the autoinjector YpsoMate. From now on, Ypsomed will be supplying the Swiss company Finox with a disposable injection system for the administration of FSH biosimilars (fertility hormone). Injection systems and components* manufactured by Ypsomed * The final products on the market may differ from this illustration. 22

23 Ypsomed Delivery Systems Strong growth Future market disposable injection systems If we look at the near and medium-term future, the picture is equally promising, as the graphic showing the anticipated volume of sales in the different segments of YDS illustrates. Simple and user-friendly for patients It is noticeable that the anticipated strong growth rates of sometimes up to 35 per business year are mainly driven by disposable injection systems. This segment includes pens such as UnoPen and a new custom platform version, the FixPen. Pens are used in treatments where patients more frequently administer the medication themselves and often in different doses. The largest number of units is used in the insulin treatment of diabetics. However, autoinjectors are also included in the disposable product segment. These are used for a number of innovative medications that have to be administered subcutaneously. They enable patients as the name already implies to administer an almost fully automatic injection. The injection is triggered by placing the autoinjector on the skin and needle shielding ensures that the needle is never visible and the patient is fully protected from needle-stick injuries after injection. Therefore, with YpsoMate and VarioJect Ypsomed is able to offer two extremely user-friendly and innovative products. This has generated several promising projects. Simple and user-friendly for pharmaceutical partners Disposable devices are not just simple and safe to use for patients, but symbolically also for the corresponding pharmaceutical partners, who face the challenge of meeting the increasingly stringent regulatory requirements. For example, they must provide comprehensive complaint handling and product support services. It has been shown that the use of disposable devices has significantly simplified such processes, making them more cost effective because no separate logistics are required as in the case of reusable pens. The medication and the injection system form a single unit. Disposable devices are also the mainstay of Ypsomed s contract manufacturing business. The disposable segment is also related to the contract manufacturing segment. Every year, Ypsomed manufactures hundreds of millions of pen components, which are assembled into disposable injection systems, for mainly large pharma customers. Stable market for reusable pens Nonetheless, we anticipate that the growth in sales volumes in the reusable pen segment will continue. These products are important for markets where the concept of something being reusable is historically firmly entrenched and where cultural factors mean that disposable is only tentatively accepted or there is a very high level of price sensitivity. Thanks to the ServoPen and the YpsoPen, Ypsomed has two modern platforms with which both the premium segment and the price-sensitive segment can be well served. Delivery Systems Planned growth in sales volume for YDS average growth > / / / / / 20 Disposable injection systems Reusable injection systems Contract manufacturing 23

24 Ypsomed Delivery Systems Dynamic expansion in Solothurn A complete manufacturing plant in less than two years In the first quarter of 2015, operations began in Building 24 on the Solothurn site for the automated production of the UnoPen injection pen. The necessary plastic components are produced on 12 ultra -modern injection moulding machines. The new assembly plant covers an impressive 180 m 2 and is particularly quiet thanks to special sound insulation. At a total of 59 stations, the individual assembly steps can be monitored and controlled in real time. The special feature of the UnoPen system is its flexibility. It is possible to produce a wide variety of UnoPen styles, which means that all the different customer requirements can be taken into account on a single line. Considering assembly at the design stage It is remarkable that the development and commissioning of this complex plant took less than two years. This was partly due to the fact that the process engineers at Ypsomed were heavily involved at the early product development stage and were invited to provide important input regarding subsequent process controls. This meant that the individual parts could be constructed in such a way that they could be optimally assembled. In addition, our maintenance mechanics were involved during the plant development phase with suppliers and so were able to directly influence the individual process steps within the plant. Production employees could also get to know the plant and familiarise themselves with it at the same time as it was being completed. Next round of pen components for Sanofi And even whilst we were completing the plant for our own product, UnoPen, we also started on the next round, this time as a contract manufacturer. Thanks to a new major project with our long-term partner Sanofi, we will create a further manufacturing and assembly site for injection system components. Decisive tenths of a millimetre Yet how does Ypsomed plan and build such highly complex production infrastructure? The difficulty of such a task becomes all the clearer when you realise that just minuscule changes and irregularities in the pen components can bring a whole assembly line to a grinding halt. Sometimes a production-related imperfection of just a few tenths of a millimetre caused by the injection moulding process can prevent a part from being grabbed at precisely this point by a vacuum lifting tool with the knock-on consequences for the following stations. A difference in volume of equally small proportions can also mean that parts can suddenly no longer be conveyed or assembled. Naturally, it is important to use tried-and-tested processes and suppliers when designing the individual stations. In addition, our more than 20 years of experience in manufacturing pens stands us in very good stead. Experience makes the difference In view of the challenges described above, the successful construction of such a production site is only possible thanks to the many years of in-depth experience of our employees in the areas of technology and production. These employees include numerous people who seem to have a sixth sense for technical plants and, thanks to their experience, intuition and finely honed skills of observation, they identify things that others would not notice and that cannot always be pinpointed even with technical tools. It is necessary to be able to feel the plant and to think yourself into its very core. In practice, this often means observing and listening to a machine for minutes at a time until a certain anomaly strikes you and provides you with the possible path to a solution. In many cases, high-speed cameras are used in this. From innovation to mass production It took more than seven years from the innovation of the UnoPen to the start of mass production. With the new assembly plant, it will be possible to produce pens for a broad range of customer products Innovation, research and development phases for the UnoPen injection platform 24

25 Ypsomed Delivery Systems UnoPen manufacturing plant Delivery Systems Squaring the plant In a further, parallel project area, it is important to find the optimum spatial layout for the plant, to incorporate this into the existing rooms and to undertake structural modifications if necessary. In this context, optimum means a great deal: Observance of Ypsomed s zoning concept in order to ensure compliance with the indispensable cleanliness and hygiene provisions for the manufacture of medicinal products. If necessary, the removal of any contaminated parts of the existing building in the case of the UnoPen production rooms in the former Ascom building in Solothurn, we had to replace the completely outdated ventilation system, for example. To facilitate production with short pathways and as few temporary storage areas for parts and semi-finished products as possible that are also ideally placed so that just-in-time injection pens can be manufactured. We use the principles of lean production here and, in particular, the Kanban Method. Tried-and-tested partners Up until now, Ypsomed has always been keen to make use of existing buildings for its construction projects. This has the advantage that the projects can be realised more quickly than with a new build, where approval processes can often cause serious delays to the start of the building work. The building projects are generally carried out using the same architects and construction companies. Thanks to well-practised processes, it can be guaranteed that everything is ready when a complete assembly system is delivered, installed and put into service a few weeks later Start of highly automated mass production Development of first customer-specific UnoPen Procurement, commissioning and industrialisation of the assembly plant Structural expansion measures Customer-specific UnoPen Customer-specific UnoPen Customer-specific UnoPen 25

26 Ypsomed Delivery Systems UnoPen a portrait Size: 16.9 cm, weight (without cartridge): 24 g, special features: disposable product for the administration of liquid medication (e.g. insulin), suitable for mass production. Mandate: In compliance with established control concepts and benchmarks, to offer the patient a simple and safe injection and to facilitate the fast approval of the medication for the pharmaceutical partner involving as few hurdles as possible. Concept: Simplified use of the UnoPen for the user. Unlike reusable pens, it is not necessary to replace the drug cartridge, which is just one of its advantages. The UnoPen also simplifies requirement planning for the pharmaceutical companies and market supply, since the pens and the drug are firmly fixed together from the outset and are distributed together. Even in the case of defective pens, there is no need for a replacement pen process as a new disposable pen can simply be taken from the pack. The tried-and-tested administration fulfils the needs of both the users and the pharmaceutical partners: The principle of dial and dose is well known to every diabetic. New pharmaceutical companies, or those which previously had not dealt with diabetes and which are now entering the market due to the importance of insulin manufacture with regard to patient trends and the development of biosimilars and generics, adopt tried-and-tested administration concepts in order to win acceptance and approval as easily as possible. Customers: We have already convinced seven customers of the advantages of the UnoPen and three more are on the brink of signing contracts. The prospects that there will soon be more are highly promising in view of the fact that we are currently negotiating with a raft of other interested parties. These projects are all at different phases of development and include, for example as a first step, the provision of pens for clinical studies, whereby commercialisation will follow as soon as the medication has been approved. In other projects, the medication involved is already on the market in the form of reusable pens and is now to be switched to the disposable UnoPen, whereby swift industrialisation is of the highest importance. Development: From the very start of development, it was clear that the UnoPen platform would have to be not only reliable, simple and proven, but at the same time it had to be so flexible that it would be possible to develop and industrialise different versions quickly and simply, not simply from the point of view of design, but also from a technical perspective. The competitive patent landscape was a particular challenge in this. Risks had to be minimised and Ypsomed was able to achieve this in a highly effective manner thanks to the innovative strength of its product development organisation. All our experience with disposable pens was exploited in refining and optimising the platform on an ongoing basis. This was illustrated clearly in the usability and handling studies, in which the acceptance of the platform amongst end users was meticulously tested. 26

27 Ypsomed Delivery Systems Ypsomed in the far east New group company founded It may seem banal, but when it is presented as clearly as in the illustration below, it is in fact striking: More than half of the entire human population lives in Asia primarily in India and China. Ypsomed has been present in India since 2008 with its own subsidiary. We have been doing business in China for more than 10 years, primarily through our pharmaceutical partner Dongbao, and in the last business year a subsidiary was set up in Beijing. The fastest growing number of diabetics worldwide can be found in China according to the International Diabetes Federation almost 100 million people in China are affected by diabetes, whereby the number of diabetics who (actually) require insulin is estimated at some 15 million (estimate: Ypsomed). 90 of Chinese insured At the same time, the Chinese healthcare system is improving on an ongoing basis: More than 90 of the population has (partial) insurance. Insulin is paid for by the health insurance or the state. The local pharmaceutical companies supply the massive domestic market on the one hand, but they are also major exporters of numerous active substances. So whichever way you look at it, the Chinese pharmaceutical companies have a substantial need for innovative, high quality injection devices. In a nutshell: The potential in China is huge. Tonghua Dongbao Pharmaceutical Co., Ltd. became Ypsomed s first pharmaceutical partner in China and we enjoy a very close relationship. The fruits of this collaboration were the Dongbao Pen in 2002 and, from 2010, the ServoPen -based Gansulin Pen. In 2013, the Sulin Pen was added to the range, an attractively priced reusable pen which is based on the YpsoPen platform and produced by a local contract manufacturer in China. The outlook for these pens is extremely promising. New Group company in Beijing For this reason, and also because interest in Ypsomed is increasing on an ongoing basis in China in general, setting up a subsidiary company of our own here really made sense. This subsidiary, which is based in Beijing, will initially concentrate on supporting existing customers and also on finding further pharmaceutical partners for pens and autoinjectors. It will employ local Chinese staff since personal relationships are an important success factor in Chinese business culture. A close relationship with the Swiss parent company is equally important in order to ensure that our colleagues in China have the necessary know-how and that they can represent Ypsomed s values and competences professionally. Ypsomed Medical Devices Co., Ltd.is located in the Lufthansa Office Building in Chaoyang District, Beijing. Delivery Systems The importance of the Asian economic region More people live inside this circle than in the rest of the world outside it. 27

28 Windmills and canal in Kinderdijk Netherlands

29 Sustainability and social responsibility Ypsomed follows a long-term and entrepreneurial approach when it comes to implementing its corporate objectives. In this, we are guided by the needs of patients and customers, such as pharmaceutical companies, doctors and medical specialists. In addition, Ypsomed takes its responsibility to its employees, society and the environment extremely seriously and therefore always takes economic, ecological and social aspects into account in its decisions. Expenses for staff training 2014 / 15 CHF 462 in thousands 2013 / 14 CHF 437 in thousands Sustainability Report Age structure of Ypsomed employees in Up to 29 years years years years 60 years and more Recycling mylife OmniPod 2014 / recycled Pods 2013 / recycled Pods

30 Ypsomed Sustainability Report Sustainability and social responsibility Ypsomed follows a long-term and entrepreneurial approach when it comes to implementing its corporate objectives. In this, we are guided by the needs of patients and customers, such as pharmaceutical companies, doctors and medical specialists. In addition, Ypsomed takes its responsibility to its employees, society and the environment extremely seriously and therefore always takes economic, ecological and social aspects into account in its decisions. How we actively implement these principles is described in detail in the following sustainability report. in Switzerland and 314 abroad. In the previous year, this figure was 999 employees, i.e. 712 in Switzerland and 287 abroad. Employee structure as per 31 March 2015 Abroad 312 employees Ypsomed Burgdorf 471 employees Employee structure As per 31 March 2015, the Ypsomed Group employed a total of employees, of which 736 are Ypsotec Grenchen 86 employees Ypsomed Solothurn 181 employees Employees in professional training 13 new professionals trained In total, Ypsomed employs 36 apprentices in six different professional areas. In July 2014, a further 13 young men and women concluded their professional training with Ypsomed in a successfully completed qualification process. With marks averaging almost 5.0, it is no exaggeration to consider this a very satisfactory result. In addition, several Ypsomed apprentices achieved extremely good interim results, in particular with regard to their individual practical work. In addition, five apprentices passed the professional Matura examination. Second basic training required In the late summer, 11 new apprentices started their professional basic training. This meant that in August 2014 the number of apprentices with Ypsomed came to a total of 36, spread over six professional fields: design, multi-discipline engineering, plastics technology, logistics, IT and salesman/ saleswoman. The continued trend for young professional people to carry out a second apprenticeship or for high-school graduates to carry out an apprenticeship can also be seen in our company. However, the plastics technology and IT apprenticeships could not be filled due to a lack of appropriate applicants. This last fact is extremely surprising, since IT is supposed to be one of the most popular professions next to the role of a salesman/ saleswoman for prospective apprentices. Unfortunately, we repeatedly come to the conclusion that the skills and knowledge required for the successful completion of apprenticeships in precisely these professional fields are often lacking. Schools still seem to be too unaware of the fact that they could link their apprenticeships with a relevant professional Matura. In our opinion, this is because the advantages of this option are not explained in nearly enough detail during the career choice phase. 30

31 Ypsomed Sustainability Report HR policy Internal further training and development Improvement management The ongoing training and development of our employees is essential for a medical technology company like Ypsomed. Employees are given training in important fields such as quality management, safety, IT and leadership within the framework of numerous internal and external training courses. In the past business year, the following internal seminars were carried out with a total of 29 participants: Leadership skills for shift supervisors Managing without a line manger function working on projects In addition, Ypsomed offers its employees the opportunity to participate in English and French courses. Around 70 employees are currently taking advantage of this offer. Staff development Within the framework of staff development, the three Ypsomed career models continue to be successful, with a choice between management, project leader and specialist. In the business year 2014/15, 37 people, i.e. 5.8 of the total workforce, trained for a new function within the framework of this career model. Of these, 24 people opted for the specialist career, 10 for management and 3 for the project leader option. Constant further development and improvement is essential for a company like Ypsomed in order for it to be successful. Every individual employee can make an important contribution to the success of Ypsomed by contributing his/her ideas. Thanks to its improvement management system, Ypsomed has a clear process, which is used intensively. For example, in the business year 2014/15 a total of 34 suggestions for improvements were submitted. Of these, 19 were implemented, two are currently under review and 13 are not being pursued any further for different reasons. The evaluation and introduction of software for ideas management is anticipated to give the improvement management system an added boost in the coming business year. Sustainable retention of specialist staff In the business year 2014/15, the HR Project+ was started. This is a holistic programme for the sustainable retention of specialist staff and includes the development and implementation of the following topics: Expand professional training and development: Create further apprenticeships and establish additional apprenticeship occupations Promote catch-up education: Support motivated employees who do not have a professional qualification to acquire the qualification later on Sustainability Report Absence management In order to be successful as a company, we are dependent upon the full work complement of every individual employee. If someone is missing, there is a gap. Clear roles and codes of conduct prevent unnecessary absences and increase our efficiency. Dealing with absences efficiently is a management task and is part of the management system. The immediate impact: In 2006, before the introduction of the current absence management system, Ypsomed employees were absent on average 12.2 days per year due to accident or illness. Since then, the absence figures have continued to fall on an ongoing basis and since 2006 have dropped by a total of around 42. In figures: In 2014 Ypsomed employees were absent on average just 7.1 days per year. Promote dual study: Create part-time positions and incentives to motivate qualified graduate apprentices to take up a course of study and thus to stay with Ypsomed for the long term Establish the option of gradual retirement before retirement age: Promote relevant alternative job options for managers before they reach normal retirement age Flexible retirement: Offer the option of reducing the workload from the age of 60 on a gradual basis 31

32 Ypsomed Sustainability Report Employee survey 2014 High level of participation, positive results It is part of our corporate culture to carry out surveys of our employees on a regular and systematic basis. Participation in our employee survey, which is carried out at two-year intervals, has continued to increase since it first started in This shows that the survey is seen to be valuable by employees and managers alike. In effect, it is a tool with which it is possible to symbolically feel the pulse of the company as well as to work on topics for which there is a need for action. Changes in the last surveys as well as a comparison with around 140 other companies in Switzerland (as part of the Swiss Employer Award) provide us with a valuable strategic stocktaking tool. Target exceeded At the end of 2014, the seventh employee survey was carried out. A total of 866 people took part and gave their opinion on topics such as their workplace, team, teamwork, managers, satisfaction, etc. With a participation rate of 84 we exceeded our target. The average participation rate according to the Swiss Employer Award is 71 Not just the participation rate, but also the results are satisfactory. In comparison with previous surveys, it was possible to identify improvements in a lot of areas. This is illustrated in the fields marked Satisfaction, Identification and Connection in the graphic. Personal attitudes at Ypsomed AG Average (rated on a scale of 100) Satisfaction: All in all, I am satisfied with my work situation Identification: I feel a strong sense of identification with this company Connection: The future of this company is important to me

33 Ypsomed Sustainability Report Operational safety Emergency services come up to the mark Occupational accidents per employees Fewer accidents overall Apart from the above-mentioned serious accident, the absolute number of accidents within Ypsomed in 2014 continued to fall: 21 occupational accidents were reported, of which 11 were of minor importance and 10 accidents caused absence from work. For the purpose of better comparability, the accident figure has now been standardised at 1000 employees. A satisfactory trend can be identified here too: 29 professional accidents is a clear improvement on 42 accidents in Occupational health and safety Ypsomed is excellently organised and offers its employees and visitors the highest possible level of safety. Our health and safety officers form the core of our emergency services. 17 part-time company medical officers at the Burgdorf and Solothurn sites are trained to provide first aid in the event of accidents. Their basic training takes nine days. In addition, all of our health and safety officers must take a refresher course every year. Sustainability Report In spring 2014, there was a serious and unusual accident at the Ypsomed Solothurn site: A 3.5 tonne fork lift truck fell three metres down a lift shaft, burying the driver beneath it. Fortunately, after an hour-and-a-half-long recovery operation, the man was taken to hospital with only minor injuries. He remained in hospital until the evening of the following day, when he was discharged. This incident, which also caused quite a sensation in the local media, was a serious test of our emergency services and required the full rescue chain: Ypsomed inhouse health and safety officers, evacuation helpers, Ypsomed security officers, police, rescue services, fire brigade, REGA and the hospital. The subsequent investigations and clarifications involving the examining magistrate, the work inspectorate, SUVA and the media were an enormous challenge. Finally, it was established that our in-house, well-trained emergency services play a huge part in the positive outcome of such an accident. Internal prevention measures were implemented as quickly as possible. In addition, the Swiss Association for Careers in Logistics (SVBL) modified its training of logistics specialists based on this accident. 33

34 Ypsomed Sustainability Report Corporate social responsibility Holistic promotion for employees and society In the business year 2014/15, our Ypsomed was once again heavily committed in the area of corporate social responsibility. Family-friendly corporate culture Ypsomed is strongly committed to the long-term, sustainable employment of its staff and, in particular, of parents. This is illustrated in its flexible working hours model, part-time work opportunities and parental leave, for example. The home office regulation that was approved in the past business year also aims in the same direction. As a supplement to working at the office, Ypsomed employees also have the option of working from home for one day a week. The Ypsomed-subsidised nursery places at a day nursery (KITA) in Burgdorf also help to make it easier for Ypsomed s employees to achieve a better work-life balance. Promotion in many areas In addition, Ypsomed is involved in the following areas and projects: Innovation promotion: Through the Ypsomed Innovation Fund, Ypsomed makes financial contributions to support innovative companies in Espace Mittelland. Occupational training and development: In 2014, Ypsomed once again supported the National Youth Day (Nationaler Zukunftstag). This enables girls and boys in classes 5 7 to get an insight into their parent s or guardian s world of work. Health promotion: We actively promote the health of our employees through a strong focus on the ergonomics of the workplace, free entry to a sports centre and swimming pool, preventative flu injections and free occupational social counselling. Ergonomics at the workplace: In the past business year, our office workers, in particular, were sensitised to the issue of ergonomics in the workplace. In the subsequent checks, it was possible to identify better set-out workplaces in many areas. This initiative proactively helps to prevent occupational illnesses. Staff restaurant: The staff restaurant Schlossblick at the Burgdorf head office operates according to the One Two We principle, a sustainability programme of the supplier, SV Group. Sport: Ypsomed supports its employees financially and organisationally when taking part in specific sporting events. For example, in May 2014, 35 Ypsomed employees took part in the Grand Prix von Bern, the largest fun run in German-speaking Switzerland. Ypsomed paid the entry fee for the runners and also provided them with shirts bearing the Ypsomed logo. Mobility: Ypsomed promotes the use of public transport and finances half-fare travel cards for all its employees from the fees levied on the company-owned parking spaces. Bike to work initiative: This annual initiative to promote the use of the bicycle has become increasingly popular amongst Ypsomed employees. In 2014, a total of 14 teams took part. On an average of 85 of the working days in June, a total of 56 participants used their bikes and cycled a total of kilometres. On your marks: all Ypsomed participants in the Grand Prix von Bern

35 Ypsomed Sustainability Report Sustainable use of resources Comprehensive recycling programme for mylife OmniPod Ypsomed s diabetes direct sales has a blockbuster of a product with the insulin patch pump mylife OmniPod. This has resulted in highly satisfactory sales figures and also in very high unit numbers for the disposable components in the system, the pod. Users can wear the pod for a maximum of three days, after which it has to be disposed of and replaced by a fresh pod. Of course, after a time this gives rise to a considerable number of used pods, but from day one Ypsomed offered a comprehensive recycling programme for its products to every customer and for every individual pod. A special plant has been built in Switzerland for the recycling of the mylife OmniPod. Here the different components such as plastic, metal and batteries are separated and recycled. Currently 52 of the materials used in the pod are recyclable. Energy consumption and business travel Ypsomed s energy consumption remains at a constant level. It will rise slightly in the future due to an increase in manufacturing. The consumption of natural gas in the past year was very low due to the Energy in thousand megawatt hours (MWh)* Business travel in thousand kilometres* Sustainability Report Natural gas Heating oil Electricity Company cars Cars employees / management Rail kilometres Air travel * Companies in Switzerland This is because the used pod is not simply refuse but contains valuable components such as batteries and platinum which can be re-used and recycled if professionally processed. The mylife Omni- Pod recycling programme is: Environmentally-friendly as reusable materials are recycled and not simply thrown away Fair, because every customer can take part. The costs of recycling and return are borne by Ypsomed. Simple: Every customer automatically receives a postage-paid recycling box from us. Participants collect their used pods in the recycling box for three months. Full boxes can be sent to Ypsomed free of charge via the post office. exceptionally mild winter in 2013 / 14. Heating oil is now used at all locations merely as a back-up for gas. In 2014, litres of oil were consumed. This was due to the first cold snap in December 2014 which led to a temporary shortage in natural gas and meant that heating had to be supplemented with oil. In order to gain a holistic view of business travel, Ypsomed s employees rail kilometres have been taken into account for the first time. Journeys in company cars have risen slightly, but this is due to external customer orders. The sudden increase in air kilometres is striking, but this is primarily due to the growing importance of our markets in the Far East and, in particular, to the setting-up of our Ypsomed subsidiary in Beijing, China. 35

36 Fishing village Norway

37 EBIT increased by over 80 In the business year 2014/15, the Ypsomed Group posted consolidated sales of CHF million, which represents an increase of around 11 year on year. The operating result (EBIT) rose by more than 80 to CHF 28.5 million in comparison with the previous year (CHF 15.6 million). This means that Ypsomed s profitability at EBIT level is now 9.3 Sales in CHF million / / / / 15 EBIT trend in CHF million 28.5 Financial Report / / / / 15 Dividends 2014 / 15 CHF 0.60 from the capital reserves (proposal to the General Meeting of Shareholders) 2013 / 14 CHF 0.30 from the capital reserves

38 Ypsomed Financial Report EBIT increased by over 80 In the business year 2014 / 15, the Ypsomed Group posted consolidated sales of CHF million, which represents an increase of around 11 year on year. The operating result (EBIT) rose by more than 80 to CHF 28.5 million in comparison with the previous year (CHF 15.6 million). This means that Ypsomed s profitability at EBIT level is now 9.3. This is primarily due to consistent and continuous cost and process optimisation. Excellent result despite negative currency effects This outstanding result is all the more impressive given the background of the unpegging of the Swiss Franc from the Euro by the Swiss National Bank on 15 January Although admittedly only the last two and a half months of the reporting year were affected by this challenging situation for all export-oriented Swiss companies, there is no doubt that the results would have been even better if the Euro exchange rate of CHF 1.20 had been retained. In this case, sales would have been CHF million and EBIT CHF 30.3 million. A detailed account of the effects of exchange rate fluctuations on Ypsomed s business can be found on page 11. Delivery Devices: Growth trajectory fuelled by GLP-1 In 2014 / 15, the Delivery Devices segment posted growth in sales of 6.9 to CHF million and thus continued its growth trajectory that began in The main drivers for this are: The market for glucagon-like peptide-1 (GLP-1), a drug that is becoming increasingly important in the treatment of type 2 diabetes, is growing fast. In the reporting year, two of the Ypsomed pens based on GLP-1 products of our pharmaceutical partners GlaxoSmithKline and AstraZeneca were successfully brought to market. The disposable platform UnoPen, for which we began automated production in Solothurn in Q1 2015, generated its first sales with a pen for our Russian pharmaceutical partner Pharmstandard. Business with pen needles also posted impressive growth, in particular thanks to the clever dealings of our sales companies in various tender deals. In addition, it was possible to exploit opportunities in the supply processes for our major customers. However, price pressure on our needle products remains challenging. Conversely, we have improved our efficiency and profitability: The centralisation and optimisation of our needle production in Solothurn in the previous year and the continuous process optimisation are bearing fruit, particularly as we have better exploited our existing infrastructure. The lower sales in the contract manufacturing of pen components had a dampening effect on the segment result. The extraordinarily high order volumes of the previous year due to Sanofi returned to more normal levels. A further factor can be seen in the impairment of CHF 1.5 million for injection moulding tools that became obsolete during the course of process optimisation work and of CHF 1.2 million for pen platforms for which deve lopment was stopped. The end effect was a marked improvement in the EBIT for the Delivery Devices segment, which rose from CHF 9.3 million in the previous year to CHF 13.4 million. Diabetes Direct Business: sharp climb following turnaround In the reporting year 2014 / 15, we once again posted strong growth in the Diabetes Direct Business segment. Sales rose from CHF million in the previous year to CHF million, which represents an increase of The driver for this growth was once again the tubeless mylife Omni- Pod insulin patch pump, sales of which rose by around 50 in comparison with the previous year. But sales with blood glucose monitoring systems also increased in this segment by 8.5, despite zero global growth, in particular due to good results in the tendering business. Provisions of CHF 0.7 million are recorded for possible legal costs in connection with our international distribution network that could occur based on historic receivables. Overall, we can see a massive increase in the profitability of the Diabetes Direct Business segment. Following the turnaround in 2013 / 14 (EBIT CHF 6.3 million), the operating result in the reporting year has already more than doubled and is recorded at CHF 13.0 million. Thus the investments in the previous years are more than paying off. Others: Successful location policy The Others segment also posted positive results. Our subsidiary Ypsotec posted slightly increased sales at CHF 17.2 million. The EBIT for the suppliers of mechanical precision components rose from CHF 0.1 million in the previous year to currently CHF 0.5 million. Ypsotec is facing the massive challenge posed by the strong Swiss Franc as of the beginning of 2015, but it is well positioned with its second production site in Tábor in the Czech 38

39 Ypsomed Financial Report Republic. The sale of land at the Solothurn site has also had a positive impact on the Others segment. Part of the Ypsomed site that was no longer operational was sold for housing redevelopment, which resulted in a profit of CHF 1.5 million. The EBIT for the whole segment is CHF 2.1 million in comparison with CHF 0.1 million in the previous year. Net profit increases by over 40 After the deduction of tax, Ypsomed posted net profit of CHF 19.4 million for the business year 2014 / 15, a clear increase compared to the CHF 13.6 million of the previous year. The result corresponds to earnings per share of CHF Intensive investment activity In the business year 2014 / 15, Ypsomed maintained cash flow from operating activities at CHF 41.4 million, a figure comparable with the excellent previous year s level. In addition, in the reporting year we invested a total of CHF 30.5 million in property, plant and equipment and intangible assets, which is comparable with the previous year s level. Of this, around CHF 6.0 million was invested in the Solothurn and Burgdorf sites for assembly lines and injection moulding tools for UnoPen and autoinjector production, respectively. A further CHF 7.4 million was invested in the ongoing development and industrialisation of the new insulin pump, the mylife YpsoPump. The rest was used on the ongoing updating and maintenance of infrastructure, IT and buildings. Currency losses depress financial result As far as the financial result is concerned, the impact of the unpegging of the Swiss Franc from the Euro had palpable repercussions for Ypsomed. In the reporting year, financial income of CHF 3.2 million is offset by financial expenses of CHF 8.0 million, which represents a loss of CHF 4.8 million. In the previous year, the financial loss was just CHF 0.4 million. This result was mainly caused by currency losses amounting to a net total of CHF 2.4 million, but also by the impairment to Ypsomed s participation in the Taiwanese manufacturer of blood glucose monitoring systems, Bionime, which accounted for CHF 1.7 million. In the previous year, the reversal of such a impairment generated a profit of CHF 1.1 million. On the other hand, the participation in Bionime earned a dividend of CHF 0.3 million. The final tax burden of CHF 4.3 million for the results is clearly higher than that of the previous year (CHF 1.6 million). The higher tax is partly explained by the resolution of additional tax claims in the previous year, which was recognised through profit and loss, and by the accrual and liquidation of impairment to the participation in Bionime, which were apportioned to a tax-privileged company. Robust balance sheet preserves company s autonomy Ypsomed s balance sheet has been very healthy for many years and currently boasts a high equity ratio of Once again, major shareholder Willy Michel made a key contribution in this regard with his current shareholder loan. In the reporting year, this was reduced from CHF 20 million to CHF 15 million. In the coming year, Willy Michel will again waive his annual repayment. This arrangement ensures that the Ypsomed Group can continue to be managed entrepreneurially and independently in the future. Dividend payment from capital reserves In the past financial year, a total of CHF 3.8 million was paid out to shareholders. The Ypsomed Board of Directors will propose to the General Meeting of Shareholders that the dividend be increased by 100. A payout of CHF 0.60 per registered share is to be made to shareholders from tax-beneficial capital reserves for the 2014 / 15 financial year. The General Meeting of Shareholders of Ypsomed Holding AG will take place on Wednesday, 1 July 2015, in Berne. Financial Report 39

40 Ypsomed Financial Report Consolidated income statement (Audited Swiss GAAP FER figures) in thousand CHF Notes 1 April March 2015 in 1 April March 2014 in Sales of goods and services Cost of goods and services sold Gross profit Marketing and sales expenses Administration expenses Other operating income Other operating expenses Operating profit Financial income Financial expenses Profit before income taxes Income taxes Net profit Earnings per share (basic and diluted) in CHF Operating profit Depreciation of fixed assets Amortisation of intangible assets EBITDA (operating profit before depreciation and amortisation)

41 Ypsomed Financial Report Consolidated balance sheet (Audited Swiss GAAP FER figures) in thousand CHF Assets Notes 31 March 2015 in 31 March 2014 in Cash and cash equivalents Trade receivables Other current assets Prepayments and accrued income Current income tax assets Inventories Customer machinery Total current assets Financial assets Deferred income tax assets Fixed assets Intangible assets Total non-current assets Total assets Liabilities and equity Notes 31 March 2015 in 31 March 2014 in Financial liabilities Trade payables Prepayments from customers Current income tax payable Other payables Accrued liabilities and deferred income Provisions Total current liabilities Non-current liabilities to major shareholder Other non-current financial liabilities Provisions Deferred income tax liabilities Total non-current liabilities Financial Report Share capital Capital reserves Own shares / Translation exchange differences Goodwill acquired offset Retained earnings Total equity Total liabilities and equity

42 Ypsomed Financial Report Consolidated statement of cash flows (Audited Swiss GAAP FER figures) in thousand CHF Notes 1 April March April March 2014 Net profit Depreciation of fixed and intangible assets Loss from impairment (+) / Reversal of impairment ( ) 7/8/16/ Change in provisions (incl. deferred income taxes) Other expenses/income that do no not affect the fund Gain ( ) / loss (+) of fixed and financial assets Increase ( ) / decrease (+) in trade receivables Increase ( ) / decrease (+) in other receivables and prepayments and accr. income Increase ( ) / decrease (+) in inventories Increase ( ) / decrease (+) in customer machinery Increase (+) / decrease ( ) in trade payables Increase (+) / decrease ( ) in prepayments from customers Increase (+)/ decrease ( ) in other payables and accr. liabilities and deferred income Cash flow from operating activities Purchases of financial assets Disposals of financial assets 0 14 Purchases of fixed assets Disposals of fixed assets Purchases of intangible assets Cash flow from investing activities Repayment of financial liabilities to major shareholder Proceeds (+)/ repayment ( ) from borrowings Purchase ( ) / disposals (+) of own shares Distribution of capital reserves Cash flow from financing activities Effect of foreign currency translation Total cash flow Cash and cash equivalents as of 1 April Cash and cash equivalents as of 31 March Net increase (+)/ decrease ( ) in cash and cash equivalents Includes foreign currency effects on transactions between Group companies and on long-term intercompany loans with equity characteristics (equity-like loans). 42

43 Ypsomed Financial Report Consolidated statement of changes in equity (Audited Swiss GAAP FER figures) in thousand CHF Share capital Group reserves and share premium Treasury shares Cumulative translation reserve Goodwill offset Retained earnings Balance as of 1 April Net profit Distribution of dividends from capital contribution reserves Translation exchange differences Balance as of 31 March Total Share capital Group reserves and share premium Treasury shares Cumulative translation reserve Goodwill offset Retained earnings Balance as of 1 April Net profit Distribution of dividends from capital contribution reserves Disposal of own shares Purchase of own shares Translation exchange differences Balance as of 31 March Total Financial Report 43

44 Ypsomed Financial Report Basis for the consolidated financial statements 1. General information Ypsomed Holding AG is a limited company (Aktiengesellschaft) established on 29 December 2003 under Swiss law with registered offices in Burgdorf (canton of Berne, Switzerland). Operating in the field of medical technology, the Ypsomed Group is a leading independent manufacturer of injection pens for pharmaceutical and biotech companies, as well as a supplier of pen needles. Ypsomed s core manufacturing business consists of developing and marketing products and services allowing patients to administer their own medication. The Group operates production sites in Burgdorf, Solothurn, Grenchen (all CH) and Tábor (CZ) and has a sales and distribution network across Europe. The shares of Ypsomed Holding AG have been traded on SIX Swiss Exchange since 2004 and since 2007 on the BX Berne exchange. The company was created as a result of the split-up of the Disetronic Group in Disetronic had been founded in 1984 to develop, manufacture and sell infusion pumps and had expanded into the injection systems business in The consolidated financial statements were approved for issue by the Board of Directors on 20 May 2015 and recommended for acceptance to the General Meeting of Shareholders of 1 July Fundamental accounting and assessment methods Basics The consolidated financial statements have been prepared in accordance with the Swiss accounting and reporting recommendations of Swiss GAAP FER according to the principle of true and fair view. They are based on the financial statements of the company prepared for the same reporting period using consistent accounting policies. The Group s reporting currency is the Swiss Franc (CHF). The period under review comprises twelve months and ends 31 March. The accompanying consolidated financial statements are published in German and English. The German version is legally binding. All figures included in these financial statements and notes to the financial statements are rounded to the nearest CHF except where otherwise indicated. Consolidation Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or tradable can also determine whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained. They are de-consolidated from the date that control ceases. Subsidiaries are recognised using the purchase method. The consideration encompasses the compensation transferred in exchange for obtaining control over the identifiable assets, liabilities and contingent liabilities of the company acquired. The compensation encompasses cash payments as well as the fair market value of both the transferred assets, the incurred or assumed liabilities and, in addition, the equity instruments as of the trade date that have been issued by the Group. The net assets acquired, comprising identifiable assets, liabilities and contingent liabilities, are recognised at their fair value. Goodwill is recognised as of the acquisition date and is measured as the excess of the consideration transferred as described over and above the fair value of the identified net assets. If the Group does not acquire 100 of the shares of a company, the minority interest in equity is to be disclosed separately under the equity. Transactions, balances and gains on transactions between subsidiaries are eliminated. Losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Associates Associates are those companies that are significantly influenced but not controlled by the Group. This normally applies to investments in which the Group owns between 20 and 50. Investments in associates are accounted for using the equity method. The Group s investment in associates includes goodwill identified on acquisition. Ypsomed does not currently have any investments in associates. Foreign currency translation Foreign currency transactions are translated to the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income as financial income or expenses. In the consolidated financial statement, assets and liabilities of foreign subsidiaries are converted into Swiss francs at year-end exchange rates. Equity is converted with historical exchange rates. The statement of comprehensive income and the statement of cash flows are translated at annual average exchange rates. The effects of this conversion as well as foreign exchange gains and losses arising from the translation of non-currency congruent financed equity-like corporate loans denominated in foreign currencies are to be recognised in the equity, with no effect on the income statement. 44

45 Ypsomed Financial Report Cash Cash and cash equivalents comprise cash on hand, demand deposits and time deposits with a residual term to maturity from the balance sheet date of 90 days at the most. They form the basis of the consolidated statement of cash flows. Trade receivables / other receivables Trade receivables and other receivables are valued at par value less impairment, if any. An allowance is set aside if objective indications show that receivables cannot be collected. Allowances are based on individual valuations. Inventories Raw materials and merchandise purchased are recognised at cost, semi-finished and finished goods at their cost of conversion. Discounts are recognised as a reduction in the purchase price. Manufacturing costs include the associated direct production costs and production overheads. If the acquisition or manufacturing costs are higher than the net market value, an impairment loss is recorded on the income statement in the current period to write the inventories down to the net market value (lower of cost or market principle). Net market value is equivalent to the current market price less the usual sales deductions, marketing costs and administrative costs yet to be incurred. Inventories that cannot be sold are written off in full. The costs of inventories are determined by using the FIFO method. Customer machinery / prepayments from customers Ypsomed receives prepayments from pharma partners in order to acquire production machinery for these pharma partners. Ypsomed coordinates the manufacturing of the machinery with suppliers and makes contractual advance payments to the suppliers. After installation and successful test runs, the machinery is accepted by Ypsomed. From a legal and commercial viewpoint, once the machinery has been accepted by Ypsomed the title is transferred to the pharma partners. The advance and final payments made by Ypsomed to suppliers are disclosed in the consolidated balance sheet as current assets until acceptance of the machinery. The prepayments from customers are recognised in current liabilities. Once the machinery is accepted, the advance and final payments from Ypsomed are settled with the prepayments from the customer. Fixed assets Fixed assets are carried at historical acquisition or manufacturing cost, with depreciation calculated using the straight-line method based on the following estimated useful lives: Buildings 20 to 40 years Technical assets 6 to 20 years Machinery and company facilities 3 to 12 years Fixtures, fittings and vehicles 3 to 8 years Other fixed assets 2 to 10 years Depreciation is included in the following income statement categories: manufacturing costs of goods sold, marketing and distribution costs, administration costs and other operating expenses. Should an asset be impaired as a result of impairment testing, the corresponding impairment charge is included in depreciation and reported separately as an impairment loss. Value-enhancing expenditures are capitalised if the market value or the value in use increases as a result. Long-term leasing contracts, which are, in substance, equivalent to the purchase of assets with long-term financing (financial leasing), are recognised at the beginning of the lease as an asset and measured at net market value / acquisition cost or, if lower, at the present cost of the leasing payments. The asset is depreciated in line with its useful economic life. Investment properties are reported at cost of acquirement minus depreciation. The period of depreciation is calculated according to the category of asset. Intangible assets Goodwill Net assets taken over in an acquisition are to be valued at actual values and any surplus of acquisition cost over the newly valued net assets is to be designated as goodwill (purchase price allocation). The goodwill is to be offset at the date of acquisition. The effects of a theoretical capitalisation are to be disclosed in the notes. Development costs Development costs are capitalised if an intangible asset can be identified, finished, marketed or used internally, if it is controlled by the Ypsomed Group, if it is expected to provide the Ypsomed Group with an economic benefit over several years and if its costs can be reliably determined. Capitalised development costs are amortised straight-line over their useful economic lives after the beginning of marketing. The amortisation is included in the manufacturing costs of products and services sold. Costs accrued for development projects are tested for impairment on an annual basis. Financial Report 45

46 Ypsomed Financial Report Other intangible assets Patents are carried at acquisition cost and amortised over their estimated useful lives of 15 to 20 years. Amortisation is included in the costs of research and development that are integrated in the manufacturing costs of products and services sold. Software is capitalised on the basis of the costs incurred to acquire the software and bring the software to use. These costs are amortised over the estimated useful life of three to four years using the straight-line method. Amortisation is mainly included in administration expenses. Intangible assets, such as brand names or customer relationships that were acquired through a business combination and can be identified separately, are reported if they fulfil the definition of an intangible asset. The acquisition costs of such intangible assets correspond to their fair value at the time of acquisition. The value thereafter is measured at acquisition cost minus accumulated amortisation and depreciation. The useful life is estimated at five to eight years. Amortisation is included in marketing and distribution costs. Financial assets Financial assets are recognised at acquisition cost less impairment, if any. Impairment is recorded in profit or loss for the current period. Impairment of assets All assets are reviewed as of each balance sheet date for indications of impairment. If there are indications that an asset may be impaired, the recoverable amount of the asset is determined and the impairment loss is estimated. Should the estimated recoverable amount of the asset, which is equivalent to the higher of net market value and the useful value of the asset, be lower than the asset s book value, an adjustment is made to the income statement to reduce the book value of the asset to the estimated recoverable amount in the same period in which the impairment was discovered. Net market value is the price obtainable between independent third parties less the associated selling expenses. Useful value is based on the estimated future cash flows resulting from the use of the asset, including any possible cash flow at the end of the useful life, discounted using an appropriate long-term interest rate. Long-term financial liabilities to shareholders The loan to the major shareholder is measured at its nominal amount. Provisions Provisions are established when a legal or de facto obligation arising from previous events exists that will likely result in a cash outflow and this cash outflow can be reliably estimated. The provisions established represent the best possible estimate of the final obligation. Long-term provisions are discounted to their present values, provided that the impact is material. The subdivision into short-term and long-term provisions is based on whether utilisation is assumed to be probable within one year or at a later time. Possible obligations whose existence requires confirmation by future events, or obligations whose amount cannot be reliably estimated, are disclosed in the notes to the financial statements as contingent liabilities. Pension benefit obligations The pension benefit obligations of the Group companies in respect of old age, death and disability comply with the statutory provisions and regulations in the respective countries. The employees of the Swiss companies have a legally independent pension fund for retirement, death and disability. The pension funds are financed by employer and employee contributions (defined contribution plan). The actual economic impact of pension plans on the company is calculated as of the balance sheet date. An economic benefit is capitalised provided it will be available to reduce the company s future pension expenses. An economic obligation is recognised as a liability if the conditions for establishing a provision are met. Any unconditionally available employer contribution reserves are recognised as assets. The economic impacts of surpluses or deficits in the pension funds on the Group, as well as a change in any employer contribution reserves, are recognised as profit or loss and reported as personnel expenses in addition to the contributions deferred to the reporting period. Current income taxes Income taxes are calculated based on reported profits and in conformity with the tax laws prevailing in the individual countries and recognised in profit or loss of the current period. Deferred taxes are taken into account on temporary differences between tax bases and the carrying amounts in the consolidated financial statements and are calculated using the liability method based on effective or expected effective local tax rates. Deferred tax assets are recognised for loss carry-forwards where it is highly probable that they can be offset against future taxable income. The changes in deferred tax assets and liabilities are recognised in the consolidated income statement. Taxes on transactions that are reported in equity are also recognised in equity. 46

47 Ypsomed Financial Report Net sales and sales recognition Net sales Sales consists of all sales proceeds attained from the delivery of goods and the provision of services to third parties after deducting discounts, rebates, cash discounts and value-added taxes. Sales proceeds are always included in the income statement as soon as the delivery of the goods has taken place and benefit and risk have been transferred to the buyer or the service has been rendered. Net sales also comprises income from the provision of research, development, industrialisation and marketing services. Other operating income Other operating income primarily includes rental income arising from the leasing of properties owned by the Ypsomed Group, licencing income arising from the use of Ypsomed assets by external third parties and proceeds from the disposal of property, plant and equipment. Long-term contracts Development and industrialisation projects are accounted for according to the percentage-of-completion method (PoCM). Services and costs are correspondingly considered according to the degree of completion (cost-to-cost method) so that any profit is taken into consideration proportionally. The degree of completion for the services provided is calculated by determining the difference between the costs incurred and the costs expected for the whole order. Long-term contracts are accounted for under inventories, customer machinery and prepayments from customers. Research and development costs Research costs are routinely included in the manufacturing costs of the products and services sold. Development costs are capitalised if an intangible asset can be identified, finished, marketed or used internally, if it is controlled by the Ypsomed Group, if it is expected to provide the Ypsomed Group with an economic benefit over several years and if its costs can be reliably determined. Capitalised development costs are amortised straight-line over their useful economic lives. The amortisation is included in the manufacturing costs of products and services sold. Costs accrued for development projects are tested for impairment on an annual basis. 3. Risk assessment The management of the Ypsomed Group carries out a comprehensive risk assessment at least once a year. This standardised process is based on a risk inventory that encompasses the relevant risk categories such as strategic risks, management risks, general risks in the operating business, legal risks, systemic risks, financial risks (including market, credit and liquidity risks) and event risks (including political, regulatory, fiscal and external risks). The fundamental risks are assessed with regard to probability of occurrence and impact and both management and the Board of Directors decide on measures to be taken and monitor their implementation according to predetermined criteria. 4. Legal risks The Ypsomed Group develops, manufactures and sells innovative medical technical devices based on technical expertise and technologies protected by intellectual property rights. The Group is either owner of the required rights or licence holder of the property rights of a third party. In the medical devices market, disputes over patent rights and patent infringements occur fairly frequently and can involve costly and time-intensive patent infringement suits. The development, manufacture and sale of medtech products involve product liability risks and can lead to product recalls. There is no guarantee that the present liability insurance is sufficient to cover all damage cases connected with the development, manufacture and sale of medical products and that the insurance companies will still be prepared in future to insure Ypsomed Group business activities against liability risks at viable conditions. The risk of patent infringement or product liability claims by a third party, risks in connection with the recall of products and negative developments in the reimbursement of costs of Ypsomed products through state-prescribed cost-saving measures in the area of healthcare or by health insurance schemes as well as problems with authorisation and upholding of authorisation of drugs used together with Ypsomed products can also result in lasting detrimental effects, not only on the business performance of the Ypsomed Group, but also on its financial situation and competitive position in the marketplace. Financial Report Borrowing costs Borrowing costs in connection with the construction of property, plant and equipment are capitalised under certain conditions. All other borrowing costs are charged directly to the income statement. 47

48 Ypsomed Financial Report 5. Key estimates and assumptions The preparation of the consolidated financial statements in accordance with generally accepted accounting principles assumes that management makes certain estimates and assumptions which have an impact on the reported carrying amounts of assets and liabilities shown in the balance sheet on the balance sheet date and income and expenses accounted for in the period under review. These estimates and assumptions are based on future expectations and are held reasonable at the time of preparation of the financial statements. The actual amounts can deviate from these assumptions. The most important influential factors on positions based on estimates and assumptions are expressed as follows: Capitalised development expenses The development expenses are capitalised when the requirements for the capitalisation are met. Ypsomed s estimation of future economic benefits is based on management s assumptions with regard to the economic baseline conditions, expected prospective cash flows, the discount rates to be applied and the expected period of time in which economic benefits are targeted. Capitalised development expenses amount to CHF 65.2 million as of 31 March 2015 (prior year: CHF 58.7 million). Provisions for warranties When determining the provisions for warranties, management takes into account currently marketed own products and sets the provisions necessary to cover all callable claims based on the maturity and characteristics of the products as well as experience. Provisions for warranties as of 31 March 2015 amount to CHF 1.3 million (prior year: CHF 0.9 million). Income taxes When accruals for income taxes are made for a period, uncertainties regarding final tax payments remain. Estimates that vary from the definitive tax amount have an impact on current and deferred income taxes. In particular, with the capitalisation of deferred tax assets from losses carried forward, the value of these tax loss carry-forwards and the tax rates to be applied must be estimated. Deferred income tax assets related to tax loss carry-forwards as of 31 March 2015 amount to CHF 7.2 million (prior year: CHF 6.9 million). 48

49 Ypsomed Financial Report Notes to the consolidated financial statements In thousand CHF, unless otherwise stated Subsequent events From the balance sheet date until the consolidated financial statements were approved by the Board of Directors on 20 May 2015, no major events occurred which could adversely affect the validity of the annual financial statements for 2014/15 or which would have to be disclosed. 1. Consolidation scope Interest held capital/ votes Share capital Research & Development Production Marketing and Sales Financing and Services Ypsomed Holding AG, CH-Burgdorf CHF Ypsomed AG, CH-Burgdorf 100 CHF Ypsomed Distribution AG, CH-Burgdorf 100 CHF TecPharma Licensing AG, CH-Burgdorf 100 CHF Ypsotec AG, CH-Grenchen 100 CHF Ypsotec s.r.o., CZ-Tábor 100 CZK Ypsomed GmbH, DE-Liederbach 100 EUR DiaExpert GmbH, DE-Liederbach 100 EUR Feelfree GmbH, DE-Liederbach 100 EUR Ypsomed AB, SE-Bromma 100 SEK Ypsomed S.A.S., FR-Paris 100 EUR Ypsomed BV, NL-Vianen 100 EUR Ypsomed India Private Ltd., 100 INR IN-New Delhi Ypsomed Limited, GB-Escrick 100 GBP Financial Report Ypsomed GmbH, A-Wien 100 EUR Ypsomed S.r.l., IT-Varese 100 EUR Ypsomed Medical Devices Co., Ltd., CN-Peking CHF The formal capital contribution has not been made by the reference date. Based on the provisions of the Articles of Association, this constitutes full control. 2. Foreign currencies Balance sheet year-end rates Income statement average rates 31 March March / /14 Euro (EUR) US dollar (USD) Swedish krona (100 SEK) Norwegian krone (100 NOK) Danish krone (100 DKK) Czech koruna (100 CZK) Indian rupee (100 INR) British pound (GBP) Chinese yuan renminbi (100 CNY)

50 Ypsomed Financial Report 3. Cash and cash equivalents 31 March March 2014 Cash Postal accounts Bank accounts Total Trade receivables 31 March March 2014 Trade receivables Provision for bad and doubtful debts Total Provision for bad and doubtful debts 2014/ /14 At 1 April Addition Use Reversal 9 26 Currency translation differences 27 0 At 31 March Inventories 31 March March 2014 Raw materials and supplies Goods in process Finished products Gross inventories Valuation allowance Total Financial assets 31 March March 2014 Bionime Corp. Taiwan and Insulet Corp. USA Other financial assets Total

51 Ypsomed Financial Report 7. Fixed assets Cost Land and buildings Machinery and equipment Other fixed assets Assets under construction Buildings for investment purposes At 1 April Additions Disposals Transfers Currency translation differences At 31 March Total Accumulated depreciation At 1 April Depreciation Disposals Transfers Currency translation differences At 31 March Net book value at 1 April Net book value at 31 March Cost At 1 April Additions Disposals Transfers Currency translation differences At 31 March Accumulated depreciation At 1 April Depreciation Impairment Disposals Transfers Currency translation differences At 31 March Financial Report Net book value at 1 April Net book value at 31 March There are no fixed assets pledged to secure loans and there are no long-term leasing agreements (financial leasing). The fire insurance value of fixed assets at 31 March 2015 amounted to CHF 498 million (prior year: CHF million). Gains from the sale of fixed assets in the 2014/15 business year amounted to CHF 1.6 million (prior year: CHF 0.1 million). Gains from the sale of fixed assets are included in the income statement under other operating income. 51

52 Ypsomed Financial Report 8. Intangible assets Cost Development costs Patents Software Client base Total At 1 April Additions Disposals Transfers Currency translation differences At 31 March Accumulated amortisation At 1 April Amortisation Impairment Disposals Currency translation differences At 31 March Net book value at 1 April Net book value at 31 March Cost At 1 April Additions Disposals Transfers Currency translation differences At 31 March Accumulated amortisation At 1 April Amortisation Impairment Disposals Currency translation differences At 31 March Net book value at 1 April Net book value at 31 March Due to a development project being shelved, CHF 1.2 million was impaired. Development costs capitalised include CHF 39.5 million (prior year: CHF 32.2 million) for products in the development phase, CHF 3.1 million (prior year: CHF 4.2 million) for products in the industrialisation phase and CHF 22.6 million (prior year: CHF 22.3 million) for products in the phase of commercialisation. 52

53 Ypsomed Financial Report 9. Goodwill not reported in the balance sheet Acquired goodwill the difference between acquisition costs and the recalculated current value of all net assets acquired is offset directly against equity at the time of acquisition of a participation or business. Theoretical capitalisation of goodwill and amortisation over five years would produce the following stated values under assets and scheduled amortisation of goodwill in the income statement: Cost 2014/ /14 At 1 April Additions before taxes 0 0 Accumulated currency translation differences At 31 March Accumulated amortisation At 1 April Amortisation, scheduled amortisation over 5 years Change in accumulated currency translation differences At 31 March Net book value at 1 April Net book value at 31 March Net profit and equity would change as follows: Net profit Scheduled amortisation over 5 years Tax effects Net profit / net loss on reporting goodwill Equity at 31 March Equity at 31 March Effect of reporting goodwill in the balance sheet FX effects on goodwill Equity on reporting goodwill at 31 March Financial Report 53

54 Ypsomed Financial Report 10. Financial liabilities to major shareholder 31 March March 2014 Loan from Techpharma Management AG, Burgdorf Current 0 0 Non-current Since 1 April 2010 the interest has been based on the CHF 12-month LIBOR rate as published by the Swiss National Bank plus a margin of 0.5, but at least 0.7. At any time, Ypsomed Holding AG is eligible to amortise the loan in full or part. Techpharma Management AG for its part may call for an amortisation of CHF 5.0 million per annum by applying a term of notice of three months. In the 2015/16 business year, Techpharma Management AG will waive repayment of CHF 5.0 million. The loan is due for repayment on 31 March Techpharma Management AG is controlled by Willy Michel. In the 2014/15 business year, interest amounting to CHF 0.1 million (prior year: CHF 0.1 million) was paid on the loan. 11. Provisions Taxes Warranties From pension plans Restructuring Other Total At 1 April Additions Release Utilisation Currency translation differences At 31 March of which current At 1 April Additions Release Utilisation Currency translation differences At 31 March of which current

55 Ypsomed Financial Report Warranties Other provisions There is a risk that medical products developed, distributed and produced by Ypsomed could have material defects or product faults, resulting in legal liability and product liability in particular, as well as other liabilities, such as the withdrawal or recall of products. Provisions are recorded based on management s best estimate and relate to guarantees and also to replacement costs for withdrawn products. The company s management bases these provisions on the estimated potential guarantee claim for each product. Ypsomed holds insurance policies with third parties to cover material damages, interruption of operation, product liability and other risks, with worldwide cover. Ypsomed believes that its insurance cover and provisions with regard to business activities and the associated operative risks involved with this are appropriate and sensible. However, events can arise that are not covered or only partly covered by insurance policies or provisions made by Ypsomed. The closing of an insurance contract, covering product liability, depends on the development of the insurance market and, in particular, on the general development of the pharmaceutical industry, in which high claims for compensation are typical. Although no such losses are presently expected at Ypsomed, there is no guarantee that the company might not be subjected to damage claims in the future that are in excess of the cover available. Provisions for warranties cover any guarantee claims that may occur for products on the market. The provisions extend for the average life of the products, which is between one and four years, depending on the product, and are also determined by the best possible assessment of the risk of a claim for each product category. Other provisions are based on estimates and have the purpose of complying with requirements for the disposal of waste related to the upcoming conversions of buildings. In the reporting year, CHF 0.3 million was appropriated in connection with the sale of the property in Solothurn. Also included are provisions for employee gifts on the occasion of service anniversaries. In addition, during the reporting year provisions amounting to CHF 0.7 million were accrued for legal costs in connection with the international sales network. Financial Report 55

56 Ypsomed Financial Report 12. Share capital Share capital (in thousand CHF) 2014/ /14 At 1 April At 31 March Shares issued at 31 March Treasury shares at 31 March Shares outstanding at 1 April Purchases Average price in CHF Disposals Average price in CHF Shares outstanding at 31 March Ypsomed Holding AG was founded on 29 December 2003 with original share capital of CHF , consisting of shares with a nominal value of CHF 100 each. Today a total of shares exists, each with a par value of CHF As of 31 March 2015, the Ypsomed Group and the employee pension fund held treasury shares in total (prior year: ). Conditional share capital (in thousand CHF) 2014/ /14 At 1 April At 31 March The company has a conditional share capital totaling CHF 2.3 million (prior year: CHF 2.3 million). The company may issue a maximum of fully paid-up registered shares with a nominal value of CHF (prior year: CHF 14.15) each to selected employees and members of the Board of Directors. The Board of Directors proposes to the Ordinary General Meeting of Shareholders of 1 July 2015 that the contingent capital should be cancelled. Authorised share capital (in thousand CHF) 2014/ /14 At 1 April At 31 March On 26 June 2014, the authorised capital expired in full. Correspondingly, Ypsomed Holding AG does not have any authorised capital as at 31 March Non-distributable reserves Non-distributable reserves in the Group s shareholders equity amounted to CHF 89.5 million at the end of the year under review (CHF 89.5 million in 2013). 56

57 Ypsomed Financial Report 13. Long-term contracts 2014/ /14 Revenue from development and industrialisation services (PoC method) Long-term contracts in the balance sheet 31 March March 2014 Trade receivables Inventories 0 0 Prepayments from customers Personnel expenses 2014/ /14 Wages and salaries Social security expenses Other personnel expenses Total Personnel at 31 March (full-time equivalents) 31 March March 2014 Switzerland Germany Netherlands 9 7 France Scandinavia 7 6 Czech Republic United Kingdom Austria 4 3 India 9 12 Italy 4 2 China 2 0 Total Financial Report Headcount

58 Ypsomed Financial Report 15. Employee pensions Within the Group, there are various employee pension plans, of which most employees are members. For the companies abroad and one company in Switzerland, there are pension plans for which the obligation to provide benefits such as retirement, death or invalidity benefits lies with a state institution and/or an insurance company. For the pension plan for two companies in Switzerland representing a proportion of 62 of the Group s workforce as at 31 March 2015, there is a separate pension scheme set up in accordance with the Swiss Federal Act on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and independent of the Group. As at 31 March 2015, the pension scheme held a value fluctuation reserve of CHF 28.9 million (prior year: CHF 19.6 million). The surplus in the value fluctuation reserve, i.e. the amount by which the reserves exceed the target value of 14.6 of assets, stands at CHF 9.5 million (prior year: CHF 3.0 million). This corresponds to a calculated level of cover within the meaning of Art. 44 of the Ordinance on Occupational Retirement, Survivors and Disability Pension Plans (BVV2) of based on a technical interest rate of 2.75 and BVG 2010 (prior year: 120.6, technical interest rate 2.75 and BVG 2010). The board responsible for the pension scheme has decided not to use the surplus in the value fluctuation reserve to reduce contributions. This surplus thus does not represent an economic benefit within the meaning of Swiss GAAP FER 16 and was therefore not capitalised. Pension costs as part of personnel expense correspond to the standard contribution payments by the Group companies involved. Surplus / deficit Economical benefit / economic obligation Contributions concerning the business period Pension benefit expenses within personnel expenses / / /14 Pension institutions with surplus Pension institutions without own assets Per end of the business years 2013/14 and 2014/15, there were no employer contribution reserves existing. 16. Financial income 2014/ /14 Interest income Reversal of an impairment Foreign exchange gains Other financial income Total The impairment on the participating interest in Bionime was reversed in full during the previous year under review following the recovery in the share price. 17. Financial expenses 2014/ /14 Interest expenses Losses from marketable securities 0 9 Impairment Foreign exchange losses Other financial expenses Total The impairment in the current year resulted from a decrease in the market value of a financial asset. 58

59 Ypsomed Financial Report 18. Income taxes 2014/ /14 Current income taxes Deferred income taxes Total Average tax rate in The Group benefits from reduced tax rates for individual companies. These rates are subject to annual changes. Changes to these tax rates and differences in the allocation of profits to these companies affect the effective tax rate. In the previous year a significant proportion of tax provisions were released and credited to income. 31 March March 2014 Capitalised deferred tax assets of which temporary differences of which not yet utilised tax-loss carryforwards Tax-loss carryforwards are only recognised if it is probable that the associated tax benefits can be realised. 19. Segment information Business year 2013/14 Delivery Devices Diabetes Direct Business For the purposes of company management, the Ypsomed Group is organised into business sectors according to products and services. The Delivery Devices segment comprises the product groups pen systems, pen neeedles, infusion sets and other injection mouldings produced by Ypsomed. The Diabetes Direct Business business segment covers the direct trade in a range of diabetes articles. Others contains the business segment precison turned parts and currently unused real estate for operational purposes. Intersegmental sales are executed at arm s length. Others Eliminations Group Sales of goods and services to third-party customers Intersegmental sales Total sales of goods and services Financial Report Operating profit Investments in fixed and intangible assets Depreciation /Amortisation/ Impairment Business year 2014/15 Delivery Devices Diabetes Direct Business Others Eliminations Group Sales of goods and services to third-party customers Intersegmental sales Total sales of goods and services Operating profit Investments in fixed and intangible assets Depreciation /Amortisation/ Impairment

60 Ypsomed Financial Report Sales of goods and services Sales of goods and services are reported by geographical location 2014/ /14 Switzerland Europe North America Rest of the world Total Sales of goods and services are reported by geographical location in accordance with the invoice address. The sales of injection systems to biotech and pharmaceutical partners are made mainly to their European group companies. These companies market the products worldwide. 20. Contingent liabilities The Group has contingent liabilities of kchf 638 (prior year: kchf 669) toward third parties arising in the ordinary course of business. Ypsomed does not anticipate that any material liabilities will arise from the contingent liabilities. 21. Contractual obligations 31 March March 2014 Contractual purchase commitments for products Contractual obligations from rental contract with Techpharma Management AG until Contractual obligations from service contract with GBUK Healthcare until Contractual obligations from service contract with Exel Medical GmbH 35 Contractual obligations from rental contract of the German subsidiaries 2287 Total contractual obligations The rental contract between Ypsomed AG and Techpharma Management AG, a company controlled by Willy Michel, was signed at arm s length. Rental interest is based on an independent rental value estimate and was per reduced as of 1 January 2012 from CHF to CHF annually plus VAT. It is linked to the consumer price index. The rental contract arranges for small and normal maintenance work on the building to be paid by the tenant up to a maximum amount of 2 of the annual rent per calendar year. As at 31 March 2015, contractual obligations for the purchase of fixed assets amount to CHF 1.9 million (prior year: CHF 4.2 million), for the purchase of intangible assets to CHF 0.2 million (prior year: CHF 0.3 million) and for material and other purchase to CHF 3.9 million (prior year: CHF 0.0 million) 22. Transactions with related parties Related Group parties are Techpharma Management AG, Adval Tech Group, Finox AG and employee pension funds. Services are remunerated in line with industry standards. Receivables from related parties amounted to kchf 3 (prior year: kchf 14) on the balance sheet date. Liabilities amounted to kchf 4 (prior year: kchf 2). In the year under review, the following transactions were made with related parties: 60

61 Ypsomed Financial Report 2014/ /14 Techpharma Management AG (interest according to Note 10) Techpharma Management AG (compensation for rented business premises) Techpharma Management AG (amounts in accordance with service contract) Adval Tech Group Finox AG Finox AG 9 4 Total Earnings per share Earnings per share are calculated by dividing net profit by the weighted monthly number of shares outstanding during the period. The average number Willy Michel (i.e. his company Techpharma Management AG) has been renting out the building on Buchmattstrasse in Burgdorf (Ypsomed Nord) to Ypsomed since 1 January The parties signed a rental contract set at an indexed market rent based on a rental assessment performed by an independent party. The rental contract can be terminated each month subject to 24 months notice. See Corporate Governance Rental contract on page 83. Willy Michel (i.e. his company Techpharma Management AG) and Ypsomed have concluded a framework service contract that can be terminated by either side at any time. This contract allows for Techpharma Management AG to provide occasional services to the Ypsomed Group (e.g. hotel, catering and transport services) as well as selected management support services (including temporary personnel leasing) and, for its part, for the Ypsomed Group to offer occasional services to Techpharma Management AG (e. g. management and IT support, including temporary personnel leasing). The services are invoiced at normal market conditions. The mutual supply of temporary personnel is invoiced at the personnel cost rate. This contract was discussed and approved by the Board of Directors, in whose opinion this is a cooperation agreement at normal market conditions. See also Corporate Governance Other contractual relationships on page 84. In June 2007, Ypsomed AG and Adval Tech Holding AG signed an agreement on strategic cooperation in tool construction. The services purchased are in line with normal market conditions. A licencing agreement has existed between Ypsomed Holding AG and two of its subsidiaries, on the one hand, and Finox AG, on the other hand, since December See also Corporate Governance Contractual relationship with Finox AG on page 84. of treasury shares is deducted from the number of shares issued. Financial Report 2014/ /14 Net profit in thousand CHF Number of outstanding shares weighted on a monthly basis Earnings per share in CHF (basic and diluted) Compensation statement and significant shareholders See the notes to the financial statements 2014/15 of Ypsomed Holding AG from page 66 and the Compensation Report from page

62 Ypsomed Financial Report Report of the group auditors 62

63 Ypsomed Financial Report Financial Report 63

64 Ypsomed Financial Report Balance sheet of Ypsomed Holding AG statutory financial statements In thousand CHF Assets 31 March March 2014 Cash and cash equivalents Marketable securities Accrued income and prepaid expenses 0 18 Other receivables Total current assets Loans to Group companies Investments Expenditures related to capital increase 0 0 Total non-current assets Total assets Liabilities and equity 31 March March 2014 Trade payables Accrued expenses and deferred income Bank loans Current income taxes payable Total current liabilities Non-current financial liabilities to major shareholder Total non-current liabilities Share capital Capital contribution reserves Disagio Legal reserves Reserves for own shares Retained earnings Net profit Total equity Total liabilities and equity

65 Ypsomed Financial Report Income statement of Ypsomed Holding AG statutory financial statements In thousand CHF Income 1 April March April March 2014 Financial income Total income Expenses Depreciation and amortisation Financial expenses Administration Income tax expenses Total expenses Net profit Proposal for the appropriation of retained earnings The Board of Directors proposes to the General Meeting of Shareholders that the retained earnings be appropriated as follows: In thousand CHF 31 March March 2014 Retained earnings Increase reserve for own shares Net profit for business year Retained earnings at disposal of the General Meeting of Shareholders Allotment from capital contribution reserves Distribution of dividend from capital contribution reserves Carried forward to the next year The Board of Directors proposes to the General Meeting of Shareholders a tax free distribution of capital contribution reserves in the amount of CHF 0.60 per share. The total distribution based on the actual share capital as per 31 March 2015 will be approximately CHF 7.6 million (prior year: CHF 3.8 million). This amount will be credited to shareholders. Financial Report 65

66 Ypsomed Financial Report Notes to the financial statements of Ypsomed Holding AG Income Financial income mainly consists of dividends, interest income and gains on securities. Share capital The share capital of CHF (prior year CHF ) consists of (prior year ) registered shares with a nominal value of CHF (prior year CHF 14.15). Conditional share capital The company has a conditional share capital totalling CHF 2.3 million (prior year: CHF 2.3 million). The company may issue a maximum of (prior year ) fully paid-up registered shares with a nominal value of CHF (prior year: CHF 14.15) each to selected employees and members of the Board of the Directors. The Board of Directors proposes to the General Meeting of Shareholders of 1 July 2015 that the contingent share capital should be cancelled. Authorised share capital On 26 June 2014, the authorised share capital expired in full. Correspondingly, Ypsomed Holding AG does not have any authorised share capital as at 31 March Significant shareholders and shareholder groups 31 March March 2014 Number of shares Capital and Number of shares Capital and vote share 1 vote share 1 Shareholder group Michel family Patinex AG In line with Art. 16 paragraph 2 of the Articles of Association, no shareholder may directly or indirectly amalgamate more than 5 of the total voting rights in the form of his/her own shares and those he/she is representing. In accordance with paragraph 3, this provision of the Articles of Association does not apply to shareholders to whom more than 5 of all voting rights were registered at the time the provision was issued. Investments 31 March March 2014 Interest held Book value (CHF) Interest held Book value (CHF) Ypsomed AG, CH-Burgdorf Share capital CHF Ypsotec AG, CH-Grenchen Share capital CHF TecPharma Licensing AG, CH-Burgdorf Share capital CHF Ypsomed Distribution AG, CH-Burgdorf Share capital CHF Bionime Corporation, Taiwan Share capital TWD (Prior year TWD ) Insulet Corporation, Bedford, MA, U.S.A Share capital USD (Prior year USD ) Total investments Own shares 31 March March 2014 Number of shares Ø price Number of shares Ø price Purchase of own shares Disposal of own shares Own shares held

67 Ypsomed Financial Report Claim subject to subordination clause against subsidiaries 31 March March 2014 Claim subject to subordination clause against subsidiaries In addition, there is a letter of comfort with an unlimited amount in favour of a group company. Securities, reserve for guarantees and collateral order in favour of third parties 31 March March 2014 Credit Suisse, CH-Zurich Guarantee in the context of credit business for Ypsomed AG Risk assessment Ypsomed Holding AG performs an extensive risk assessment at least once a year. This standardised process is based on an inventory of risks, which covers the relevant categories of risks such as strategic risks, management risks, general risks of the business areas, legal risks, systemic risks, financial risks, including market, credit and liquidity risks, and event risks, including political, regulatory, fiscal and external risks. The significant risks are evaluated regarding the probability of occurrence and impact, and both Management and the Board of Directors decide on measures to be taken and monitor their implementation according to predetermined criteria. Financial Report 67

68 Ypsomed Financial Report Investments held by members of the Board of Directors and Executive Management As of 31 March, members of the non-executive and executive boards, Executive Management and people closely related to them held the following shares. No Ypsomed share options were held. Share ownership of Board of Directors Shares as of 31 March 2015 Shares as of 31 March 2014 Willy Michel, Chairman * Techpharma Management AG as related party to Willy Michel, Chairman BV Holding AG as related party to Willy Michel, Chairman Total of Willy Michel and Techpharma Management AG and BV Holding AG Anton Kräuliger, Vice Chairman Prof. em. Dr. Norbert Thom, member Gerhart Isler, member Total Share ownership of Executive Management Simon Michel, CEO * Dr. Beat Maurer, Senior Vice President Legal Services & Intellectual Property Yvonne Müller, Senior Vice President Human Resources Niklaus Ramseier, Senior Vice President Finance/IT (CFO) Hans-Ulrich Lehmann, Senior Vice President Technology Ulrike Bauer, Senior Vice President Marketing & Sales Delivery Systems ** 150 Dr. Eberhard Bauer, Senior Vice President Marketing & Sales Diabetes Care ** 2110 Dr. Benjamin Reinmann, Senior Vice President Operations Total * Until June 2014, Willy Michel was CEO of the Ypsomed Group. Simon Michel took over as CEO on 1 July 2014 (previously Senior Vice President Marketing & Sales). ** On 1 July 2014, Ulrike Bauer and Dr. Eberhard Bauer joined the Executive Management of Ypsomed Group. For information on the Family Michel shareholder group and their shareholding, see also the Corporate Governance section on page

69 Ypsomed Financial Report Report of the statutory auditors Financial Report 69

70 70 Ypsomed Financial Report

71 Ypsomed Financial Report Five-year overview In thousand CHF 2014/ / / /12 Sales of goods and services Gross profit Gross profit in Operating profit Operating profit in Net profit Net profit in Depreciation of fixed assets Amortisation of intangible assets EBITDA EBITDA in Current assets Non-current assets Current liabilities Non-current liabilities Balance sheet total Capital expenditure Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Issued shares at 31 March Average shares outstanding Earnings per share in CHF (basic/ diluted) Dividend per share (in CHF) Book value per issued share (in CHF) Financial Report Share price: year s highest (in CHF) Share price: year s lowest (in CHF) Share price: year-end (in CHF) Market capitalisation (in million CHF) Average headcount Average full-time equivalent Year-end headcount Year-end full-time equivalent Sales per average full-time equivalent (in CHF) See basis for the consolidated financial statements on page Operating profit before depreciation and amortisation. 3 The goodwill was offset with equity under Swiss GAAP FER. 71

72 Lavender field France

73 Corporate Governance and Compensation Report This Corporate Governance report describes the management and control principles at the highest corporate level of Ypsomed Holding AG and its subsidiaries according to the directive of SIX Swiss Exchange concerning information on corporate governance. Free float of Ypsomed registered shares 2014 / / Geographic distribution of registered shareholders in Switzerland 98.2 RoW 1.5 Europe 0.3 Market capitalisation 2014 / 15 CHF Corporate Governance Compensation Report 2013 / 14 CHF

74 Ypsomed Corporate Governance Corporate Governance This Corporate Governance report describes the management and control principles at the highest corporate level of Ypsomed Holding AG and its subsidiaries according to the directive of SIX Swiss Exchange concerning information on corporate governance. Ypsomed, with headquarters in Burgdorf, Switzerland, is a world leader in the field of injection systems for the administration of pharmaceutical substances. Ypsomed develops and produces its products primarily in Switzerland. Ypsomed injection systems are largely marketed by globally active biotechnology and pharmaceutical companies. As part of its diabetes care business segment, Ypsomed focuses on self-medication products for patients with diabetes. The company s own pen needles as well as infusion sets and commercial products purchased from third parties, in particular devices for the self-monitoring of blood glucose levels as well as infusion pumps, accessories and many day-to-day items for diabetics, are sold through the company s own distribution network and by independent distributors. The Ypsomed Group also includes Ypsotec, with headquarters in Grenchen, Switzerland, a supplier of precision turned parts and components. The Ypsomed Group s rules and regulations on Corporate Governance are defined in the Articles of Association, in the Organisational Policy of Ypsomed Holding AG and in the Code of Conduct of the Ypsomed Group and correspond to the Corporate Governance Directive of 1 September 2014, issued by SIX Swiss Exchange. The organisational policy issued by the Board of Directors governs the duties, powers and responsibilities of the executive bodies of the Ypsomed Group. The main features of this policy are set out on page 86 under the section on regulations concerning authority. A copy of Ypsomed Holding AG s Articles of Association (in German) can be ordered in print form from the company or can be viewed on the company s website at (under Media & Investors / Publications / Corporate Governance). A copy of the Code of Conduct of the Ypsomed Group (in German, English and French) can be ordered in print form from the company or can be viewed on the company s website at (under Media & Investors / Publications / Corporate Governance). Compliance with the basic principles and values laid down in the Code of Conduct is reviewed on an ongoing basis during the company s day-to-day business. In addition, the Board of Directors receives information on a regular basis regarding experiences with the Code of Conduct. Group structure Ypsomed Holding AG is organised as a holding company pursuant to Swiss law and directly or indirectly owns or controls all the companies that form part of the Ypsomed Group worldwide. None of Ypsomed Holding AG s subsidiaries are listed companies. History of Ypsomed s development Ypsomed was formed from what was previously Disetronic, which was founded in 1984 and which developed and produced infusion systems and also, from 1986, injection systems. On 30 April 2003, Roche Holding AG acquired the infusion business of Disetronic through a public tender offer. Willy Michel continued the injection business under the Ypsomed trade name. Listed Group company Ypsomed Holding AG, which has its headquarters in Burgdorf, is the parent company of the Ypsomed Group. It has a share capital of CHF , divided into registered shares with a nominal value of CHF each. Shares in Ypsomed Holding AG were traded on the Main Standard of SIX Swiss Exchange from 22 September 2004 to 28 September Since 29 September 2011, shares in Ypsomed Holding AG have been traded on the Domestic Standard of SIX As at 31 March 2015 As at 31 March 2014 Market capitalisation in CHF In of equity 478.9* 432.4* Share price in CHF Price/earnings ratio 59.4** 72.5** * Equity capital on 31 March 2015: kchf Equity capital on 31 March 2014: kchf ** Earnings per share as at 31 March 2015: CHF 1.54 Earnings per share as at 31 March 2014: CHF

75 Ypsomed Corporate Governance Swiss Exchange. The shares have also been traded since 27 June 2007 on the BX Berne exchange. The move from the Main Standard to the Domestic Standard of SIX Swiss Exchange was associated with the switch in accounting standards from IFRS (International Financial Reporting Standards) to Swiss GAAP FER, which, in accordance with SIX Swiss Exchange s accounting guidelines, results in a change of segment. Security number: / ticker symbol: YPSN. Operating organisation The operating organisation of the Ypsomed Group is based on a parent company structure. The CEO is responsible for the following departments: Operations (incl. Production, Logistics, Quality Management & Regulatory), Technology, Corporate Finance / IT, Marketing & Sales (Delivery Systems and Diabetes Care), Human Resources and Legal & Intellectual Property. As a rule, two members of Ypsomed Executive Management sit on the Board of Directors of each subsidiary. The Executive Management of Ypsotec reports directly to the CEO, whereas the executive management bodies of the international distribution companies report to the Senior Vice President of Marketing & Sales for Diabetes Care. In terms of operations, the Ypsomed Group is divided into two business segments: The Delivery Devices segment consists of business with the product group s pen systems, pen needles, infusion sets and other injection-moulded parts that are developed and manufactured by Ypsomed. The Diabetes Direct Business segment consists of the sales and direct trade business with various supplies for diabetes care, for example devices for the self-monitoring of blood glucose levels as well as infusion pumps, accessories and other day-to-day items for diabetics. The Others segment comprises precision turned parts and real estate not currently in operational use. Group structure as at 31 March 2015 Ypsomed Holding AG Burgdorf Ypsomed AG Burgdorf / Solothurn 100 Ypsomed Distribution AG Burgdorf 100 Ypsotec AG Grenchen 100 TecPharma Licensing AG Burgdorf 100 Ypsotec s.r.o Tábor, CZ 100 Ypsomed Medical Devices Co., Ltd. Beijing, CN 100 Ypsomed GmbH Liederbach, DE 100 feelfree GmbH Liederbach, DE 100 Ypsomed Ltd. Escrick, UK 100 Ypsomed BV Vianen, NL 100 Ypsomed India Private Ltd. New Delhi, IN 100 Ypsomed AB Bromma, SE 100 Ypsomed GmbH Vienna, AT 100 Ypsomed SAS Paris, FR 100 Ypsomed S.r.l. Varese, IT 100 Corporate Governance Compensation Report DiaExpert GmbH Liederbach, DE

76 Ypsomed Corporate Governance Capital structure Share capital The share capital of Ypsomed Holding AG amounts to CHF , divided into fully paid-up registered shares, each with a nominal value of CHF Conditional share capital Ypsomed Holding AG has conditional share capital of CHF The company may issue to selected employees and members of the Board of Directors up to a maximum of registered shares, to be paid up in full, with a par value of CHF each. Shareholders purchase and advance subscription rights are excluded. Pursuant to the Articles of Association, shares and option rights may be issued at a price below the stock market value. The acquisition of shares through the exercising of subscription or option rights is subject to the statutory recording limitation and the statutory voting right limitation (see below). The company has not issued any shares or option rights to date. The Board of Directors proposes to the Annual General Meeting of Shareholders of 1 July 2015 that the conditional share capital should be cancelled. Equity analysis of Ypsomed Holding AG Date Issue Number of shares Nominal value Share capital Balance Reassignment of capital reserves to reserves as capital investments Net profit Reassignment of capital reserves to reserves as capital investments Net profit Reassignment of capital reserves to reserves as capital investments Reserves for own shares Net profit Balance

77 Ypsomed Corporate Governance Authorised share capital On 26 June 2014, the authorised share capital expired in full. Correspondingly Ypsomed Holding AG has no authorised share capital as at 31 March Shares and participation certificates The registered shares are fully paid-up and each has a nominal value of CHF One registered share represents one vote. The shares have equal dividend rights. Ypsomed Holding AG has no participation certificate capital. Participation certificates Ypsomed Holding AG has no participation certificates. Changes in capital The capital changed as follows in the past years: Changes in the share capital up to 31 March 2014 pursuant to the accounts of Ypsomed Holding AG produced in accordance with company law. General statutory reserves Capital reserves Retained earnings Reserves from equity General reserves Reserves for own shares Total Corporate Governance Compensation Report 77

78 Ypsomed Corporate Governance Shareholder structure Registered shareholders There were shareholders registered in the Share Register on 31 March 2015 (prior year: shareholders). Of these shareholders, 98 report Switzerland as their place of residence. The distribution of shareholdings is as follows: Number of shares Number of shareholders as at 31 March 2015 Number of shareholders as at 31 March to to to to more than Significant shareholders and significant shareholder groups The Michel family shareholder group, set up for the purposes of holding shares in family ownership, comprises Willy Michel, Chairman of the Board of Directors of Ypsomed Holding AG, who holds shares both directly and indirectly via the companies he controls, Techpharma Management AG and BV Holding AG, as well as his children Simon Michel, CEO of Ypsomed Holding AG and the Ypsomed Group, Serge Michel and Lavinia Camilla Nussio, who each hold shares directly. As at 31 March 2015, the Michel family shareholder group holds a combined total of registered shares (prior year: ) in Ypsomed Holding AG, which represents (prior year: ) of all the shares in the company. Patinex AG, Egglirain 24, CH-8832 Wilen, which is directly controlled by Martin and Rosmarie Ebner, and BZ Bank Aktiengesellschaft, Egglirain 15, 8832 Wilen, which they indirectly control, disclosed that their shareholding fell below the threshold limit of 10 on 10 July 2014 and the threshold limit of 5 on 15 January On 31 March 2015, Patinex AG posted a holding in the company of 4.40 (prior year: ). BZ Bank Aktiengesellschaft currently does not hold any shareholdings subject to disclosure. There are no other known significant shareholders or significant shareholder groups. No shareholder agreements have been disclosed. In the reporting year, there were no further disclosure notifications. The disclosure notifications published pursuant to Art. 20 of the Stock Exchange Act can be accessed at the website of SIX Swiss Exchange via the following link: Accounting With effect from 30 September 2011, Ypsomed changed its accounting standard from IFRS to Swiss GAAP FER. Since then, SWISS GAAP FER has been used as the accounting and reporting standard. The primary principle of Swiss GAAP FER is to promote a true and fair view of the assets, liabilities, financial position and profit or loss, meaning informative and reliable accounting remains guaranteed under Swiss GAAP FER. Group accounting in accordance with Swiss GAAP FER comprises comprehensive consolidated accounts including a profit and loss statement, balance sheet, cash flow statement, statement of changes in equity, as well as selected management statistics. Cross participations There are no cross participations. Limitation on the transferability of shares No share certificates are issued for Ypsomed Holding AG shares. Any shareholder may ask the company at any time to issue a confirmation regarding the registered shares entered in the Share Register in his/her name. Any person validly entered in the Share Register as an owner or beneficiary is considered to be a shareholder of the company. Any person acquiring registered shares or the beneficial entitlement to registered shares must apply in writing to be entered in the Share Register. Approval is given by the Board of Directors, which may delegate this power. The transfer is then entered in the Share Register. Applicants will be entered in the Share Register as shareholders with voting rights provided they expressly declare that they have ac- 78

79 Ypsomed Corporate Governance quired the registered shares in their own name and for their own account. If this declaration is not made, the Board of Directors may refuse the entry. The Board of Directors may draw up guidelines for the entry of nominees and may permit nominees to be entered in the Share Register with voting rights for shares up to a maximum of 5.0 of the nominal share capital. The Board of Directors may also allow nominees to be entered in the Share Register with voting rights for shares exceeding this limit if the nominees disclose the names, addresses, nationality, domicile and shareholdings of the natural persons and legal entities on whose account they hold 1.0 or more of the share capital. The 5.0 limit also applies to nominees who are related to one another through capital ownership or voting rights by virtue of a common management or otherwise. If a shareholder has been entered in the Share Register on the basis of incorrect information then the Board of Directors may, after having given the parties involved the right to be heard, remove from the Share Register the entry as a shareholder with voting rights and replace it instead with an entry as a shareholder without voting rights. In the reporting year, no applications for the entry of nominees were made. Restrictions on the transfer of registered shares may only be amended by a resolution passed at the General Meeting of Shareholders with a qualified majority of at least two-thirds of the votes represented and an absolute majority of the nominal share capital represented at the meeting. Convertible bonds and options There are no outstanding convertible bonds and no options on participation rights for Ypsomed Holding AG or any Group companies have been issued. The head office of the Ypsomed Group is in Burgdorf. Corporate Governance Compensation Report 79

80 Ypsomed Corporate Governance Board of Directors Dr. h. c. Willy Michel, Chairman of the Board of Directors of Ypsomed Holding AG. Until April 2003, Willy Michel was the Chairman of the Board of Directors and CEO of Disetronic Holding AG and since 2003 he has been Chairman of the Board of Directors of Ypsomed Holding AG. From August 2011 to June 2014, Willy Michel was Delegate of the Board of Directors and CEO of Ypsomed Holding AG and the Ypsomed Group. He founded Disetronic together with his brother in 1984 and they were together until his brother s departure from the business in 1995, whereupon Willy Michel became solely responsible for the development, production, distribution and sale of Disetronic products (until 1999). Within the scope of the sale of Disetronic to Roche Holding AG in 2003, Willy Michel bought back Disetronic s injection business, which has subsequently traded under the name Ypsomed. Prior to the founding of Disetronic, Willy Michel, who holds a professional qualification as a pharmaceutical consultant with a federal diploma, obtained a broad range of experience with several industrial and pharmaceutical companies in the fields of development, sales and marketing and he was the head of novo Nordisk Switzerland for six years (from 1978 until 1984). Willy Michel is the majority shareholder and Chairman of the Board of Directors of the non-listed company Finox AG, which is active in the development, manufacturing and sale of pharmaceuticals, Vice Chairman (Chairman from 2001 to March 2008) of the Board of Directors of BV Holding AG, an equity investment company which is listed on the BX Berne exchange and Chairman (since 2012, a member since 2007) of the Board of Directors of Adval Tech Holding AG, which is listed on SIX Swiss Exchange. In addition, he is the owner of a number of companies, including well-known firms involved in the fields of art, watch-making and gastronomy, and is a member of the Boards of Directors of various non-listed companies operating in different sectors from the Ypsomed Group and of no significance to its business activities. Willy Michel was declared the Master Entrepreneur of the Year for his overall business performance by Ernst & Young AG in 2005 and in 2006 he was awarded an honorary doctorate (Dr. h. c.) by the Economic and Social Science Faculty of the University of Bern. In 2014, the Swiss Association for Internal and Integrated Communication (Schweizerischer Verband für interne und integrierte Kommunikation SVIK) awarded Willy Michel the Communicator of the Year (COTY) Award Anton Kräuliger, Vice Chairman of the Board of Directors of Ypsomed Holding AG (member of the Board since 2007). After completing his studies at ETH Zurich with a degree in Mechanical Engineering, Anton Kräuliger joined the family business in 1971 and in 1978 took over the majority shareholding in Lyss AG (today Metalyss AG), a metal foundry and fittings factory. He developed this company into the leading fittings group on the Swiss market, the Similor Group. Within the scope of the sale of the fittings division to Madison Private Equity Holding AG in 2002 and 2005, Mr Kräuliger repurchased the Industrial Division, which today is combined into Metalyss AG once more. Between 1993 and 2004, Mr Kräuliger was a member of the Board of Directors of the listed Berner Kantonalbank BEKB I BCBE. He was also a member of the Board of Directors of Sécheron-Hasler Holding AG (2005 to 2013) and Chairman of the Board of Directors of Sécheron SA (2005 to 2014). He continues to be active as Chairman of the Board of Directors of Metalyss AG (since 1978). 80

81 Ypsomed Corporate Governance Prof. em. Dr. Norbert Thom, member of the Board of Directors of Ypsomed Holding AG since After studying economics and social sciences at the University of Cologne (Dr. rer. pol. and postdoctoral qualification in business management), Norbert Thom completed a full academic career spanning some 40 years spent at four universities (Cologne, Giessen, Fribourg, Bern) before his retirement in In Berne, Prof. Thom was founder and director of the Institute of Organisation and Human Resource Management (1991 to 2012) as well as holding several other offices at the university including Vice Rector for Finance and Planning. Prof. Thom has received awards in Switzerland and abroad for his academic achievements, including three honorary doctorates and one honorary professorship. Prof. Thom has maintained close links with the business world for many years. As well as consultancy work and membership of advisory boards, he has also been a member of several boards of non-listed companies operating in different sectors from the Ypsomed Group and of no significance to its business activities. Currently, in his capacity as professor emeritus, he retains ties to the University of Bern, most notably as a supervisor and examiner for its Executive Master of Health Administration programme. Since 2012, he has also been a member of the Supervisory Board of the REHAU Group (Muri bei Bern), a global plastics company. Gerhart Isler, member of the Board of Directors of Ypsomed Holding AG since After completing his studies in economics at the University of Zurich, Gerhart Isler joined the family newspaper publishing company Finanz und Wirtschaft AG as an editor in In 1980, he managed the company s editorial department in New York, was head of foreign correspondence from 1981 until 1986 and then held the position of manager of the publishing house until He then became the owner of Finanz und Wirtschaft, which enjoyed strong growth up to 2000 and became the country s most important financial newspaper. Mr Isler subsequently sold the publishing firm but continued as its editor until the end of From 2005 until the end of 2008, Mr Isler was a member of the Board of Directors of the listed company PubliGroupe and from 2008 to spring 2012 he was a member of the Board of Directors of the listed investment company New Value. In 2005, he was elected to the Board of Directors of Grand Casino Baden. Mr Isler has been a member of the Board of Trustees of the move>med Foundation, which is involved in the field of sports, since Furthermore, Mr Isler has been Mayor of Bergdietikon since early Board of Directors Name Nationality Year of birth Position Member since * Elected until General Meeting of Shareholders ** Dr. h. c. Willy Michel **** CH 1947 Chairman of the Board of Directors Anton Kräuliger *** CH 1946 Vice Chairman of the Board of Directors Prof. em. Dr. Norbert Thom *** DE / CH 1946 Member of the Board of Directors Gerhart Isler *** CH 1949 Member of the Board of Directors * First election including membership of the Board of Directors of Disetronic (until 2003). ** Following the enactment of the Minder initiative, all the members of the Board of Directors and the chairman had to stand for re-election at the 2014 Annual General Meeting of Shareholders. *** Non-executive member of the Board of Directors, member of the Compensation Committee: No operational activity for Ypsomed Holding AG and its subsidiaries in the current year and the three preceding business years. **** Until April 2003, Willy Michel was a member of the Executive Management of Disetronic Holding AG and from 2003 to August 2011 he was the non-executive Chairman of the Board of Directors of Ypsomed Holding AG. From August 2011 to June 2014, Willy Michel was Delegate of the Board of Directors and CEO of Ypsomed Holding AG and the Ypsomed Group. Since July 2014, he has been the non-executive Chairman of the Board of Directors of Ypsomed Holding AG. Corporate Governance Compensation Report 81

82 Ypsomed Corporate Governance Dr. h. c. Willy Michel Prof. em. Dr. Norbert Thom Anton Kräuliger Gerhart Isler 82

83 Ypsomed Corporate Governance Other activities and vested interests There are no other activities or vested interests apart from those already mentioned. Significant business relations With the exception of Willy Michel, there are no business relations between the individual members of the Board of Directors and Ypsomed Holding AG and its subsidiaries. There were the following business relations between Willy Michel and people closely related to him as well as to Ypsomed Holding AG and its subsidiaries in the reporting year. Executive loan Willy Michel made a loan to Ypsomed Holding AG, which he assigned to his company Techpharma Management AG. In the reporting year, an amortisation payment of CHF 5 million was made. As at 31 March 2015, a loan amount of CHF 15 million was still outstanding. Since 1 April 2010, the loan has borne interest at a rate based on the CHF 12-month LIBOR as published by the Swiss National Bank plus interest of 0.5, but at least 0.7, and it is adjusted in line with the prevailing rate as at the end of March and the end of September every year. The other key terms of the loan agreement in its currently valid version as at 31 March 2014 are: Ypsomed Holding AG may repay the loan in full or in part at any time. However, it is repayable by 31 March 2017 at the latest. Techpharma Management AG has renounced the possibility of any further amortisation until 31 March However, as of 1 April 2016 it may each year demand repayment of a maximum of CHF 5.0 million at three months notice, whereby the loan becomes due for repayment on 31 March There are no further executive loans. Rental contract Willy Michel (i.e. the company Techpharma Management AG which he controls) has been renting out the building on Buchmattstrasse in Burgdorf (Ypsomed Nord) to Ypsomed since 1 January The parties signed a rental contract set at an indexed market rent based on a rental assessment performed by an independent party. The rent was reduced on 1 January 2012 to CHF plus VAT (excluding additional costs). The rental contract can be terminated on 31 December 2019 conditional upon 24 months notice and after this on any month. The tenant has unlimited first right of refusal for purchasing the property for the entire rental period, but for a maximum of 25 years from the start of the rental. The rental contract stipulates that small and standard maintenance work on the building shall be paid by the tenant up to a maximum amount of 2.0 of the annual rent per calendar year. Major maintenance work and repairs necessary for safeguarding the asset value of the building are at the lessor s expense. On termination of the contract, the tenant will be reimbursed for the alterations carried out to the leased property with the lessor s consent in application of Swiss GAAP FER depreciation rates at the residual book value. The rental contract was discussed and approved by the Board of Directors, in whose opinion it is commensurate with a rental contract at normal market conditions. Corporate Governance Compensation Report 83

84 Ypsomed Corporate Governance Contractual relationship with Finox AG Finox AG (Finox), which is controlled by Willy Michel, develops and distributes pharmaceuticals, in particular fertility hormones as well as the associated pen systems for their administration. There has been a licencing agreement between Ypsomed Holding AG and two of its subsidiaries and Finox since December 2011, which replaced a former cooperation agreement. The licencing agreement regulates the rights to the technology and the industrial property rights regarding the pen systems. Ypsomed AG is granted a licence under this agreement for the use of two administering technologies outside of the specified areas of application. Finox AG may use the industrial property rights developed under the cooperation agreement on an exclusive basis within specified areas of application. In the reporting year, Finox also concluded two supply agreements with Ypsomed AG. Under the first agreement Ypsomed shall supply Finox with its Clickfine pen needles and under the second agreement, Ypsomed shall produce and supply Finox with the pen systems that are used for the administration of its fertility hormone. The agreements include clauses that are standard for such agreements. They were discussed and approved by the Board of Directors and, in the opinion of the Board, they represent a cooperative relationship that is usual in the market. Other contractual relationships Ypsomed AG and Adval Tech Holding AG signed an agreement on strategic cooperation in mould making in June The objective of this cooperative venture is to combine the respective strengths and core competencies of Ypsomed and Adval Tech and exploit them for the economically efficient manufacture of high-quality products. Willy Michel (i.e. his company Techpharma Management AG) and Ypsomed have concluded a framework service contract that can be terminated by either side at any time. This contract allows for Techpharma Management AG to provide occasional services to the Ypsomed Group (e.g. hotel and catering services) as well as selected management support services (including temporary personnel leasing) and, for its part, for the Ypsomed Group to offer occasional services to Techpharma Management AG (e.g. management and IT support, including temporary personnel leasing). The services are invoiced at normal market conditions. This contract was discussed and approved by the Board of Directors, in whose opinion it is a cooperation agreement at normal market conditions. The framework service contract was expanded insofar as Willy Michel performed the function of CEO of the company from August 2011 until June The amount of compensation remained unchanged at CHF Following the enactment of the Minder initiative and the corresponding adjustment of the framework service contract, compensation of the same amount (CHF ) was paid to Willy Michel for the first time as a fee for his chairmanship of the Board of Directors of Ypsomed AG for the business year ending 31 March For the business year ending 31 March 2015, Willy Michel has decided to take only half this amount, which means that the fee for his chairmanship of the Board of Directors of Ypsomed AG amounts to CHF for the reporting year. This amount, together with the compensation for the chairmanship of the Board of Directors of Ypsomed Holding AG, represents the full compensation for all consulting and management services provided by Willy Michel, including his activity as CEO in the reporting year up to 30 June Willy Michel has expressly waived the right to any more extensive compensation for his operating activities as CEO in the reporting year. Number of permissible mandates The Articles of Association of Ypsomed Holding AG have not yet been modified in accordance with the Ordinance against Excessive Compensation in Listed Stock Companies (VegüV). The Board of Directors shall correspondingly propose a comprehensive revision of the Articles of Association at the General Meeting of Shareholders of 1 July Pursuant to the recommendation, the members of the Board of Directors should not accept more than 15 additional mandates in legal entities and only a maximum of five of these may be with companies whose participation rights are listed on an exchange. A mandate is deemed to be any activity in the highest management or administrative bodies of other legal entities that are obliged by law to be entered into the commercial register or a comparable foreign register and that are not directly or indirectly controlled by Ypsomed Holding AG or control the company. Mandates with different legal entities that are under joint control are not deemed to be mandates in this sense. Mandates that a member 84

85 Ypsomed Corporate Governance of the Board of Directors accepts on the instructions of the company, as well as mandates in associations, organisations and legal entities that are of a charitable or public nature, or in foundations, trusts and pension schemes are not governed by the restriction on admissible mandates. Election and period of office The members of the Board of Directors and the chairman are elected on an annual basis. Re-election is possible. There is no restriction to the period of office. The members of the Board of Directors were each re-elected at the General Meeting of Shareholders in 2014 and Willy Michel was also re-elected as chairman. The results of the first election can be seen in the table on page 81. The Articles of Association of Ypsomed Holding AG have not yet been modified in accordance with the Ordinance against Excessive Compensation in Listed Stock Companies (VegüV). The Board of Directors shall correspondingly propose a comprehensive revision of the Articles of Association at the General Meeting of Shareholders of 1 July Pursuant to the recommendation, no rules that deviate from the statutory provisions regarding the appointment of the chairman, the members of the compensation committee and the independent proxy are anticipated. Internal organisation The Chairman of the Board of Directors is elected by the General Meeting of Shareholders. In addition, the Board of Directors constitutes itself. There is no advisory board. therefore can dispense with the creation of further committees, with the exception of the compensation committee. However, it can transfer individual powers to an executive committee. Compensation committee The General Meeting of Shareholders of 1 July 2014 elected Anton Kräuliger, Norbert Thom and Gerhart Isler as members of the compensation committee. The Board of Directors appoints the chairman of the compensation committee. Anton Kräuliger was appointed as chairman. The compensation committee supports the full Board of Directors in determining and reviewing the compensation principles, in drafting the compensation report and in preparing the proposals for the General Meeting of Shareholders with regard to the compensation of the Board of Directors and Executive Management. In addition, it draws up recommendations regarding the compensation principles, which are then decided on by the Board of Directors. Modus operandi of the Board of Directors and its committees As a rule, the Board of Directors meets four times a year. In these meetings, it considers the written report and the verbal comments of the CEO and deliberates and decides on the proposals of the CEO. The auditors participate in the May Board meeting, in which they provide information on the comprehensive report and on other questions. The Board of Directors meets on one additional occasion per year for two to three days within the context of a strategy meeting with Executive Management. Occasionally, the Board of Directors also passes resolutions by means of circular letter. The agendas for Division of duties in the Board of Directors Willy Michel, Chairman of the Board of Directors of Ypsomed Holding AG, chairs the General Meeting of Shareholders and the meetings of the Board of Directors. He is the link between the Board of Directors and the CEO, is in regular contact with the CEO, discusses individual transactions with the CEO, monitors the activities of the CEO and of Executive Management and represents the Board of Directors outside the company. Due to the size and composition of the Board of Directors, it can offer advice and make decisions on all questions as a full Board of Directors and it Corporate Governance Compensation Report 85

86 Ypsomed Corporate Governance the meetings are set by the chairman; any member as well as the CEO can request that an item should be added to the agenda. The members, the CEO and CFO as well as the officers responsible for internal audit and risk management generally receive the agenda and the necessary documentation for decision making seven to ten days before the meeting. Any member of the Board of Directors may request information about any aspect of the Group s affairs. Votes and elections within the Board of Directors are passed by majority decision. In the event of a tied vote, the chairman has the casting vote. Should the chairman be absent, the vice chairman shall have the casting vote. Votes may not be taken by proxy. The CEO and generally the CFO as well as the officers responsible for internal audit and risk management and, on a caseby-case basis, other members of Executive Management or employees with an advisory role are present at the meetings. In the reporting year, the Board of Directors met four times and passed several resolutions by circular letter. The lead auditor took part in the Board of Directors meeting in May In addition, the Board of Directors convened for two and a half days in March 2015 as part of the strategy meeting with Executive Management. All the members of the Board of Directors took part in all the Board of Directors meetings and in the General Meeting of Shareholders in July With the exception of Norbert Thom, all the members of the Board of Directors took part in the strategy meeting in March The compensation committee also meets during the strategy meeting and prior to or subsequent to the Board of Directors meeting in May. All the recommendations of the committee are dealt with in the standard Board of Directors meetings. In the reporting year, the compensation committee met once during the strategy meeting in order to decide on recommendations for the attention of the full Board of Directors. the strategic direction of the Ypsomed Group, sets its targets and priorities and allocates the resources for achieving the targets set. The Board of Directors defines the organisation of the Ypsomed Group, supervises business activities, controls the finance and accounting divisions and is responsible for appointments and dismissals as well as the supervision of the individuals entrusted with management duties. It is responsible for the Annual Report and the Compensation Report, issues the Code of Conduct, approves the budget and the mid-term planning for Executive Management and also monitors the business activities of the Group companies and it periodically assesses strategic, operational and financial risks. The Board of Directors approves individual business affairs. This includes, in particular, decisions on the purchase or sale of companies, properties and new technologies as well as the conclusion of contracts regarding strategic cooperations and contracts with other financial significance. In addition, the Board of Directors approves the financial statements and any amendments to or dissolution of employment contracts with members of Executive Management. The competences of the Board of Directors and of the other decision-makers within the Ypsomed Group are determined within the competence regulation. Otherwise, the Board of Directors has delegated responsibility for running the company to the CEO. Instruments for information and control with regard to Executive Management The Ypsomed Group s information and control tools, which are at the disposal of the Board of Directors, consist of a quarterly written management report (management review, quarterly reports), and a financial report. The Chairman of the Board of Di- Definition of competences The Board of Directors has by law certain non-transferable and irrevocable duties. It has the highest decision-making power in the company, under restriction of those matters on which shareholders must decide in accordance with the law. In particular, it defines company policy, the mission statement consisting of a mission and a vision and 86

87 Ypsomed Corporate Governance rectors and the CEO have direct access at all times to the management information system (MIS). The CEO and generally the CFO as well as the officers responsible for internal audit and risk management and, on a case-by-case basis, other members of Executive Management or employees with an advisory role, are present at the meetings. Furthermore, the full Board of Directors meets for two to three days within the context of a strategy meeting with Executive Management and other employees during which there is also a focus on risk management. Furthermore, the Board of Directors uses strategic planning documents as management tools for steering the company. Responsibility for risk management and monitoring rests with Executive Management, which reports on these matters periodically to the full Board of Directors, but at least once a year. In addition to these documents, further selected financial figures are available to Executive Management on a monthly basis. Risk assessment is based on a risk inventory that encompasses the relevant risk categories such as strategic risks, management risks, general risks in the operating business, legal risks, systemic risks, financial risks (including market, credit and liquidity risks) and event risks (including political, regulatory, fiscal and external risks). These risks are assessed with regard to probability of occurrence and impact. The Internal Auditing function, for which the Board of Directors is directly responsible, is commissioned with the constant expansion of the documented, internal control system. The auditing plans are based on a risk-oriented procedure that relates to business processes and are geared towards the following goals and tasks: reviewing the fulfilment of business goals and objectives; evaluation of the effectiveness of risk management, control and corporate management processes; optimisation of business processes; improvement of controls and processes with regard to the information systems; verification of controls and processes for accounting systems and financial reporting; confirmation and guarantee of authorised business transactions; safeguarding and protection of assets; support with regard to complying with legal and regulatory requirements; reviewing significant or special business cases and transactions. The Board of Directors can determine additional areas to be reviewed. The officer responsible for internal auditing provides the auditors several times per year with appropriate documentation on his/her internal auditing activities and coordinates these with the auditing to be carried out by the auditors within the framework of the interim and year-end audits. Corporate Governance Compensation Report 87

88 Ypsomed Corporate Governance Executive Management The CEO as well as Executive Management are responsible for the operational management of the Ypsomed Group within the scope of the guidelines laid down by the Board of Directors. Name Nationality Year of birth Position Employed at Ypsomed (i.e. before 2003 for Disetronic) since Simon Michel * CH 1977 CEO 2006 Dr. Beat Maurer CH 1958 Senior Vice President Legal & Intellectual Property, Secretary of the Board 1992 Hans Ulrich Lehmann ** CH 1966 Senior Vice President Technology 2000 Ulrike Bauer *** DE 1969 Senior Vice President M & S Delivery Systems 2001 Niklaus Ramseier CH 1963 Chief Financial Officer (CFO) 2002 Dr. Benjamin Reinmann **** CH 1969 Senior Vice President Operations 2002 Yvonne Müller CH 1969 Senior Vice President Human Resources 2003 Dr. Eberhard Bauer *** DE 1960 Senior Vice President M & S Diabetes Care 2012 * CEO since July Previously Senior Vice President Marketing & Sales ** Since April 2015, Hans Ulrich Lehmann has been managing the Operations area on an ad interim basis *** Member of Executive Management since July 2014 **** Left the Ypsomed Group at the end of March 2015 Simon Michel Chief Executive Officer, CEO Dr. Beat Maurer Senior Vice President Legal & Intellectual Property 88

89 Ypsomed Corporate Governance Hans Ulrich Lehmann Senior Vice President Technology Ulrike Bauer Senior Vice President M & S Delivery Systems Niklaus Ramseier Chief Financial Officer (CFO) Corporate Governance Compensation Report Dr. Benjamin Reinmann Senior Vice President Operations Yvonne Müller Senior Vice President Human Resources Dr. Eberhard Bauer Senior Vice President M & S Diabetes Care 89