Rood Testhouse International N.V. Annual Report 2005 ISO/IEC DAT-P-025/92-03 ISO/TS 16949: TS2/28847

Transcription

1 Rood Testhouse International N.V. Annual Report 2005 ISO/IEC DAT-P-025/92-03 ISO/TS 16949: TS2/28847

2 Rood Technology certifies the integrity of customers applications Rood Testhouse International N.V. Burgemeester van Roijensingel 13 NL-8011 CT Zwolle Correspondence address: P.O. Box 1042 NL-8001 BA Zwolle Telephone: +31 (0) Fax: +31 (0) Website: Chamber of Commerce number

3 Contents Page Company profile 4 Mission, objectives and strategy 6 Risk management 10 Group structure and management 12 Shareholder information 14 Key figures 16 Report of the supervisory board 17 Corporate governance 19 Report of the board of management General 25 Market developments and market position 26 Strategic development 26 Organisation and personnel 26 Sustainability 27 IFRS 27 Sales and result 28 Dividend proposal 29 Investments and financing 29 Research and development 29 Business unit Test & End-of-line Services 30 Business unit Test Engineering 30 Business unit Failure & Technology Analysis 31 Business unit Qualification 32 Developments in Dresden 32 Developments in China 33 Events after balance sheet date 33 Outlook Rood Technology Annual Report 2005

4 Annual Accounts Consolidated IFRS balance sheet 35 2 Consolidated IFRS income statement 36 3 Consolidated IFRS cash flow statement 37 4 Notes to the consolidated IFRS financial statement 38 5 Subsidiaries of Rood Testhouse International N.V Statements of reconciliation on the first adoption of IFRS 61 7 Dutch GAAP annual report 68 8 Dutch GAAP company balance sheet 71 9 Dutch GAAP company income statement Notes to the Dutch GAAP company financial statements Other information 77 Addresses and business management 79 Rood Technology Annual Report

5 Company profile General Rood Testhouse International N.V. (Rood Technology) is listed on the Officiële Markt of the Euronext Amsterdam stock exchange (Euronext N.V.). The organisation consists of three companies with branches in the Netherlands and Germany. increasingly procuring their components from Asia. At year-end 2005 the company had 97 employees. In the 2005 financial year a sales of EUR 8,168,000 was realised with a net result of EUR 518,000. The core activities of Test & Related Services consist of development, production and service provision to the semiconductor industry, such as: Testing semiconductors (microchips), which represents the majority of sales; Supplying End-of-line manufacture and service; Developing test software for semiconductors; Qualifying semiconductors; Qualifying production processes; Analysing failures in products; Facilitating the purchasing, testing and acceptance of semiconductors from Asia (China) for sale in Europe. In addition to the above the intensive development of know how is a key activity of the company, giving Rood Technology a unique position in the market. Our strong sales organisation in combination our expert test engineers enables customers to gain maximum benefit from the company s development work. The majority of its customers are active in the automotive sector (over 35%), the telecoms sector (over 29%) and industry/medical (over 16%). Rood Technology increasingly facilitates the purchasing, testing and acceptance of semiconductors from Asia (China) for sales in Europe. Thus Rood Technology exploits the trend among European manufacturers of History In 1976 the foundation was laid for Rood Testhouse by the trading company C.N. Rood B.V. in Rijswijk, the Netherlands, an electronic testing equipment trading company. The activities gradually expanded to performing testing work for third parties and to writing the necessary software. As its activities began to deviate more and more from the activities of the parent company due to the increase of semiconductor testing work, including the manufacture of testing equipment, it was decided in 1979 to hive off Rood Testhouse. Meanwhile, the activities had moved to Heerde, the Netherlands. At the end of 2003 the supplying and manufacture of testing equipment was disposed of, as a result of which in 2004 the lowest sales ever in testing equipment was realised. Currently, Rood Technology focuses on its core activity: semiconductor testing and related services. In 2005 a testing facility was established in Dresden, Germany, and 4 Rood Technology Annual Report 2005

6 preparations were made for manufacture in China. Market position Rood Technology mostly has European based customers. The high level of knowhow in the organisation allows Rood Technology to focus on more complex products, of which mixed signal test is an exponent. Rood Technology is one of the largest independent test houses currently operating in the European market. With its Dresden branch, Rood is the only independent testhouse with a presence in Silicon Saxony (the cluster of semiconductor companies in the rapidly developing Dresden area). Rood Technology Annual Report

7 Mission, objectives and strategy Mission Rood Technology aims to: Positioning itself as an innovative testhouse in Europe; Developing into an important player in the semiconductor supply chain from Asia (China) to Europe. This requires Rood Technology to: Realise annual growth above the annual semiconductor market; Be able to guarantee the financial structure and cash flow necessary for continuity and growth; To have available enthusiastic and motivated employees who are maximally qualified to perform the duties assigned to them. Objectives for 2006 Also taking into account current market expectations Net sales of between EUR 9.2 and 10.5 million; Recruiting partners for the Re-use of Test blocks project (see page 29, Research and Development); A positive operating result that best matches the growth strategies in both Europe and Asia; Improving solvency (2005: 35.6%). Long-term objectives In 2004 the objective was defined of a doubling of sales within 5 years for Test & Related Services based on an average annual market growth of 8%; An average double digit (10% - 20%) growth of sales for Test & Related Services in the next three years; Generating 20% to 40% of sales in new markets (such as Silicon Saxony and China) as per Strategy In 2004 Rood Technology defined a fourstage strategy: Reshaping stage: Securing growth of sales in tandem with better quality orders; Innovation stage: Focusing more emphatically on research and development; Expansion stage: Expansion in growth regions and in products that grow strongly, as well as in more complex products; Diversification stage: Supporting the supply chain from Asia (China) to Europe in conjunction with the establishment of a test facility in China. In the reshaping stage the focus is on: Better quality orders; Growth in engineering, qualifying and analysis; Better cost control; Reducing risks associated with market downswings; Further improving the balance sheet position. Many customers use Rood Technology as an emergency back-up system in case of lack of capacity, which means that when the market stabilises or decreases, those orders dry up. In order to make itself less vulnerable to this market characteristics Rood aims to do all the testing work for certain products, or a significant amount of it, so as to be less sensitive to market fluctuations. A higher rate of use of the equipment can thus also be achieved. A disadvantage, however, is that this causes margins to fall. Rood Technology aims to play an increasingly prominent role in the areas of developing test programmes, qualifying and failure analyses of 6 Rood Technology Annual Report 2005

8 semiconductors and/or processes. Across Europe there is great demand for such activities. Rood aims for stronger growth in this area over testing work pure and simple. High quality personnel is essential and Rood Technology has implemented a staff training programme. By making costs more transparent, it is easier to control them and to clarify responsibilities. Managers have been given more integral responsibilities than before. The risks of decreasing markets can be limited inter alia by working with more flexible staff. Further developments in this area are required. Rood Technology s solvency (35.6%) is modest for a company in the semiconductor market. In 2004 a convertible bond was issued to increase guarantee equity. Rood Technology is constantly looking for opportunities to strengthen the balance sheet, paying maximum attention to shareholders interests. In the innovation stage the focus is on: Structuring the development of testing software; Standardising testing software; Tester independent software; Shortening the time-to-market ; Replicability of test programme. This structure allows software for identical functions to be re-used in different application areas, making the testing software development independent of the testers. Rood Technology has done successful research in this area under the name ROT (Re-use of Test blocks) over the past years, which is recognised by some leading European semiconductor manufacturers. Rood has a prominent position in this market, and as a result is having talks with a number of large European semiconductor companies concerning further joint development. Rood aims to retain its pivotal position in this area and will endeavour to continue further innovative initiatives. These innovations provide cost price reductions while at the same time enhancing Rood Technology s growth of sales. In the expansion stage Rood Technology focuses on: Growth markets, i.e. growth regions as well as high-growth products; The more complex test domains, such as mixed signal. Various publications show that the European semiconductor market is no longer growing; the Asian market, however, is. Also, the expectation is that in Europe the semiconductor industry will further concentrate in Silicon Saxony. Therefore Rood Technology focuses on Silicon Saxony, and within Asia on China. The move to China is partly based on the strategy of some of its customers, who also fully or partly concentrate on China. Rood Technology s strategy is to grow as rapidly as possible in Silicon Saxony, where a test facility has been established, and then in China. Both branches must become profitable shortly after inception. Within the semiconductor industry there are shifts at product level (from through hole technologies to array products). Rood Technology is increasingly focusing on the most sophisticated technologies ( array products), but also on the other growth sectors, such as Micro-Electro-Mechanical Systems (MEMS), Automotive and Radio Frequency (RF). In the diversification stage Rood Technology focuses mainly on new markets. The supply chain from Asia to the West is expected to increase in the next few years. Rood Technology Annual Report

9 Manufacturers in Europe procure their components, on the condition of equal quality, increasingly from Asia (China). Rood Technology strives to facilitate the companies who wish to use these low-cost markets. Preferably by finding supplying manufacturers in China, by qualifying products and processes, by testing quality, by administering the supply chain and by securing delivery. This enables Rood s customers to market their products competitively. Critical success factors In the context of its mission, Rood Technology identifies the following success factors: Flexibility and dedication of its employees; Innovative power of the organisation; Quality and delivery time of products and services; Marketing quality; Balanced approach of stakeholders; Financial performance. Flexibility and dedication of employees The semiconductor market is volatile and demand can fluctuate strongly. Therefore, employees must show a high degree of flexibility and dedication. Rood Technology is constantly stimulating and motivating its employees. Innovative power of the organisation In this strongly fluctuating market, characterised by advancing techniques and technologies, creativity is key. Rood Technology can only stand out in the market and remain interesting to large parties by offering new ideas and solutions in the area of semiconductor testing and related services. Quality and delivery time of products and services Semiconductors increasingly demand a zero failure level, meaning zero failures in a million products. As a testhouse, Rood Technology must deliver the highest level of quality. The organisation is fully focused on this and strives to achieve it by checking its own processes intensively and by improving them (continuous improvement). Marketing quality The high level of investment associated with testing requires high marketing quality. Knowing the concerns of the market and anticipating on them adequately is a condition for Rood Technology s success. Expansion of commercial capacity will become visible in Balanced approach of stakeholders In the past few years Rood Technology has been through a serious decline from which it is slowly emerging due to the efforts of its employees and informal investors. Its employees have taken a pay cut on top of their increased efforts. Informal investors, led by TIIN, have provided risk bearing capital in a risky environment. There is interaction between the stakeholders mentioned, which demands a permanent balance; after all, imbalance can hurt long-term continuity. For this reason, business activities must lead to: Becoming an attractive investment for shareholders as expressed in realistic share price development; Offering employees challenging work with appropriate working conditions; Maintaining and improving the quality of employees environment. 8 Rood Technology Annual Report 2005

10 Financial performance Rood Technology strives for positive financial results. This is what makes the company attractive to shareholders, releasing funds that enable it to continue to invest in growth. Rood Technology Annual Report

11 Risk management General Rood Technology s policy is aimed at growth in conjunction with comparatively decreasing market risks. Operational, market-related and financial aspects play an increasingly important role in this. Operational Sales The sale in Test & End-of-line Services makes up more than 80% of total sales. Rood Technology has a good name in this sector, and as such has built up a bond of trust with its major customers, in particular those in the automotive industry. Demand from the automotive industry is relatively constant, which lowers risk. Even though in a majority of cases Rood Technology has long-term contracts with its major customers, these contracts offer no hard sales guarantees. Risks are reduced to an important degree by intensive communication with the company s customers on anticipated volumes. Net sales (x 1.000) Net sales by Busines Unit 200 BU 1 BU 2 BU 3 BU 4 BU1 = Test & End-of-line Services BU2 = Qualification BU3 = Failure Analysis BU4 = Test Engineering Costs Due to globalisation, price levels are increasingly under pressure, which means that continuous attention is needed to controlling costs, cost reductions and maximising the rate of use of the testing equipment. Salaries and the associated pension commitments also have our highest attention. Qualified personnel In view of the technical sophistication of Rood s work, the company is highly dependent on qualified personnel. Since such personnel is not easily found in the labour market, Rood Technology has opted for its own training projects in order to limit the risks associated with the unavailability of qualified personnel. Market-related Market Rood Technology operates in a strongly cyclical market. A market which is flat in Europe, but is growing in Asia (China). Within Europe further concentration is taking place in Silicon Saxony. Rood chooses, also from the point of view of risk management, to be active in these growth sectors since this best guarantees continuity. Various customers use Rood Technology as an option to quickly generate additional sales, which makes the company vulnerable to market fluctuations. For this reason Rood increasingly focuses on customers who wish to outsource testing activities on a structural basis. This means that the company will continue to float with the movements of the markets, but will generate structural sales, even during a downswing, for those customers who have made such a strategic choice. For Rood the ultimate desired and strived for form of outsourcing is for customers to outsource all their testing activities for certain projects to Rood Technology. 10 Rood Technology Annual Report 2005

12 In the other fast-growing sectors such as Failure analysis, and Qualification, the risk of downswings is also present. An active personnel policy, striving for a balance between fixed and flexible employees, will limit Rood Technology s risks. Competition In Europe Rood Technology is experiencing competition from various countries. Rood strives to minimise its risks by operating as the only independent testhouse in the Silicon Saxony region. In this, Rood Technology is supported by the Silicon Saxony umbrella organisation. In addition, Rood Technology tries to reduce risks by offering quality and by being innovative, so that doors remain open to the company. Internal risk management and control system General In order to optimise financial control, a new IT system will be introduced in The various companies, as well as the business units within them, will operate with the same system. Central control will take place at holding company level from the Nördlingen office. This system will enable us to better monitor financial results per responsible sector and per manager. Strategic plans The plans will be turned into budgets which will be compared periodically with the actual state of affairs. Reporting takes place on a monthly basis, and can trigger corrective measures. Financial Currencies and interest So far, Rood Technology has mostly sold its products and services in Europe, making it relatively independent of currency fluctuations. Rood will continue to watch this aspect actively, certainly in view of the international activities the company is developing. Since Rood has many short-term loans, the company pays a comparatively high interest. In the future Rood intends to make more use of long-term loans with lower interest rates. Various initiatives have been incepted in this area. Insurance Rood Technology has adequate liability insurance for production errors, which is especially important in the automotive industry. Internal evaluations and external audits Annually a planning is made for internal evaluations and external audits. This scheme is carried out by Rood Technology employees and external auditors. Both the internal evaluations and the external audits set in motion corrective measures, while the management letters resulting from the external audits will be discussed by the supervisory board (audit committee). Audit committee The audit committee consists of the supervisory board, which evaluates the internal and external reporting as supervisor. The supervisory board meets at least four times per year. Letter of representation The board of management of Rood Technology annually signs a detailed statement regarding financial reports and internal control. Rood Technology Annual Report

13 Group structure and management Rood Testhouse International N.V. Zwolle Netherlands Rood Technology Service GmbH Noerdlingen Germany Rood Technology Dresden GmbH Dresden Germany Rood Technology International B.V. Zwolle Netherlands Test & Related Services Test Engineering Contracting Test Engineering Test & Related Services (Future) Rood Technology Deutschland Beteiligungs GmbH Noerdlingen Germany Rood Technology Deutschland GmbH + Co Noerdlingen Germany Research & Development (R & D) Test & Related Services Test Engineering Qualification Failure Analyses 12 Rood Technology Annual Report 2005

14 Corporate management team Board of management Ir. Philip M.G. Nijenhuis (1945), Dutch Chief Executive Officer since September 2004 Term of office ends 2008 Previous positions: senior management and director positions with BESI, DTS, Schlumberger, AT Kearney, ITT/Alcatel, Scania and Wavin Members of corporate management team Dr. Anton Kotz, Dipl.Ing (1954), German Chief Technical Officer Member of management team since 1996 Joined Rood in 1983 Wilma H. Gomarus, AA (1967), Dutch Chief Financial Officer, company secretary and member of management team since May 2005 Previous positions: (senior) management positions with PricewaterhouseCoopers Left to right: Wilma H. Gomarus, Philip M.G. Nijenhuis, Dr. Anton Kotz. Supervisory board Ir. Cees W.M. Koot (1936), Dutch Chairman of the board since 1998 Reappointed in 2005 Term of office ends in 2009 Previous positions: senior management and director positions with Philips Components, Communications and Semiconductors Ing.Gerrit Jan O. Wanrooij (1944), Dutch Member of the board since 2004 Term of office ends in 2006 Current position: Director TIIN (Investment Company) Previous positions: senior manager and director positions with Texas Instruments, Intel and Signetics Also a member of the supervisory boards of: Travel Service International B.V.; Holding Iwork B.V.; Micronit Microfluidics B.V. Rood Technology Annual Report

15 Shareholder information Financial agenda March 1, 2006 Publication annual figures 2005 March 13, 2006 Press and analysts meeting March 27, 2006 General meeting of shareholders July 17, 2006 Publication sales figures half year 2006 September 7, 2006 Publication half year figures 2006 January 15, 2006 Publication sales figures full year 2006 Act on Disclosure of Major Holdings The reports in the context of the Act on Disclosure of Major Holdings (WMZ), as known to Rood Technology as per December 31, 2005, were the following: resources to finance growth, and strives to increase the market value of the share through such growth. Consequently, it will be proposed to the shareholders to add the entire 2005 profit to the reserve. Real ICN Part Rood 6.00% Rules to prevent insider trading Rood Technology conforms to the Rules on the Notification and Regulation of Securities Transactions (Wte 1995, Securities Transactions Supervision Act 1995). A wide circle of employees and consultants is bound by signing the declaration to abide by the Rules as meant in article 46d Wte The board of management and the supervisory board have further conformed to the WMZ 1996, as amended on September 1, The Authority Financial Markets (AFM) supervises compliance with this law. Development of the number of shares in 2005 Position as at January 1: 13,577,570 Position as at December 31: 19,866,570. As at December 31, 2005 the company held 4100 of its own shares. Share price development and market capitalisation Rood Testhouse International N.V. in 2005 Dividend Rood Technology so far has not defined a dividend policy. The company has not done so since its financial position did not allow it. Rood s board of management prefers to allow the company to grow over the next few years and to continue to improve its financial health. Growth requires capital, and the management prefers as much as possible to employ the company s own Investor relations Rood Technology is well aware of the importance of active and open communication with its stakeholders. 14 Rood Technology Annual Report 2005

16 Having focused exclusively on the survival of the company for a number of years, Rood Technology now intends to pursue a more active investor relations policy, which will include meetings with the press, analysts and investors. On Rood s website, more attention will be given to communicating with various target groups. relationship with shareholders, SNS Securities N.V. in Amsterdam was appointed as liquidity provider as per January 16, General meeting of shareholders 2005 The minutes of the meeting can be found on the company s website. Liquidity provider In order to support the trade in the Rood Technology share and to optimise the Rood Technology Annual Report

17 Key Figures (in EUR x 1,000 unless stated otherwise) IFRS 2005 IFRS 2004 Dutch GAAP 2003 Dutch GAAP 2002 Dutch GAAP 2001 Result Net sales 8,168 7,809 8,040 9,095 15,182 Net sales Core Business 8,168 7,229 6,018 n.a n.a. Gross margin 7,470 6,924 6,413 7,591 12,789 Operating result ,116-5,428-2,324 Cash flow from operating activities 1,597 1, ,695 1,631 Net result ,794-2,114 Capital Total assets 8,630 7,653 8,609 9,294 11,496 Group equity 3,075 2,543 3, ,390 Group equity as a percentage of total assets Net debt as a percentage of equity Assets Tangible fixed assets 6,597 6,014 6,521 6,926 7,634 Investments 1, , Depreciation of tangible fixed assets 822 1,325 1,338 2,927 4,261 Data per share Capital and reserves Operating results Cash flow Net result Share price: year-end Share price: highest Share price: lowest Number of ordinary shares in issue At year-end (x 1,000) 19,867 13,578 8,389 7,053 7,053 Number of employees At year-end Average Sales (total) / employee Sales (core-business) / employee n.a. n.a. 16 Rood Technology Annual Report 2005

18 Report of the supervisory board We are pleased to present to shareholders the 2005 annual report, which was prepared by the board of management in line with article 26 of the Articles of Association of the company. The financial statements were audited and approved by Mazars Paardekooper Hoffman N.V., Amsterdam. We propose to our shareholders to adopt these financial statements in the general meeting of shareholders on March 27, Furthermore, we propose that they endorse the conduct of affairs of the board of management and the supervision exercised by this supervisory board. The present composition of the board is: Mr C.W.M. Koot, chairman Mr G.J.O.Wanrooij, member In line with the schedule of retirement Mr Wanrooij will step down from the board, but will be available to serve another term. The reappointment of Mr Wanrooij will therefore be on the agenda of the general meeting of shareholders on March 27, As Mr Wanrooij was involved in the financial restructuring during the year 2003, he could be viewed as being not independent. In the view of the board the best practice provision III.2.1 of the Dutch corporate governance code was and will be adhered to. Furthermore the board proposes to maintain a maximum of two board members. During the year 2005, the supervisory board met five times with both members present. In the meetings, which were attended by the board of management, the following topics were reviewed and discussed extensively: the business update, the overall strategy including operational and financial targets (including ratios), the financial position, the organisation, investments, including research and development, the structure of the company and corporate governance issues (audit, remuneration and selection/appointment issues). The supervisory board met without the board of management to review and discuss the performance of the supervisory board itself, the interaction and the relationship with the board of management and the performance of the members of the board of management individually and jointly. The supervisory board gives high priority to good corporate governance practice. As fact that the board consists of only two members, no separate audit, remuneration and selection/appointment committees were formed. These topics were discussed in the meetings held jointly with the board of management. With regards to audit issues the following topics were discussed: adoption of internal risk management and control systems, financial control systems, internal audits (in particular the performance and the role of the internal administration), the follow-up of recommendations and comments of the internal administration and external auditor, the role and responsibilities of the external auditor (including the remuneration of the auditor), the review of the financial statements and the annual budget, tax planning policy, the transition to International Financial Reporting Standards (IFRS), financing, and the application of ICT. The following topics were discussed concerning remuneration issues: the salary of CEO Mr Ph.M.G. Nijenhuis. No changes were proposed, as his remuneration was fixed for a period of four years (disclosed at Rood Technology Annual Report

19 last year s general meeting of shareholders). For the other members of the board of management, the company aims for market level salaries. The following topics were discussed with regard to selection and appointment issues: The size and the composition of the supervisory board and the policy of the board of management concerning selection and appointment procedures of the higher management tier. The supervisory board recognizes that the first year of the four-year strategic plan, which was laid down in 2004, has been successfully completed. Important improvements were achieved in the net result, the balance sheet structure, net debt and in the market position. We would like to thank the board of management and all the staff of the company for their excellent and enthusiastic support during Amsterdam, March 1, 2006 The supervisory board C.W.M. Koot, chairman G.J.O. Wanrooij, member 18 Rood Technology Annual Report 2005

20 Corporate governance Rood Testhouse International N.V. (further referred to as Rood Technology) considers the application of the Dutch Code of Corporate governance (further referred to as the Code) in the light of the company s scale. Therefore Rood Technology has decided on a trend-follower position. The system of the Code will be followed in this chapter. The numbers used correspond with the numbers in the Code. I. Enforcement of and application of the Code Rood Technology follows all principles of the Code and applies almost all best practices. Deviations from the Code will be explained in the remainder of the chapter. II. The board of management 1.7 Tasks and working methods Our CEO has a four-year contract. In compliance with article 12 of the Preamble of the Code, this term shall also apply to any new board members to be appointed. The CEO shall resign at the general meeting of shareholders request, provided that it concerns a broadly supported wish, rather than the request of one dominant shareholder. Such a resignation shall be considered as the company s notice of termination of the CEO s contract. The supervisory board supervises the policy of the board of management, as well as the general courses of the corporate affairs and business, and provides advice to the board of management. The board of management must keep the supervisory board informed, consult with the supervisory board on important matters and submit certain important decisions to the supervisory board for its prior approval. In the course of the years it has become tradition that the supervisory board and the board of management determine Rood Technology s operational and financial objectives and targets of the company in consultation. This also applies to the strategy and the framework conditions to be implemented. The custom of including the highlights in the annual report will be continued. The company has an internal risk management and control system, which includes (a) risk analysis of the operational and financial objectives of the company, (b) a code of ethics for principal executives and financial officers and a code of conduct applicable to the board of management and employees, which is published on the company s website ( (c) guidelines for the layout of financial reports and the procedures to be followed when drawing up the reports, (d) a system of disclosure controls. The risk management and control system proved to function adequately and effectively. This was achieved by extra focus on the operating and control system. The organisation was reinforced by a full-time CFO, which is the basis from which we are working towards further reinforcement. By the end of 2005, further organisational adjustments had been implemented, including selection of 'empowered' management. As a result of this decision, each business unit manager is now accountable for the performance and management of his/her business unit and shall report accordingly in the future. The need for optimisation of the organisation was discussed with the Rood Technology Annual Report

21 supervisory board on several occasions last year. document must be provided within 14 days after the relevant request. With reference to the section on Risk Management, sales levels and results are highly sensitive to upswings and downswings in the market. However, customer base structure also plays an important role. Employees of Rood Technology have the opportunity to report suspected irregularities within the company without jeopardising their legal position. Rood Technology s whistleblower policy enables employees to report any suspected irregularities of a general, operational or financial nature within the company and its subsidiaries without having to fear for their legal position. Insofar as the suspected irregularities do not involve Rood Technology s managing director(s) under the Articles of Association, any such reports should be addressed to the chairman of Rood Technology s board of management. However, if the report concerns actions or lack of action by Rood Technology s managing director(s) under the Articles of Association, the whistleblower is to communicate this to the chairman of Rood Technology s supervisory board. Before an employee may invoke that his/her legal position has been jeopardised as a consequence of a report as described above, the chairman of the board of management (in the case of a report not involving suspicions against Rood Technology s managing director(s) under the Articles of Association) or the chairman of the supervisory board (in the case of a report involving suspicions against Rood Technology s managing director(s) under the Articles of Association) must issue an assessment in writing. This assessment Members of Rood Technology s board of management shall not hold the post of board member in other listed companies. The contract with board members stipulates that accepting other posts in a business environment is subject to approval by Rood Technology s supervisory board. Insofar as this was applicable, the company complied with this stipulation Remuneration Options on shares are one of the company s remuneration components. Granting these options is dependent on achieving targets (which are based on a 4-year strategic plan of the company), as well as the market situation in general. An overview of the options granted can be found in the annual accounts of the company. Regarding holdings and transactions of shares by board members, other than those issued by the own company, the supervisory board has decided on a deviation from the Code. It is not permitted for board members to hold direct or indirect interests amounting to more than 5% in other listed companies or companies in the semiconductor industry, unless the supervisory board has granted specific permission. Furthermore, board members must report changes in share holdings in other listed or semiconductor companies to the chairman of the supervisory board. The existing employment contract with the CEO includes a clause regarding compensation in case of termination of employment. This redundancy payment amounts to a maximum of one annual salary. No personal loans or guarantees were provided to the CEO. 20 Rood Technology Annual Report 2005

22 The remuneration of the CEO consists of a fixed salary plus a variable part that will be paid out in share options. The granting of options as mentioned depends on the achievement of targets set by the supervisory board and are a consequence of the four-year plan of the company. The achievement of the targets by the CEO will be evaluated every six months and new targets will be set, taking significant changes in circumstances such as market developments into account. The targets for the CEO in 2005 are defined and evaluated by the supervisory board. The contract length of the CEO is four years. The employment may be terminated by giving six months notice in writing to the end of each calendar month. With regard to provision II.2.7 Rood Technology applies the Code. Rood Technology has no formal pension scheme concerning the CEO. However, the pension contribution makes up 10% of the salary of the CEO. Furthermore there are no early retirement clauses for the CEO Conflicting interests According to article 22 of Rood Technology s Articles of Association, the company shall be represented by the chairman of the supervisory board in the event of a conflict of interest with a managing director. The company complies with all stipulations of the Code regarding refraining from competing with the company, accepting or requesting gifts for the managing director and/or his/her immediate family, providing unjustifiable benefits charged to the company, the managing director and/or his/her immediate family using business opportunities that are intended for the company, and the obligation to report a potential conflict of interest to the chairman of the supervisory board. Furthermore, the managing director will remain aloof from the discussion about the event in which he/she has a conflict of interest. Moreover, all transactions concerning a conflict of interest have to be approved by the supervisory board and will be reported in the annual report. III. The supervisory board 1.9 Task and working methods Some years ago the supervisory board prepared a set of rules for its operation, which are available for shareholders and stakeholders inspection at the company offices. These include regulations for the intercourse with the board of management. The Articles of Association of the company provide regulations regarding the intercourse with the shareholders. The report of the supervisory board, which is included in this annual report, shall include specific details regarding the members of the supervisory board as required by the Code Independence Rood Technology complies with the Code, which recommends that the supervisory board should not include more than one non-independent member Expertise and composition The profile of the supervisory board is available on Rood Technology s website. In view of the scale of the company, Rood Technology does not comply with the Code s provision regarding having a financial expert on the supervisory board. However, the financial knowledge of the members of the supervisory board in general is adequate. All new members of the supervisory board shall be required to attend an introduction programme which addresses general Rood Technology Annual Report

23 financial and legal issues, the financial reporting of the company, specific aspects of the company s activities and the responsibilities of a supervisor. Current supervisory board members will annually evaluate their need of training. The company shall play a facilitating role in this. supervisory board and the supervisor will remain aloof from the discussion on the topic, on which the supervisor has a conflict of interest. Moreover, all transactions concerning a conflict of interest have to be approved by the supervisory board and will be reported in the annual report. Rood Technology s Articles of Association stipulate that a member of the supervisory board shall be appointed for a maximum term of four years, and be reappointed for a maximum of three times. The retirement roster is included in the report of the supervisory board Role of the chairman of the supervisory board and the company secretary Rood Technology applies these stipulations of the Code. The company appointed a company secretary, who assures the usage of certain procedures and assures that the company operates in accordance with legal obligations and in compliance with the Articles of Association Composition and the role of three core committees of the supervisory board The company does not intend to extend the supervisory board, which currently consists of two members. If this should change in the future, the relevant committees (audit committee, remuneration committee and selection and appointment committee) shall be installed. The company shall, in that event, apply the relevant stipulations of the Code regarding this topic. As long as this is not the case, the responsibilities of the core committees shall be carried out by the entire supervisory board Conflict of interest A supervisor who has a conflict of interest as described in provision III.6.1 of the Code reports this to the chairman of the If relevant, the company shall comply with the provision 6.4 concerning transactions between the company and natural persons or legal entities holding 10% or more of the company s share capital. Regulations regarding dealing with (potentially) conflicting interests of CEOs, managing directors, board members, including supervisory board members, and the external auditor shall be added under the regulations of the supervisory board. The company shares the Committee s opinion regarding the tasks and authority of a delegated member of the supervisory board Remuneration The remuneration of the supervisory board shall be approved by the general meeting of shareholders (see also article 24 sub 4 of the Articles of Association). Regarding the remuneration of the supervisory board, shares and/or options on shares as part of the remuneration will not be granted. The regulations of the supervisory board, to be published on the company website, shall be extended with the relevant articles of the Code. In contrast to the Code, it has been determined that a member of the supervisory board is not permitted to hold direct or indirect interests amounting to more than 5% in the share capital of other listed companies or companies in the semiconductor industry. Furthermore, 22 Rood Technology Annual Report 2005

24 supervisors must report changes in possession of shares in other listed or semiconductor companies to the chairman of the supervisory board Certifications of shares No share certificates have been issued; therefore this part of the Code is not applicable to Rood Technology. Rood Technology has not provided personal loans or guarantees to members of the supervisory board. IV. The (general meeting of) shareholders 1.7 Scope of authority The general meeting of shareholders has authority regarding the suspension or removal of managing and supervisory directors, unless there is a majority of votes, according to the Articles of Association of Rood Technology. The company complies with the Code regarding decision-making of the general meeting of shareholders on the following items: The voting rights on finance-preferential shares; The public announcement and motivation of the board s point of view with regard to a published, serious private bid on a company division or participation in the company, with a value exceeding the limit as stated in the new Article 2:107a BW (Dutch Civil Code), first sub, point c; The allocation and dividend policy, as well as the proposal regarding paying out dividends and giving discharge to CEOs, managing directors and members of the supervisory board as separate items on the agenda of the general meeting of shareholders; The setting of a registration date for exercising voting and attendance rights Providing information / logistics of the general meeting of shareholders The best-practice provisions are in accordance with the methods as practiced within the company, aiming to inform shareholders and other parties on the financial market simultaneously and equally regarding issues that may affect the share price. The company however, will, based on assessment of costs and benefits, not spend money on technology aimed at attending meetings remotely. The company shall continue to provide the general meeting of shareholders with all relevant information required for properly exercising its rights and authorities, unless a substantial company interest prevents it from sharing certain information. In accordance with the Code, Rood Technology publishes presentations to analysts on its website after the event. If necessary, the company shall request to suspend trade in Rood Technology shares during such presentations. Rood Technology will publish or make available all information pursuant to corporate law and securities legislation. In accordance with best-practice provision 3.7, the company will inform the general meeting of shareholders by circular letter about all facts and circumstances relevant for approval, delegation or authorisation by the general meeting of shareholders. The circular letter will be published on the website of the company. Furthermore, the company shall, at first request, make the minutes of any general Rood Technology Annual Report

25 meeting of shareholders available to all shareholders at the latest three months after the date of the relevant meeting. Shareholders for their part have three months to submit reactions to the minutes. Subsequently, the minutes shall be approved by the chairman of the meeting and the person who prepared the minutes, in accordance with article 31, sub 1 of Rood Technology s Articles of Association. The company does not have a protective construction against take-overs. The reason for this is that in the case of a relatively small company such as Rood Technology it would be unfavourable neither for the shareholders nor for the operational entity itself to be part of a bigger framework in the semiconductor industry Responsibilities of institutional investors Currently, Rood Technology does not have any institutional investors. If this should change in the future, Rood Technology will request the institutional investors to apply the best-practices provisions of the Code. However, Rood Technology does not regard application of the best-practice provisions as a requirement, since the company does not want to restrict any potential institutional investors. V. The audit of financial reporting and the position of the internal audit function and the external auditor 1.3 Financial reporting Rood Technology s supervisory board monitors the reporting and publication of the annual report, the annual accounts and other financial information that needs to be gathered according to internal procedures. The board of management carries the responsibility for the internal procedures that assure the adequacy, accuracy and reliability of external financial reporting Roles, appointment, remuneration and assessment of the external auditor s performance The external auditor shall attend the general meeting of shareholders in order to be available for questioning regarding the accuracy of the annual accounts. The company s board of management reports annually to the supervisory board regarding developments in the relationship with the external auditor. According to the company s Articles of Association (article 25 sub 2), the general meeting of shareholders has the authority to appoint the external auditor. 3.1 Internal audit function Rood Technology does not have an internal auditor Relation and communication with the external auditor and the departments of the company The external auditor is present during meetings of the supervisory board where the external auditor s report and the annual accounts are discussed. Furthermore, the external auditor receives all financial information he/she requires for performing his/her tasks. The external auditor submits an annual management letter to the board of management and the supervisory board, which is discussed during the combined board of management and supervisory board meeting. 24 Rood Technology Annual Report 2005

26 Report of the board of management General In the 2005 reporting year, Rood Technology showed a positive development of sales and of the result. While the market decreased during the first half of 2005 and grew during the second, net sales of Test & Related Services increased by 13% to EUR 8,186,000. The net result improved in 2005 to EUR 518,000 (2004: EUR -35,000). This result includes a deferred tax liability of EUR 428,000 resulting from an offsettable loss. Without the tax claim just mentioned, the net result rose to EUR 91,000 (2004: EUR ). The discontinuation of the equipment branch in 2003 and the reshaping of the organisation which was started in the past year and is still in full swing, are to create the conditions for continuous positive growth over the next few years. The reporting year was characterised by the following projects and developments: Growth in sales in Test & End-of-line Services of 9%, while during the reporting year the margin for part of the sales fell substantially, inter alia since we accepted, for tactical reasons, orders for the Asian market which we carried out in the relatively expensive Germany (sales approx. EUR 599,000); A disappointing development of sales in Test Engineering. In this business unit preparations have been and are being made for further development; Explosive growth in the business unit Failure Analysis of 324%, a sector which has been prepared further for ongoing growth; Growth in the business unit Qualification of 9%. During the reporting year this business unit was developed further for even stronger growth in the coming year; The opening and further preparation of a branch in Silicon Saxony (Dresden), as well as the appointment of a qualified manager for this sector; Development of the Asian (Chinese) activities, partly through the appointment of a qualified sales manager; Attracting major manufacturers in the semiconductor market as customers; Generating significant interest in the ROT project (Re-use of Test blocks) among major parties in the semiconductor industry. The second half of the year under review showed further improvement of the operating result compared to the first half of Sales increased substantially, with personnel and other costs not increasing proportionally. It should be noted that the developments in Silicon Saxony and China generated start-up costs, while not yet contributing comparably to net sales. In 2004 Rood Technology formulated a strategic plan aimed at growth, balance sheet improvement and risk control. During the 2006 reporting year the reshaping of the company, the branches in Silicon Saxony and China and diversification must be developed further. Therefore Rood Technology focuses on: Starting up the Dresden branch; Developing business in relation to Asia (China); Improving the rate of use of our equipment (equipment load) at Nördlingen; Rood Technology Annual Report