Sto AG 2009 Annual Report

Transcription

1 Sto AG 2009 Annual Report

2 Sto at a glance Sto Group Changes in % 09/08 Sales revenues % Germany % Non-Germany % Capital spending (excluding financial assets) % Depreciation/amortisation (excluding financial assets) % EBITDA % EBIT % EBT % EAT % per ordinary share ( ) per preference share ( ) Cash flow from operating activities % per share ( ) Total assets % Equity % in % of total assets Employees (year end) 3,813 3,866 3,913 4,056 4,155 4, % of which Germany 2,243 2,231 2,221 2,286 2,317 2, % of which non-germany 1,570 1,635 1,692 1,770 1,838 1, % Sto AG Changes in % 09/08 Sales revenues % Export ratio (%) Capital spending on property, plant and equipment % in financial assets % Depreciation/amortisation % Result of ordinary activities % Annual net profit % Cash flow from operating activities % Dividend/bonus per ordinary share ( ) / / / /2.06 per preference share ( ) / / / /2.06 Total assets % Equity % in % of total assets Employees (year end) 1,927 1,918 1,897 1,946 1,960 1, % (Figures in EUR million) Rounding of amounts may lead to minor deviations in totals and in the calculation of percentages in this report.

3 Sto AG 2009 Annual Report Foreword 2 Report of the Supervisory Board 4 Corporate Governance Report 8 Management Report Sto Group (IFRS) 12 Sto Share 40 Sustainability and Corporate Social Responsibility 44 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) 49 Audit certificate, Sto Group 117 Responsibility statement by the legal representatives of the Sto Group 118 Calendar of events, publisher's details, photographic credits 120 Picture caption for title page: The new insulation material plant in Lauingen produces top-quality polyurethane foam. This enables Sto to reinforce its core field of activity: facade insulation.

4 Sto AG Foreword Foreword Jochen Stotmeister, Chairman of the Board of Directors Dear Shareholders, Sto succeeded in asserting itself in 2009 in very difficult conditions, once again delivering compelling proof of its strength. While we were also impacted by the global recession, resulting in a decline in Group sales by 2.3 %, to EUR million, this shortfall turned out to be considerably less substantial than we had feared at the beginning of the year on account of the global economic and financial markets crisis. Essentially, there were two reasons for this: First of all, business with composite thermal insulation systems in countries that are particularly ecology-minded, where the deployment of such products is financially subsidised, turned out better than expected. Second, the usual slowdown in business in the fourth quarter turned out to be less severe than in previous years due to milder weather conditions. Thanks to these positive factors, it was possible to offset the partly significant shortfalls sustained in the USA, the United Kingdom, Spain as well as northern and eastern Europe to a considerable degree. The solid turnover volume simultaneously served as a basis for a satisfactory earnings trend. Another factor was that in the wake of the economic and financial markets crisis, at the beginning of 2009, we launched additional cost-cutting measures and implemented these consistently even when initial economic stabilisation tendencies began to materialise. As a result, we were able to achieve impressive savings last year. For this reason, the Group's operating result (EBIT) declined only moderately, by 1.1 %, to EUR 82.3 million. Owing to improved net financial income and a lower tax rate, net profit for the year was up by 7.3 %, to EUR 55.6 million. The financial and asset position also reflected positive trends: cash inflows from operating activities increased by 29.4 %, to EUR million, the volume of cash and cash equivalents once again exceeded our financial liabilities at the end of December, and the equity ratio in the consolidated balance sheet came to 56.4 % (previous year: 53 %). On this solid basis, at the Annual General Meeting on 15 June 2010, the Board of Directors and Supervisory Board proposed to leave the dividend payout at the previous year's level. Accordingly, our shareholders will receive an unchanged dividend of EUR 0.31 per preference share and EUR 0.25 per ordinary share plus an unchanged bonus of EUR 2.06 in each case. Notwithstanding the current influential factors that played a part in 2009, the success achieved during the last financial year also serves to confirm our strategy. We do not allow ourselves to be influenced by short-term considerations; our corporate development is based on a long-term perspective on our part. We are reaping today what we sowed as early as the end of the 1980s by consistently taking account of ecological and social aspects as part of our corporate policy. This approach is reflected in our corporate mission statement "Building with conscience", in which we commit ourselves to designing the world in which we live in line with environmental requirements and our needs as human beings. When we drew up this mission statement, over 20 years ago, we were one of the first companies in the industry to take account of sustainability in its strategy. Today this topic is of immense social and economic relevance. In 2009 we continued to develop our 2

5 Foreword Sto AG mission statement and adjusted it to the general conditions and fundamentals that have also undergone rapid change in the construction industry: the vision and mission were updated and the success factors specific to Sto were defined. The new structure of values represents a final and binding framework for action in the future and provides guidance for responsible corporate governance. Accordingly, the revised mission statement simultaneously represents an initial key step to prepare Sto AG in good time for the forthcoming generation change in the company's management. We plan to entrench and further concentrate on the topic of responsible corporate governance within the Group. This is why we joined the "Global Compact" economic initiative under the auspices of the United Nations at the beginning of The companies involved in this worldwide pact have made a public and verifiable commitment to respect and protect human rights, to meet international labour standards, to fight corruption, and to implement forward-looking, comprehensive environmental protection policies. In order to document the activities we are already carrying out in these fields, we prepared a Sustainability Report for the first time, which was was included in the current Annual Report. Responsible corporate governance and sustainability are integral elements of our long-term oriented strategy, which we plan to continue to implement consistently in the future. Moreover, key elements are intensive research and development activities, the reinforcement of the Sto Group's expertise, the ongoing internationalisation and the extension of the second distribution channel, dealerships, via which we plan increasingly to sell products clearly delineated from our core field of activity. We are convinced of our ability to continue our earnings-oriented growth course on the basis of this balanced forward strategy in the forthcoming years and simultaneously do justice to our social responsibility. Moreover, the operational and financial foundations of Sto AG are strong enough also to overcome cyclical lows without sustaining damage. For the financial year 2010, we anticipate consolidated sales to rise by roughly 2 % to about EUR 946 million, which means we would be reaching the level of fiscal 2008 before the global economic crisis. We anticipate renewed growth especially in Germany, France and the Asian markets. In northern Europe, we assume that we will see a moderate economic recovery, from which our subsidiaries are likely to benefit as well. In eastern Europe, sales of Sto products should be roughly at the previous year's level. In contrast, a further decline in turnover is anticipated in North America. Of course these forecasts are subject to substantial uncertainties as the economic upturn still remains fairly shaky. Climatic effects cannot be forecast either. Nevertheless, we are confident of our ability to reach our defined turnover target. Notwithstanding the increase in turnover, we will not reach the 2009 level of Group EBIT in the year This is due in particular to the disproportionate rise in material and personnel costs in relation to the volume of business. One reason for this is the enlargement of our Group workforce, a strategy adopted by us to adjust capacities in the individual countries to the higher volume of business expected. To some extent, we are catching up with measures that had been postponed in 2009 in view of the economic crisis. Moreover, the pressure on prices will also continue to grow in our industry. The exemplary commitment and immense know-how of our employees make a decisive contribution to Sto's successful performance. On behalf of the Board of Directors, I would like to thank all our employees and executive staff for their outstanding service and dedication during the last financial year. Sincerely, Jochen Stotmeister Chairman of the Board of Directors 3

6 Sto AG Report of the Supervisory Board Report of the Supervisory Board Members of the Supervisory Board Fritz Stotmeister, Öhningen Honorary Chairman Dr Max-Burkhard Zwosta, Wittnau, auditor and tax consultant Chairman (pictured) Helmut Göbeke-Teichert*, Marbach, Trade Union Secretary of the IG BCE Deputy Chairman Helmut Hilzinger, Willstätt, Managing Shareholder of Hilzinger GmbH Mag. Dr Heimo Scheuch, Vienna/Austria, CEO of Wienerberger AG Peter Zürn, Westernhausen, member of the Management of the Würth Group Prof. Dr-Ing. Klaus Sedlbauer, Stuttgart, Director Fraunhofer Institute Charles Stettler, Stäfa/Switzerland, member of the Board of Directors of Zürcher Kantonalbank Holger Michel*, Burgdorf, Trade Union Secretary of the IG BCE Melitta Menstell-Cooper*, Stühlingen, Chairperson of the Central Works Council and Chairperson of the Works Council Weizen at Sto AG Erhard Röhl*, Wiesbaden, Technical Coordinator of Sto AG Werner Trunz*, Donaueschingen, Head of Organisation and IT of the Sto Group Klaus Eigenstetter*, Bonndorf, Personnel Officer at AG * Employee Representatives 4

7 Report of the Supervisory Board Sto AG Dear Shareholders, In 2009, a year that was overshadowed by the international financial markets and economic crisis, the performance of Sto AG was gratifyingly stable. Above all, the successful business trend in defiance of difficult fundamentals is the result of a forward-looking and sustained business strategy. However, a key contribution was made by Sto's workforce, again overcoming their daily challenges with immense commitment and dedication. The Supervisory Board wishes to express its gratitude to all employees and executive staff for their exemplary service. Work of the Supervisory Board The Supervisory Board of Sto AG again carried out its tasks assigned by statute law and the articles of association with immense dedication in The new and efficient structures we had introduced in 2008 in line with the recommendations of the German Corporate Governance Code proved to be highly successful in practice. In particular, the specialised committees that dealt with complex factual issues outside the actual Supervisory Board meetings and processed these for the full Board proved to be beneficial. When appointing committee members we are able to draw on the vast knowledge of the members of the Supervisory Board, who are all proven experts in their respective fields. The Supervisory Board again dealt at length and intensively with the Sto Group s situation in 2009, continually assisted the Board of Directors in an advisory capacity and monitored the Company s management. The Board of Directors briefed the Supervisory Board on a regular, timely and comprehensive basis on corporate planning, operational business trends, the Group's situation including the risk position and risk management as well as on compliance at Sto. Departures of business trends from defined plans and targets were explained to us in detail, and the company s further strategic development and orientation were coordinated with us. All major issues affecting the development of the company were discussed openly and in great detail during Supervisory Board meetings. The required information was provided to the Supervisory Board mainly in the form of comprehensive written monthly reports. For business transactions requiring the approval of the Supervisory Board, the Board of Directors made available the documentation specific to the issues at hand, which provided the basis for detailed discussion and the subsequent decision-making process. During all decisionmaking processes, the Supervisory Board and the Board of Directors observed the principles of corporate governance at all times. The Chairman of the Supervisory Board was also in regular contact with the members of the Board of Directors outside the official meetings of the Supervisory Board. Amongst other things, he attended several strategy and other meetings of the Board of Directors. Moreover, in numerous face-to-face meetings and telephone calls attention was focused above all on the strategy, business development and risk management of the Sto Group. Key issues dealt with during meetings of the Supervisory Board During fiscal 2009, the Supervisory Board held four regular meetings, on 23 April, 29 July, 22 October and 3 December. Amongst the topics discussed on a regular basis as part of these meetings were the current business situation, the effectiveness of the risk management and internal control systems, and strategic issues. This body was always represented by all members, except for one instance in which a member of the Supervisory Board was excused. In addition to these regular agenda items, the first meeting of the year, held on 23 April 2009, also dealt with the audit and confirmation of the annual financial statements for fiscal

8 Sto AG Report of the Supervisory Board of Sto AG, and the audit and approval of the consolidated annual financial statements of the Sto Group. Furthermore, we dealt at length with the risk report, which was briefly explained and declared to be complete by the auditor. The Supervisory Board concurred with the auditor s assessment. Next, the Board of Directors presented the planning activities for the financial year 2009, to which we also agreed without any reservations. On 29 July 2009, the Board of Directors explained possible measures to develop the market in Central and South America. In addition, the Supervisory Board obtained information on the current status of the project intended to clarify the requirements for the introduction of a central Group treasury. On 22 October 2009 the Supervisory Board dealt with the consequences arising from the amendments to the German Corporate Governance Code and entry into force of the Accounting Law Modernisation Act (Bilanzrechtsmodernisierungsgesetz BilMoG). In this connection, amongst other things, we decided to adopt additional measures to monitor Group-wide risk management activities. In addition, the Supervisory Board affirmed the importance of responsible corporate government and its support for the objectives of the Code. Departures from the Code arising from the specific requirements of an SME have been defined in the Declaration of Conformity pursuant to Section 161 of the German Companies Act (AktG). This document is permanently available for viewing at the Sto Internet web site A key agenda item on 3 December 2009 was the renewal of the contract with Mr Gerd Stotmeister as Chief Technical Officer and his appointment as Deputy Chairman, effective 1 January Beyond that, the Supervisory Board dealt with the topic of innovations at Sto. There was a general consensus that the need to secure technology leadership represents a key prerequisite for the extension of the Group's market position. Accordingly, the R&D Division will continue to play a strong role at Sto in future. Work of the committees The Supervisory Board of Sto set up the following committees: The Finance Committee uses monthly figures in a regular and detailed analysis of emerging trends in key financials, particularly sales revenue and earnings. Capital investment projects are also pre-audited. In 2009, the Finance Committee met according to schedule each day preceding the official Supervisory Board meetings. The Audit Committee meeting was held on 22 April During this meeting, the annual financial statements for Sto AG and the Sto Group for fiscal 2008 were discussed with representatives of the auditor and subjected to a preliminary review. The Personnel Committee dealt with contractual matters relevant to the Board of Directors. The committee met twice during Topics were the appropriateness of remuneration paid to the Board of Directors after entry into force of BilMoG and the contract renewal for Mr Gerd Stotmeister. It was not necessary to convene the Arbitration Committee pursuant to Section 27, paragraph 3 of Germany s Co-determination Act (MitbestG). Audit of the annual financial statements 2009 for the Sto Group and Sto AG At the Annual General Meeting of 16 June 2009, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, were appointed as auditors for fiscal Ernst & Young GmbH assured the Supervisory Board in writing that there were no circumstances that could impair their independence as auditors of the annual financial statements. We subsequently commissioned Ernst & Young GmbH to audit the annual financial statements of Sto AG and the 6

9 Report of the Supervisory Board Sto AG Sto Group, the management reports and the dependent companies report of the Board of Directors pursuant to Section 312 of the German Companies Act (AktG). The annual financial statements and the management report of Sto AG prepared by the Board of Directors on the basis of the accounting regulations of the HGB (German Commercial Code), the consolidated annual financial statements and the management report of the Sto Group prepared on the basis of International Accounting Standards, and the dependent company report of the Board of Directors in accordance with article 312 of the German Companies Act (AktG) were audited by Ernst & Young GmbH and were each given an unqualified audit certificate. The management reports provide an accurate depiction of the business and financial situation of Sto AG and of the Sto Group. The opportunities and risks of future development are described accurately. The audit by Ernst & Young GmbH was performed pursuant to article 317 of the German Commercial Code [HGB], in accordance with the generally accepted auditing principles defined by the German Institute of Chartered Accountants (IDW). Moreover, the auditor confirmed the effectiveness of the risk management and internal control system. The annual financial statements of Sto AG and the Sto Group, the management reports, the dependent company report of the Board of Directors and the audit reports prepared by Ernst & Young GmbH were distributed to all the members of the Supervisory Board in good time and discussed in detail in the presence of the auditors at the financial meeting of the Supervisory Board on 21 April On the basis of our own examination of the annual financial statements, the management reports and the dependent company report of Sto AG, we approve the audit report and raise no objections to it. The auditors from Ernst & Young GmbH issued the dependent company report with the following audit certificate: Following our audit, which we carried out in conformity with professional standards, and subsequent assessment, we confirm that the factual information in the report is correct. The Supervisory Board approved the annual financial statements prepared by the Board of Directors; accordingly the financial statements of Sto AG have been confirmed. We agreed to the proposal by the Board of Directors to table a motion at the Annual General Meeting to pay out an unchanged dividend. Accordingly, subject to approval at the Annual General Meeting the shareholders will once again be paid a dividend of EUR 0.31 per preference share and EUR 0.25 per ordinary share plus an unchanged bonus of EUR 2.06 per preference and ordinary share, respectively. General economic conditions will remain difficult in fiscal 2010 and again pose substantial challenges for Sto AG. The Supervisory Board would like to wish all employees and executive staff every success in dealing with the tasks that lie ahead. Dr Max-Burkhard Zwosta Chairman d 7

10 Sto AG Corporate Governance Report Corporate Governance Report Responsible corporate governance The Board of Directors and the Supervisory Board of Sto AG are committed to responsible, transparent corporate governance with a long-term view. Adherence to legal and ethical standards, a sound financial policy and a strategy oriented towards achieving sustainability have all been integral parts of our corporate philosophy ever since Sto was established. Corporate Governance at Sto is based on conscientious compliance with statutory rules and regulations, the Company's articles of association, the rules of procedure for the Board of Directors and Supervisory Board as well as the German Corporate Governance Code ("the Code"). Below is our report on corporate governance at Sto in accordance with No of the Corporate Governance Code. This report is simultaneously an element of the statement on corporate governance that can be found on Sto's web site under under "Investor Relations". Sto implements most of the recommendations in the Code. Departures from the Code occur only in relation to matters that conflict with the special nature of medium-sized family-run companies. In these instances, we have adopted individual rules suited to our particular structure. Departures from the recommendations of the Code in the version of 18 June 2009 and the relevant reasons for doing so are explained in the declaration of compliance in accordance with Section 161 of the German Companies Act. The current version is available for download from the Internet. This also applies to legacy statements. Shareholders and annual general meeting At the end of 2009, Sto AG's share capital amounted to EUR million. The share capital was divided up into 4.32 million registered common shares and million preferential bearer shares. Each ordinary share is entitled to one vote at the Annual General Meeting. Preferential shares do not have voting rights but take priority for the purpose of profit distribution and are entitled to a higher dividend. There are no shares with multiple or preferential voting rights. An ordinary general meeting is held once each year. The Board of Directors of Sto AG ensures timely dispatch of all reports and records required by statute law for the Annual General Meeting, including the agenda. These documents are simultaneously made easily accessible on the Company's web site. At the Annual General Meeting, the Board of Directors presents the annual financial statements of the previous financial and comments on key events. Every shareholder is entitled to attend the Annual General Meeting, to address the meeting in relation to items on the agenda and to ask questions about specific topics and to propose motions. Corporate governance/management and control structure Sto AG s head office is located in the southern German town of Stühlingen, which means we are subject to German law. This provides the mandatory legal framework to which our Corporate Governance activities must conform. In particular, the German Companies Act and the Co-determination Act must be adhered to, as well as the numerous regulations of the capital market law. Sto has a two-tiered governance and control structure, which consists of a Board of three Directors and a 12-member Supervisory Board. Accordingly, the management of the Company and the process of monitoring it are strictly separated. Both bodies observe the rules of proper corporate governance at all times. The Board of Directors and the Supervisory Board cooperate closely for the benefit of the company. The Board of Directors of Sto AG, whose current composition is shown on page 114, primarily takes care of the management of the 8

11 Corporate Governance Report Sto AG company and is responsible for its strategic orientation. The Board of Directors coordinates its strategy with the Supervisory Board. In addition, the Board of Directors takes suitable precautions to ensure compliance with statutory rules and regulations and internal corporate guidelines within the Sto Group. The Board's functions also include the preparation of the annual financial statements for Sto AG and for the Sto Group, and the establishment and ongoing development of the risk management system. Detailed information about the risk situation is provided on pages 30 to 35 of this annual report. The members of the Board of Directors are committed to working for the benefit of the Company, and they are subject to a comprehensive no-competition clause. For details of the remuneration of the members of the Board of Directors, we refer to pages 15 and 113 of this annual report, and to the declaration of conformance in accordance with Section 161 of the German Companies Act. Sto's Supervisory Board is composed of representatives of the shareholders and representatives of the workforce in equal numbers, in accordance with the German Co-Determination Act. The current members are listed on pages 114 and 115 of the Supervisory Board report. The key tasks of the Supervisory Board are to monitor and advise the Board of Directors. The Supervisory Board becomes involved in any decisions that are of fundamental importance for Sto AG from the outset. It also defines the obligations for the Board of Directors to notify and report to the Supervisory Board. At Sto, this body is briefed by the Board of Directors on a regular, timely and comprehensive basis about all relevant issues relating to planning, business development, the risk situation and risk management. Departures in the performance of the business from defined plans are discussed. On the basis of the findings of the auditor, the Supervisory Board conducts an inspection of its own of the annual financial statements of the Sto Group and Sto AG. Moreover, the half-year financial report and the interim reports are discussed with the Chairman of the Supervisory Board within the first and second half of the year prior to their publication; the Chairman then coordinates his activities with the other members of the Supervisory Board. The body s various duties are coordinated by the Chairman of the Supervisory Board, who also maintains close contact with the Board of Directors for the purpose of consulting on Sto s business strategy, business performance and risk management on a regular basis. For details of the remuneration of the members of the Supervisory Board, we refer to pages 15 and 113 of this annual report, and to the declaration of conformity in accordance with Section of the German Companies Act. The Supervisory Board regularly investigates ways of enhancing the efficiency of its work procedures. A suitable means for enhancing efficiency are suitably qualified committees. In the periods leading up to the Supervisory Board meetings, these committees deal with complex issues and process the findings in appropriate form for the full Supervisory Board meetings. The Chairperson of the relevant committee constantly provides the Supervisory Board with reports on the committee's work. A Finance, Personnel and Audit Committee were set up at Sto. The need for a Nomination Committee has been dispensed with for the time being since the present members of the Supervisory Board were elected for a term of five years at the Annual General Meeting of 2007 and no immediate fresh election is scheduled to be held. As soon as necessary, Sto's Supervisory Board will set up a Nomination Committee. Transparency To ensure a high degree of transparency, Sto AG provides shareholders, financial analysts, the media and the general public regularly and 9

12 Sto AG Corporate Governance Report promptly with information about the business situation and key events within the company. To this end, we use numerous ways and means, such as the annual and half-year financial reports as well as interim announcements within the first and second half-year. In addition, current topics are dealt with in press releases. All documents are published in parallel on the publication date on the Internet under the URL in the field of Investor Relations. By doing this, we ensure that all target groups are informed at the same time, and that the news is disseminated across the board. As of 2007, these Sto reports can also be retrieved via the electronic companies register. As soon as any insider information directly affecting Sto emerges, we report the information immediately in accordance with the relevant legal provisions, i.e. even outside our regular reporting cycle. All key dates for publications and functions are listed in the calendar of events, which is announced well in advance. The current calendar of financial events, valid from the end of March 2010, is reproduced in this annual report. The current version of the calendar can always be viewed on the Internet. According to Section 15a of the Securities Trading Act (WpHG), members of management and supervisory boards of publicly listed companies have a duty of notification. This means that all executive and non-executive directors at Sto AG must disclose any private transactions involving Sto preferential shares (directors dealings) to the Federal Supervisory Authority for Financial Services (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and to Sto AG within five working days. No directors dealings were reported in fiscal on these Standards is set out in the notes to this annual report. The annual financial statements of the parent company Sto AG are prepared in accordance with the German Commercial Code (HGB). Both the consolidated financial statements and those of Sto AG are audited by an independent auditing company elected at the Annual General Meeting following a proposal by the Supervisory Board. The nomination proposal is preceded by an independence check in order to ensure that any conflicts of interest that might give rise to doubts concerning the neutrality of the auditor can be precluded from the outset. The auditing company responsible for Sto has issued an appropriate statement. The auditor responsible takes part in the deliberations of the Supervisory Board concerning the annual financial statements and the consolidated financial statements and reports on the key findings of the audit during these accounting meetings. Accounting and auditing of financial statements The Sto Group's consolidated financial statements are based on the International Financial Reporting Standards (IFRS). Detailed information 10

13 Corporate Governance Report Sto AG 11

14 Sto AG Management Report for the Sto Group (IFRS) Management Report for the Sto Group (IFRS) Members of the Board of Directors Jochen Stotmeister, Grafenhausen (centre) Chairman of the Board of Directors, responsible for Marketing and Distribution, Central Services and Personnel Gerd Stotmeister, Allensbach (right) Vice-Chairman of the Board of Directors since , Technology Director, responsible for Process Engineering, Innovation and Logistics Hans-Dieter Schumacher, Tuttlingen (left) Finance Director, responsible for Finance, Controlling, Organisation and Information Technology Fiscal 2009 at a glance Sto Group turnover down by 2.3 %, to EUR million Strong performance of domestic business; foreign operations poor Group operating result (EBIT) amounts to EUR 82.3 million, down by 1.1 % year-on-year Proposed dividend: unchanged dividend and bonus Cash flow from current business activities up by 29.4 %, to reach EUR million Group workforce more or less stable at end-2009, consisting of 4,145 employees Outlook for the year 2010: slight increase in Group turnover and decline in earnings anticipated 12

15 Management Report for the Sto Group (IFRS) Sto AG Business and general conditions Business activity and Group structure Sto specialising in facades With consolidated sales revenues of around EUR 925 million and a workforce of over 4,140 employees, the Sto Group is a highly innovative world leader in the manufacture of products and systems for building facades. Its core business includes external wall insulation systems (EWIS), a segment in which the Group occupies a leading position. Sto produces these composite systems both for facades and for interiors, with a particular focus on ceilings. The principal distinguishing characteristic between the various EWIS options on offer is the type of insulating material used. Materials employed in these applications include mineral wool and polystyrene foam. The "StoTherm Classic" system, for example, consists of the following carefully coordinated component materials: Adhesive, insulation made of polystyrene, reinforcing material, reinforcing mesh and top coat. The Facade Systems business unit focuses on external wall insulation systems, rainscreen cladding systems and facade elements. In 2009, this key product group accounted for 49.7 % of Group turnover. The range of products made by our company also includes paints and plasters for interior and exterior applications, as well as flooring materials and concrete repair products. The professional Sto brand Sto has positioned itself in the market as a supplier of quality products, systems and complementary services incorporating a high level of technological expertise. The range is therefore primarily targeted at professional users such as tradespeople, architects and building development companies. These target groups are served by means of local direct distribution systems, which in Germany still the most important individual market covers virtually the entire country. Sto also offers a comprehensive range of perfectly coordinated services designed to provide our customers with the broadest possible scope for individual design solutions. Successful implementation of this business model has allowed Sto to establish itself as one of the best-known product brands in the industry. Growth driven by internationalisation and innovation Sto has enjoyed decades of virtually continual growth. Our firm focus on internationalisation has played an instrumental role here. Around the world new regional markets have been developed one after the other, simultaneously reducing our dependence on the domestic business. Sto is currently operating in 26 countries, through a network of 29 wholly-owned subsidiaries and manufacturing plants. In addition, we are in supplier relationships with distribution partners in many other countries. Business is currently focused in particular on Europe and the USA. The ongoing development of markets in Asia and China in particular is being pursued with vigour. A further plus for Sto is our great capacity for innovation. The development and successful marketing of numerous groundbreaking innovations has earned our company an international reputation as a pacesetter in facade technology a standing which is confirmed by numerous awards. To consolidate this leading position while also developing new growth markets, research and development are considered core strategic activities at Sto. Further information is to be found in the section "Research and development" Bonding 2 Insulation 3 Reinforcing plaster 4 Reinforcing mesh 5 Top coat The organically bound StoTherm Classic system has a successful track record extending back over more than 40 years. The system is distinguished by its ability to be produced in a wide range of intelligent detailed solutions that can be installed quickly and easily by professional tradesmen. 13

16 Sto AG Management Report for the Sto Group (IFRS) Professional painting, decorating and plastering firms are Sto's most important market partners. They are supplied at local level via a direct distribution system. Clearly defined corporate structure The parent company of the Group is Sto AG, headquartered in Stühlingen. In addition to functioning as the Group s holding company, it is also responsible for German domestic business involving paints, plasters and insulation systems. StoCretec GmbH, located in Kriftel, is responsible for floor coatings and concrete repair products, and StoVerotec GmbH, located in Lauingen, deals in decorative profiles, acoustic and rainscreen cladding systems. The company Südwest Lacke + Farben GmbH & Co. KG, Böhl-Iggelheim, is the Group s specialist for lacquers and varnishes. Foreign business is largely handled by national companies operating independently. A list of all subsidiaries of Sto AG is reproduced in the Notes to this annual report, in Annex 1. Applications in both renovation and construction work Sto products are employed both in the construction of new buildings and in building renovation work. The comparative weighting of these two market segments in individual regions depends on the characteristics specific to each country. In Eastern Europe, for example, construction of new buildings is of much greater importance than are renovations, due to the pent-up demand in this region. In the more mature western economies, both segments contribute roughly equal shares to the volume of the construction sector. Generally speaking, there is a strong correlation between the construction of new buildings and economic cycles, and sales fluctuate in line with prevailing economic conditions. In contrast, demand in the renovation and restoration segment has been relatively steady in recent decades, regardless of economic cycles. The contribution of the renovations business to Sto's consolidated sales volume is well above 50 %. Business management and control system Sto AG is headed by a three-man Board of Directors whose remit includes defining the Group strategy and managing Sto AG, the subsidiaries and other corporate units by setting strategic and operational targets. The Board of Directors also employs key financial figures which are determined and applied uniformly throughout the Group for management, planning and controlling purposes. For the purposes of corporate management Sto makes use of a system that strengthens decentralised entrepreneurial responsibility among local employees and simultaneously boosts transparency within the Group of companies. An essential element of this system is the standardised reporting facility which provides for the uniform continuous recording, consolidation and analysis of business figures worldwide. The key operating ratios we employ are earnings before interest and taxes (EBIT), earnings before tax (EBT), cash flow from current operations and return on equity. In addition to internal ratios, we also monitor key external early indicators as a means 14

17 Management Report for the Sto Group (IFRS) Sto AG of further improving our planning and risk management. At Sto, such indicators primarily comprise economic data and detailed industry information. The reports compiled under this system are submitted directly to the Board of Directors, which then forwards the relevant information to Sto's Supervisory Board. In addition to reporting, management consultations are conducted between the Board of Directors and the executive staff of the subsidiaries on a regular basis. Fundamentals of the remuneration system The remuneration for the Board of Directors consists of a fixed and a variable component, with a marked bias on the variable component. The level of the variable salary component is linked to the earnings situation of the Sto Group. No stock options are granted. The members of the Supervisory Board are provided with fixed remuneration beyond compensation for costs incurred. The applicable rule is that the Chairman is entitled to four times and the Vice-Chairman 1.5 times the amount of the basic remuneration. Strategy The fundamental objective of Sto AG is to strengthen the company s good market position and to expand it in the medium term. In this way we intend to continue pursuing our earningsoriented strategy for growth and increase the value of the company, while observing social and ecological criteria. This will ensure that we remain a strong and reliable partner for our employees, our shareholders and other stakeholders. In pursuit of our ambitious objectives we apply a clear strategy with the following focuses: Intensification of research and development efforts The existing range of products and services is subject to ongoing improvement and the regular addition of new innovations. Effective and reliable products combined with technological advances serve to secure the loyalty of our existing customer base and to win over new customers. Our efforts in this area are also aimed at consolidating our industryleading know-how in the areas of insulation systems and methods. Strengthening the competence of the Sto Group We took timely measures to back up our traditional product range with services such as advice, training and equipment, also introducing coating materials to complement our established products. Together, Sto AG and its subsidiaries possess the most comprehensive integrated portfolio covering all aspects of the facade. In addition to excellent know-how, we also offer our customers broad design scope. We intend to further broaden the fund of expertise within the Sto Group through appropriate measures such as our entry into the insulation technology segment in Continuation of the internationalisation process We will pursue a systematic approach in developing additional regional markets and scaling down our dependency on the German core market. This is to be achieved by expanding our activities in countries in which we already operate and entering completely new markets, always according due consideration to risk aspects. Further development of our second distribution channel The Sto brand is to remain the reserve of direct distributors, in order to maintain our high profile among our customers. This high profile and direct availability constitute an important competitive advantage. An additional distribution channel is currently being developed with the aim of tapping additional sales potential. This involves marketing products through specialised retailers which are clearly distinguished from our core business line. A 15

18 Sto AG Management Report for the Sto Group (IFRS) further advantage here is improved utilisation of our production capacities as a result of the increased product turnover. Consolidation of the sustainability principle Foresight and responsibility have always been integral to the way Sto goes about its business. In order to enshrine the sustainability principle yet more firmly in our corporate culture, we updated our corporate mission statement accordingly in We also signed up to the United Nations' "Global Compact" initiative. The companies participating in this worldwide pact have made a public and verifiable commitment to respect and protect human rights, to meet international labour standards, to fight corruption, and to implement forwardlooking, comprehensive environmental protection policies. According greater consideration to sustainability criteria in all decision-making and business processes will ultimately have a positive impact on the medium- to long-term success of the company. Overview of business performance in 2009 and general statement by the Board of Directors Sto AG showed a satisfactory course of development in the 2009 financial year. While we were unable to escape the effects of the worldwide recession, which were reflected in a 2.3 % drop in consolidated sales to EUR million, the overall impact was not as severe as originally feared. One reason for this was the positive course of business with external wall insulation systems in those countries in which a high level of environmental awareness prevails and the use of such products is subsidised by economic recovery or emission reduction programmes. A second important factor was that the customary lull in business in the fourth quarter was less pronounced in 2009 than in the previous years on account of the mild weather. In addition, the exchange rates for important currencies developed along favourable lines for Sto between October and December, as a result of which the drops in sales attributable to currency conversion effects were less extensive than had been forecast. These factors went a large way towards offsetting the decline in business resulting from the general economic downturn in the USA, the UK, northern and eastern Europe. The above-budget sales volume provided the basis for a virtually stable earnings situation from operating business. Another contributory factor was the fact that we introduced and rigorously applied additional cost-cutting measures at the beginning of 2009, in the face of the crisis engulfing the global economy and financial markets. In all, consolidated earnings before interest and tax (EBIT) fell by 1.1 % to EUR 82.3 million. Owing to an improved financial result, earnings before tax (EBT) rose by 3.3 % to EUR 78.9 million. Consolidated net income rose as a result of a lower tax rate by 7.3 % to EUR 55.6 million. The financial situation of the Sto Group developed positively in Cash flow from current operations rose by 29.4 % to EUR million; as at 31 December 2009, cash and cash equivalents were up EUR 36.9 million on the previous year, at EUR million, and thus exceeded our financial liabilities. The equity ratio improved from 53 % to 56.4 %. On the basis of the sound earnings, financial and assets situation, the Board of Directors and the Supervisory Board will propose that the dividend distribution remain unaltered at the Annual General Meeting on 15 June This means that our shareholders will again receive a dividend of EUR 0.31 per preferential share and EUR 0.25 per ordinary share. This will be supplemented by a bonus at the previous year's level of EUR 2.06 per share. Economic conditions in 2009 Global economic crisis 2009 saw the world economy in a deep recession. For the first time since 1946, global 16

19 Management Report for the Sto Group (IFRS) Sto AG economic output dropped in comparison to the previous year. Estimates by the International Monetary Fund (IMF) put the global decline at approximately 0.8 %. The industrial countries were affected particularly severely, their economies contracting by around 3.2 %. Output in the USA dropped by around 2.5 %, for example, while the corresponding figure in the euro zone stood at 3.9 %. According to calculations by the Federal Statistical Office, Germany's gross domestic product fell in real terms by as much as 5 % on account of the high export component. In contrast to the industrial nations, the developing and emerging countries above all China achieved collective growth to the tune of around 2.1 %. This also represents a considerable slowing-down in comparison to 2008, however, when growth stood at 6.1 %. Severe as it was, the cooling of the global economy in 2009 was not as extreme as had been feared at the beginning of the year. In particular, comprehensive economic stimulus packages, which were applied worldwide, and the massive injection of liquidity into the markets by the reserve banks led to a surprisingly swift stabilisation of the precarious situation as of the second quarter. Key economic and mood indicators have since improved continuously, with correspondingly positive effects in the real economy. The construction sector: predominantly weak With a few exceptions, the construction sector was also severely affected by the very difficult prevailing economic conditions in According to the EUROCONSTRUCT research association, the total volume of construction work shrank by more than 8 % in Europe. Building construction and new construction activity in particular suffered especially severely from the slump in demand, the volume in this segment plummeting by around 18 %. Sharp declines were to be observed above all in Ireland, Spain, Sweden, Finland and Denmark. New construction activity remained comparatively stable in Germany, Poland and Austria, with only moderate reductions. Switzerland even experienced a slight increase. Renovation business once again proved to be a mainstay for the construction sector, shrinking by only 4 % Europe-wide. The German construction industry received support in 2009 through high levels of investment as part of economic stimulus packages at central, state and local government level. According to the German Federal Building Association, this investment helped to boost sales by a significant 8.4 % in the area of public-sector construction between January and November. Meanwhile, commercial building experienced a slump, the pace of which did begin to slow over the course of the year, however. At the end of November, revenues in this segment were 8.8 % down on the previous year's figure. The business situation in the field of residential construction stabilised towards the end of the year. This was manifested by the number of building permits issued, for example, which showed a 19 % rise in November. This revival came too late to have any positive effect on sales, however, which were 5.4 % below the corresponding figures for 2008 in the period from January to November. According to information from the Federal Statistical Office, sales for Germany's main construction sector as a whole fell by 4.1 % in 2009 to EUR 83.3 billion. Orders received were down by 6.6 %, with the 13 % drop in orders in the building construction segment the main contributory factor here. The number of jobs in the main construction industry at the end of December remained at the previous year's figure of 705,000. The crisis in the global economy and financial markets clearly left its mark in the US construction industry. According to the Federal Office of Foreign Trade Information (bfai), the residential construction sector was 17

20 Sto AG Management Report for the Sto Group (IFRS) affected particularly severely once again in The first half of the year saw a particularly sharp drop in demand, before the situation stabilised in the second half of the year. The loss of business over the year as a whole is likely to range between 25 % and 30 % once again. The areas of commercial and infrastructure construction also came under pressure, suffering an overall decline of around 3 %. This resulted in a drop of over 10 % for the US construction industry as a whole. In contrast, the bfai estimates that the Chinese construction sector achieved double-figure growth despite the economic crisis in The construction industry was one of the major benefactors of the measures implemented by the government to stabilise the economy. The demand for construction work was stimulated above all by the widespread availability of statesubsidised loans and extensive infrastructure projects undertaken by the government. Sto Group Sales revenues in EUR millions Earnings, finance and asset situation of the Sto Group Sales and earnings situation Sto performed well in the face of very difficult underlying conditions in the 2009 financial year. Consolidated revenues dropped only moderately in 2009, by 2.3 % to EUR million. A major contributory factor to this comparatively good showing was the good sales of facade systems in Western Europe, which were stimulated by anti-recession packages and CO 2 reduction programmes in various countries. In addition, the customary decline in demand in the fourth quarter was markedly less pronounced in key regions than in previous years, on account of the mild weather. The net result of currency effects was a reduction in the consolidated business volume of EUR 6.3 million in Drops in sales attributable to currency conversion effects applied above all to the Polish zloty and the Swedish krona. These were offset by positive effects for the US dollar and Swiss franc, the value of which rose substantially last year in comparison to the euro. There were no effects resulting from changes to the group of consolidated companies in the past year. At regional level, German business proved very sound, with consolidated domestic sales rising by 4.5 % to EUR million. The good demand for facade systems was the main driving factor here. Our growth in this area more than compensated for declining sales resulting from the general economic situation in the areas of facade coatings, interior and other products. 18

21 Management Report for the Sto Group (IFRS) Sto AG Sto Group Domestic and foreign turnover in EUR millions Domestic Foreign Foreign sales fell overall in 2009 by 8.1 % to EUR 474 million. Pronounced drops occurred above all in the USA, the UK, Spain, northern and eastern Europe. These shortfalls were partially offset by positive trends in Switzerland, Austria, France, Italy and the Asian markets, however. The share of international business in consolidated sales stood at 51.3 %, as compared to 54.5 % in the previous year. Consolidated aggregate output, which also includes changes to the inventory of finished goods and work in progress, declined by the same rate as sales, falling by 2.3 % to EUR million. The cost of materials fell more strongly than aggregate output in 2009, dropping by 5 % to EUR million. As a result, the gross profit margin rose from 54.6 % to 55.8 %. In absolute terms, gross profit stood at EUR million as compared to EUR million in the previous year. It thus remained roughly stable, despite the reduced volume of business. This was a consequence of the active procurement management which we have been applying with rigour for some years now. The appurtenant measures, such as the use of alternative raw materials, had a pronounced positive effect last year. Further information is to be found in the section "Procurement, production and the environment". The 2.1 % increase in staff costs to EUR million was in line with our expectations and resulted first and foremost from higher collectively agreed wages, an increase in the average size of the workforce and higher payments in connection with profit participation schemes for employees. The balance of the items other operating income and other operating expenses also showed only a moderate change in 2009, at EUR million compared to EUR million in the previous year. This was within the customary scope of variation and reflects above all the slight reduction in the volume of business. Sto Group EBIT in EUR millions

22 Sto AG Management Report for the Sto Group (IFRS) In all, the negative effects of the reduced aggregate output on results were almost balanced out by reductions in costs. At EUR million, consolidated earnings before interest, taxes and depreciation (EBITDA) thus remained only slightly below the previous year's level of EUR million. As depreciation on property, plant and equipment and intangible fixed assets remained virtually unchanged at EUR 24.5 million (previous year: EUR 24.4 million), earnings before interest and taxes EBIT also fell only moderately, by EUR 83.2 million to EUR 82.3 million. The financial result stood at EUR -3.5 million in 2009, as compared to EUR -6.9 million in Expenses essentially fell for two reasons: Firstly, the previous year's figure included depreciation on an equity interest and an adjustment to a loan granted to the company concerned. Secondly, borrowing costs fell once again, from EUR 6.6 million to EUR 5.1 million. This resulted above all from the reduced level of financial debt. In addition, interest expenditure occurred in 2008 in connection with a tax audit. Due to the improved financial result, consolidated earnings before tax EBT rose by 3.3 %, to EUR 78.9 million. The corresponding tax expenditure stood at EUR 23.3 million, resulting Sto Group Annual net profit in EUR millions in a consolidated tax rate of 29.5 %, compared to 32.1 % in the previous year. This lower rate results from the fact that the figure for 2008 included additional tax expenditure arising from a tax audit. Consolidated net income rose from EUR 51.8 million to EUR 55.6 million. Earnings per preferential share stood at EUR 8.66 (previous year: EUR 8.09), while earnings per ordinary share totalled EUR 8.60 (previous year: EUR 8.03). There was no difference between basic and diluted earnings per share. Sto AG dividend The parent company Sto AG increased earnings from ordinary activities, determined in accordance with the German Commercial Code, by 27.4 % to EUR 80.8 million. Income from equi - ty interests accounted for the majority of this rise, increasing by 29.3 % to EUR 31.3 million. Additional positive factors here were the drop of 2.8 % in the cost of materials, which totalled EUR million in comparison to EUR million in the previous year, and reduced interest payments totalling EUR 3.8 million (previous year: EUR 6.1 million). Sto AG's net profit for the year rose somewhat more strongly than the operating result, increasing by 33.1 % to EUR 65.6 million, because the tax rate fell from 22.1 % to 18.7 %. As for the Group as a whole, the income tax item in Sto AG's financial statement for 2008 also included additional expenditure resulting from a tax audit. On the basis of the sound earnings situation, the Board of Directors and the Supervisory Board will propose that the dividend distribution remain unaltered at the Annual General Meeting on 15 June This means that our shareholders will again receive a dividend of EUR 0.31 per preferential share and EUR 0.25 per ordinary share. This will be supplemented by a bonus at the previous year's level of EUR 2.06 per share. 20

23 Management Report for the Sto Group (IFRS) Sto AG Financial situation The objectives for the financial management system operating at Sto are to maintain the Group's liquidity worldwide, to optimise finance expenses and income, and to control and minimise currency and interest risks. To this end, we employ a wide range of financing tools that provide us with greater entrepreneurial scope and make us less dependent on individual markets. In addition, we aim for the broadest possible diversification among our lenders. For this reason, we only work with banks with the highest credit rating and rely on long-term relationships characterised by mutual trust. In terms of our financial management, we also strive for a healthy balance between shareholders equity and borrowed funds. This provides us with the long-term financial scope which we need in order to continue our sustainable and income-oriented growth strategy. Current financial requirements are covered using a combination of operating cash flow and the use of credit lines. In addition to traditional bank financing we also employed leasing in 2009, for example. For our liquidity management activities, we have implemented a cash-pooling system that covers almost all of our subsidiaries operating in the euro region. Within the scope of this system, cash surpluses and cash requirements are automatically netted within the Sto Group. This allows us to minimise the number of external banking transactions, and surpluses can be invested on the best available terms. In this way, the cash-pooling activities also contribute to the optimisation of our net interest income, in addition to ensuring liquidity. Primarily as a result of the positive development of operating cash flow and the successful management of working capital, cash and cash equivalents exceeded borrowings totalling EUR 59.0 million by EUR 47.7 million at the end of At the cut-off date of 31 December 2009, lease payments from finance leases falling due in future totalled EUR 5.5 million (previous year: EUR 5.7 million). To minimise the effect of exchange rate fluctuations on consolidated earnings, foreign currency items are netted within the Group. For any amounts remaining after the netting, we enter into currency hedging transactions, if required. Liquidity movements in 2009 The liquidity situation improved markedly in the 2009 financial year. Cash flow from current operations rose by 29.4 % to EUR million. In relation to consolidated revenues, this represents a very solid margin of 12.2 %. One of the primary reasons for this increase was the release of cash to the sum of EUR 16.2 million by means of our active working capital management. Sto Group Cash flow statement in TEUR Cash flow from operating activities 113,236 87,520 from investment activities 43,025 30,241 from financing activities 33,642 30,756 Change in cash and cash equivalents from changes in exchange rates 317 1,860 Cash and cash equivalents at beginning of period 69,828 45,165 Change in cash and cash equivalents 36,886 24,663 Cash and cash equivalents at end of year 106,714 69,828 The cash flow from investment activities adjusted by inflows and outflows for financial investments stood at EUR million, as compared to EUR million in the previous year. In 2009, disbursements for the acquisition of 21

24 Sto AG Management Report for the Sto Group (IFRS) property, plant and equipment and intangible assets to the sum of EUR 20.9 million (previous year: EUR 19.2 million) were offset primarily by payments received from the sale of property, plant and equipment and intangible assets to the sum of EUR 1.4 million (previous year: EUR 2.1 million) and interest payments of EUR 1.8 million. In the area of financial management we invested EUR 39.3 million in fixed deposits last year with attractive interest rates and terms of over three months. We also accrued EUR 14 million from time deposits which expired in These payments and the expenditure for investments together result in a cash flow from investment activities of EUR -43 million. The cash flow from financing activities totalled EUR million in This cash outflow resulted first and foremost from the repayment of borrowings to the sum of EUR 15.8 million and the distribution of dividends to our shareholders. The dividend payout more than doubled in comparison to the previous year, from EUR 7.2 million to EUR 14.7 million. Interest payments totalling EUR 3.0 million were also incurred. Cash and cash equivalents increased as at 31 December 2009 to EUR million (previous year: EUR 69.8 million). In addition to the described inflows and outflows, exchange-rate-related changes to cash and cash equivalents totalled EUR 0.3 million (previous year: EUR -1.9 million). Investment activities scaled down In view of the difficult underlying conditions we deliberately focused on strategically important investment projects in This led to a 4.2 % decline in investments across the Group as a whole, to EUR 20.3 million. This entire sum was allocated to property, plant and equipment and intangible assets. We did not undertake any investment in financial assets (previous year: EUR 0.1 million). At EUR 24.5 million, depreciation on property, plant and equipment and intangible assets remained roughly at the previous year's level of EUR 24.4 million. Sto Group Investments and amortisation/depreciation (excluding financial assets) in EUR millions Investments Depreciation The most significant investment projects in 2009 were the construction of the insulant plant in Lauingen and the completion of our third Chinese production plant in Wuhan. Further information is to be found in the section "Procurement, production and the environment." Other key projects concerned the acquisition of additional SAP licences and the purchase of an additive dosing station for the plant in Kriftel. Beyond this, investments focused primarily on replacement measures. Asset situation Consolidated total assets as at the end of December 2009 were 7.7 % up on the previous year, at EUR million. This rise was attributable on the assets side to the very sound development of liquidity in 2009, resulting in a strong increase in cash and cash 22

25 Management Report for the Sto Group (IFRS) Sto AG equivalents from EUR 69.8 million to EUR million. In addition, we invested part of the cash generated in 2009 to a total of EUR 39.3 million in fixed deposits yielding attractive interest rates. Due to their terms of over three months, these deposits were posted under short-term financial assets to the sum of EUR 38.8 million and long-term financial assets to the sum of EUR 0.5 million. This resulted in a strong increase in short-term financial assets from EUR 29.4 million to EUR 50.6 million. In all, our cash holdings showed a year-on-year improvement from EUR 62.2 million to EUR million. On the other side, current trade receivables fell by 8.1 % to EUR million. Inventories were reduced by 8.6 % to EUR 57.6 million. Both of these developments reflect our active working capital management which enables us to keep funds tied up in current assets at a minimum. The value of non-current assets also fell in comparison to the previous year, by 0.8 % to EUR million. The main components contributing to this reduction were property, plant and equipment, which fell by 1.6 % to EUR million, and intangible assets, which were down 2.1 % at EUR 42.5 million. In both Sto Group Assets Liabilities Non-current assets 44.1 % Shareholders' equity 56.4 % Current assets 37.1 % Cash and cash equivalents 18.8 % Balance sheet structure as at Long-term provisions and liabilities 15.6 % Short-term provisions and liabilities 28 % cases, the investment volume was lower than the level of depreciation. The dominant feature on the liabilities side of the consolidated balance sheet was the marked increase in equity capital by 14.8 % to EUR million. This strong rise resulted from the increase in revenue reserves from EUR million to EUR million. The equity ratio improved from 53 % to 56.4 %. Major changes also applied in the area of liabilities to banks, which were reduced as a result of repayments by a sum total of EUR 16.5 million. At year end, long-term borrowings totalled EUR 32.7 million (previous year: EUR 47 million) and short-term borrowings stood at EUR 16.4 million (previous year: EUR 18.6 million). Total borrowings as at 31 December 2009 stood at EUR 59 million, of which EUR 41.4 million (previous year: EUR 54.6 million) were of a long-term nature and EUR 17.6 million (previous year: EUR 20.4 million) were of a short-term nature. After deducting these values from cash and cash equivalents, net financial assets at the end of December 2009 stood at EUR 47.7 million. When the EUR 39.3 million we placed in fixed deposits with terms of over three months are also included, the net financial assets were as high as EUR 87 million. Provisions for pensions rose year-on-year by 12.4 % to EUR 36.3 million. Further information is to be found in the Notes under serial number 22 "Pensions and similar liabilities". Other short-term provisions rose by EUR 32.4 million to EUR 45.8 million. General statement on the earnings, finance and asset situation The figures for the 2009 financial year underscore the fact that the earnings, finance and asset situation of the Sto Group is extremely sound. This provides a stable basis on which to continue the earnings-oriented growth strategy over the long term and a financial cushion for the effects of cyclical fluctuations in demand. 23

26 Sto AG Management Report for the Sto Group (IFRS) Sto segment reporting The structure and content of the Sto Group's segment reporting for 2009 have been adapted in line with the reports which are submitted on a regular basis to the internal decision-makers. Reporting takes place primarily according to the geographic business units Western Europe and Rest of the World, whereby the Rest of the World segment is broken down in accordance with the internal reporting structure into the regions Northern/Eastern Europe and Americas/Asia. There is a further breakdown into the main product groups, namely Facade coatings, Facade systems, Interiors and other business units. The segment reporting is based on the same valuation rules and principles as the consolidated balance sheet. Sto Group Regional breakdown of consolidated turnover Americas/Asia 8.9 % Western Europe 81.2 % Northern/ Eastern Europe 9.9 % Western Europe In the Western Europe segment, which includes the German core market, we achieved a moderate 1.7 % increase in sales in 2009, to EUR million. Declines in sales resulting from the prevailing economic situation in the UK, Spain and the Netherlands were more than balanced out by positive sales performance in Germany, France, Belgium, Italy, Austria and Switzerland. The operating result for the segment (EBIT) rose from EUR 67.2 million to EUR 77.5 million. The workforce employed by Sto in Western Europe increased slightly by 20 to 3,306. Northern/Eastern Europe The majority of the countries in Northern and Eastern Europe were severely affected by the economic crisis in This also had a negative impact on the development of Sto's subsidiaries. Sales in this segment dropped markedly, by 20.1 % to EUR 91.3 million. With the exception of Finland and Hungary, where we achieved an increase in sales despite the unfavourable general economic conditions, our sales fell to varying degrees in all regions. The decline in the volume of business was particularly noticeable in Poland and Sweden, whereby the operating losses were further compounded by currency effects here. EBIT stood at EUR 3.9 million, compared to EUR 10.7 million in the previous year. In response to the difficult business conditions, we have scaled down the workforce in Northern and Eastern Europe. 446 persons were employed by Sto at the end of December, as compared to 461 persons on the corresponding balance sheet date of the previous year. Americas/Asia The Americas/Asia segment also produced an overall drop in sales in The business volume fell overall by 12.6 % to EUR 82.1 million. This decline was attributable to the extremely strained economic situation in the USA, which also imposed severe restraints on the development of Sto Corp. Overall, the sales of our subsidiary fell in the local currency by 24.1 % to USD 77.6 million. These losses were tempered 24

27 Management Report for the Sto Group (IFRS) Sto AG Sto Group Key figures acc. to segments in EUR millions and % Northern/ Western Europe Eastern Europe Americas/Asia Consolidation Group External revenues Total segment revenue Operating result (EBIT) Operating result (EBIT)/Revenue 10 % 8.8 % 4.3 % 9.3 % 1.1 % 6.4 % 8.9 % 8.8 % Investments excluding financial assets Staff on balance sheet date 3,306 3, ,145 4,155 in the consolidated accounts by the revaluation of the US dollar. After currency translation, sales were down 20 % on the previous year's total, at EUR 55.7 million. The workforce at the end of December stood at 157, as compared to 194 at the end of the previous year. Sto's business in Asia remained roughly stable. In China, our largest regional market, sales remained virtually unchanged at CNY million. After currency translation, the 2009 financial year ended with an increase of 7.6 % to EUR 21.3 million. Sales at the two subsidiaries in Singapore and Malaysia increased by a combined total of EUR 4.7 million to EUR 5.2 million. Sales in Asia as a whole rose by 8.6 % to EUR 26.5 million in The workforce was increased by 22 to 236. The operating result for the Americas/Asia segment fell from EUR 6.0 million to EUR 0.9 million, on account of the decline in US business. facade systems rose slightly by 0.3 % to EUR million in This segment thus accounted for 49.7 % of total consolidated sales. Sales in the other business segments were down on the previous year: Sales of facade coatings fell by 3.6 % to EUR million; the share in the total sales volume stood at 23.4 %. Sales in the area of interior products fell by 4.2 % to EUR million. The other product groups were down 7.4 % on the previous year, at million. Performance of product groups The breakdown of results according to product groups reveals the following picture: Sales of 25

28 Sto AG Management Report for the Sto Group (IFRS) Sto employees Size of workforce remained stable A total of 4,145 were employed in the Sto Group at the end of 2009 as compared to 4,155 one year previously, corresponding to a slight reduction of 0.2 %. This reduction in the workforce was on a similar scale inside and outside of Germany: the workforce outside of Germany stood at 1,832 on the balance sheet date as opposed to 1,838 in the previous year, while the number of employees in Germany fell from 2,317 to 2,313. The individual subsidiaries and regions experienced very different courses of development last year. Jobs were shed above all in the USA and Northern Europe. In Germany the smaller number of employees at Sto AG was virtually balanced out by new jobs at the German subsidiaries. The overall size of the workforce in Eastern Europe remained roughly stable. New employees were recruited in most Western European countries and in Asia. Sto Group 2,400 1,800 1, ,243 Domestic 1,570 2,231 Employees 1,635 2, Foreign 1,692 2,286 1,770 2,317 1,838 2,313 1,832 Strategic personnel policy Sto's success is based on a qualified and committed workforce. The company's personnel policy is aimed at ensuring the long-term performance, commitment and satisfaction of the workforce and aligning these attributes with the company's long-term objectives. Individual initiative, flexibility and ongoing training and education are key elements of our overall concept. This strengthens our standing as an attractive employer and improves our position in the competition for qualified employees which will become yet more intense in the coming years as a result of the underlying demographic trend. High standard of training Sto persevered with its active training policy despite the difficult macro-economic situation in 2009, taking on 52 trainees at its German plants and offices. In all, 164 young people (previous year: 162) were learning one of a total of 20 attractive and future-oriented occupations at the end of December. This represents an excellent training ratio in Germany of 7.1 % as compared to 4.9 % as a whole for the chemicals industry, to which we are allocated for the purposes of collective bargaining and pay agreements. Our continuing commitment to young people, who we provide with a sound start to their careers by way of qualified apprenticeships, provides a further example of Sto facing up to its social responsibility. Developing skills and knowledge We also continued our training measures geared to identified requirements last year. In one such measure, trainees selected in a talent workshop underwent a six-month qualification programme from which they emerged as competent sales consultants. The good coordination between the centrally organised parts of the training and the decentralised qualification elements contributed to the success of this new programme. In the light of advances in insulation and product technology, external wall insulation systems are becoming ever more complex. This 26

29 Management Report for the Sto Group (IFRS) Sto AG Sto Group Turnover per employee in TEUR broadens the scope of advice required by our customers. In order to further reinforce the skills and competence of our sales representatives and to ensure that they are well prepared to meet these growing challenges, we evolved a product technology training concept in This concept includes learning modules which have been drawn up by inter-disciplinary planning teams, according due consideration to special regional aspects. The training measures were introduced up to the end of 2009 via online media on the Sto intranet. This closes the gap between face-to-face training measures and classic online self-teaching courses. Such a spectrum of training measures is crucial for the swift, flexible and time-efficient transfer of know-how. Other personnel measures Another key measure in the personnel area in 2009 was a demographic analysis. In accordance with the requirements arising from the demographic collective agreement which applies throughout the industry, the age structure was first of all examined at all business units of Sto AG. We also adopted a package of measures aimed at actively addressing the given demographic challenges. All core processes in the area of human resources were also reviewed, optimised and documented last year, in order to further reduce the scope of administrative work involved here. In this context we launched an electronic personnel manual presenting all management- and personnel-related procedures and work flows. Checklists, forms and key documents are to be added to this manual to provide an effective tool above all for management, works councils and HR staff. We also forged ahead with the development of the new guiding principles for the Sto Group in Our vision, mission and success factors were discussed and elaborated at executive sessions and management meetings on the basis of our previously defined principles. We also drew up principles for cooperation within and management of the Group. The new guiding principles are intended to prepare Sto AG in good time before the new generation takes the helm, while also adjusting to the major changes in the underlying conditions which have occurred since the original principles were drawn up. Further information is to be found in the Sustainability Report, which is included in this annual report for the first time. Sto research and development Major strategic factor The area of research and development is a key component of corporate strategy at Sto. We seek to consolidate our technology leadership and set market trends with innovative products. R&D activities are thus instrumental to the future growth of the company. A total staff of 87 was employed at Sto's laboratories at the end of December Development activities at Sto essentially break down into two main areas: Firstly, we 27

30 Sto AG Management Report for the Sto Group (IFRS) pursue pure research with the aim of creating new solutions and evolving new technologies. Our work here is currently focused on the development of innovative insulant technologies. The commissioning of our new insulant factory in Lauingen has provided a major impulse for this field of work. New binder systems are another key focus of our R&D efforts. The second, equally important area concerns the ongoing development of existing product lines. The aim here is to continually improve the properties of these products and to guarantee the high standard of quality, thereby ultimately enhancing the attendant benefits to our customers. A systemic approach is crucial here: in an EWIS, the functionality and characteristics of the individual Sto products are required to complement each other and so enhance the utility of the system as a whole, for example. Innovations in 2009 A key focus of research efforts in 2009 was on the development of improved bonding and reinforcing mortars based on a new binder technology. The innovative binders offer a high level of reactivity and ensure that the applied mortars harden substantially more quickly than previously. The shorter drying phase means that mineral insulating systems can be applied over a longer period at the construction site when unfavourable weather conditions prevail. The new products, which are to be launched in 2010, allow the use of corresponding systems down to an outside temperature of one degree Celsius. Last year we also evolved a concept which enables the airless spraying technology to be used for the application of reinforcing plasters. To this end, the corresponding plaster products had to be modified so as to enable swift and uniform application without any increase in the required scope of cleaning. The new reinforcing plasters in combination with a high-performance spraying device enable markedly higher covering capacities, thereby further improving the efficiency of organic insulation systems at the construction site. In the civil engineering sector we pushed ahead with the development of new coating systems for cooling towers. In order to cover the broadest possible spectrum of applications, both water-based and solvent-containing coatings are used here. This enables Sto products to be used on cooling towers with and without the introduction of clean gas. Initial tests have been completed with good results. Sto procurement, production and the environment Relaxed procurement situation The manufacture of high-quality coating mate rials is a complex and equipment-intensive pro - cess requiring a great deal of expertise. The most important input materials are marble and quartz sands, cement, lime and silicates, silicones and aqueous dispersion agents. To ensure that the end product meets Sto's high quality standards, these components must be processed using exact ratios and in the correct sequence. All the input materials required for the manufacture of facade systems and coatings were available in adequate quantity in The raw materials sand, cement and lime are obtainable worldwide without any restrictions. There were no supply shortages in the areas of polystyrene-based insulating boards binders or other important components, either. As a result, production operations at Sto were not impeded at any time last year. Optimum management of material costs The stabilisation of the global economy also gave rise to an increase in the demand for raw materials in This led to price increases on the commodities exchanges, following dramatic drops in some areas in the second half of

31 Management Report for the Sto Group (IFRS) Sto AG Despite this upward trend on the raw materials markets, the purchase prices for materials actually fell in some instances for Sto in This was attributable first and foremost to our long-term strategic procurement management. The core element of this management system comprises qualified teams of specialists from the areas of procurement, research and development who are charged with successively improving our purchasing structures. We have achieved improvements in this area in recent years through the rigorous implementation of numerous measures such as seeking alternative raw materials or broadening our supplier base. These improvements also had a positive impact in The costs of energy and logistics services also fell in the period under review. Purchase prices in these areas were in decline as a result of the general market trends. A reversal of this trend emerged at the beginning of 2010, however. the USA, Spain, Sweden and Poland, capacity utilisation at the other plants remained roughly stable. In Germany, output was even increased at certain plants. Worldwide production At the end of December 2009 Sto AG was operating five factories under the umbrella of the Group's parent company, at Stühlingen, Donaueschingen, Tollwitz near Leipzig, Rüsselsheim and Kriftel. Locations in Germany further included a manufacturing plant of StoVerotec GmbH in Lauingen and a plant of Südwest Lacke + Farben GmbH & Co. KG in Böhl-Iggelheim. Outside Germany, we owned manufacturing plants in France (2), Austria (1), Spain (1), Sweden (1), Poland (1), China (3), Malaysia (1) and in the United States (4). The Sto Group thus owned a total of 21 manufacturing plants, of which 7 are located in Germany, and 14 in other countries. The new insulant factory went into operation at StoVerotec in Lauingen in January Capacity utilisation levels at the plants varied according to region in the 2009 financial year. While production output declined on account of difficult underlying economic conditions in Production base reinforced Sto constantly invests in its production facilities in order to make manufacturing processes as efficient and environmentally compatible as possible and to exploit potential for growth. We completed two new plants in the 2009 financial year. The production of insulating boards began at the German plant in Lauingen at the end of the year. The initial performance tests confirmed the top quality which is attainable here. Standard production operations have been underway since the beginning of 2010 without any problems whatsoever. The official opening took place in the middle of January. By producing insulating boards in-house as opposed to our previous practice of outsourcing all our requirements in this area, we are reducing our dependency on suppliers and increasing the depth of added value for the Sto Group. At the same time, we are also consolidating our technological knowhow, as we intend to develop and produce innovative insulating materials in Lauingen. Sto insulant truck sporting a striking design in front of the new factory in Lauingen. Twelve of these special lorries supply Germany with hightech insulating boards south of the River Main. 29

32 Sto AG Management Report for the Sto Group (IFRS) The second project in the 2009 financial year was the commissioning of our third Chinese factory, in Wuhan. The plant with an annual capacity of approx. 20,000 tonnes of mineral products was completed in July after a construction period of just seven months. This new production facility strengthens our business base in China and broadens our scope for participating in the high growth of this dynamic market. In addition to commissioning these two factories, we also began modernisation measures at the existing production plants last year. Over a five-year period we intend to bring all the plants up to the latest technological standard, whereby the main focus is on upgrading the process control facilities. Sustainable production The manufacture of Sto products entails little environmental risk, since potentially hazardous substances are only used in negligible quantities. We nevertheless implement numerous measures designed to ensure active environmental protection. This commitment derives from of Sto's mission statement Building with conscience, which is based on the principle of sustainability. In keeping with our long-standing commitment to environmental and ecological concerns as a major priority at our company, we implemented a comprehensive environmental management system. This system ensures a systematic and verifiable approach throughout the Group. It furthermore establishes the basis for ongoing improvements with regard to the consumption of resources and reductions in emissions. To document the high standard of our environmental management system, we underwent certification in accordance with the international DIN EN ISO standard for our main locations. By the end of December 2009, this covered the six manufacturing plants in Stühlingen, Donaueschingen, Kriftel, Tollwitz, Rüsselsheim and in San Sebastian in Spain. Events after the end of the financial year The 2010 financial year got off to a very subdued start. The very severe winter had an extremely adverse impact on the construction sector throughout most parts of Europe and North America. This also affected sales of Sto products. As a result, sales and earnings for the first two months fell short of the corresponding figures for the previous year. The new insulant factory went into operation at StoVerotec in Lauingen in January Risk report Risks and opportunities The Sto Group operates worldwide. As for any entrepreneurial venture, its international business operations harbour diverse opportunities and risks. Managing these factors in an appropriate manner is crucial to the long-term success of Sto AG. We thus attach high priority to the purposeful management of opportunities and risks as an integral element of corporate governance. The risk strategy developed by the Board of Directors provides, among other things, for given opportunities to be exploited with rigour, while undertaking risks only where a commensurate contribution to corporate earnings can be expected. Generally speaking, we define risks and opportunities as departures from the planned result. Risk management at Sto is explained below. Opportunities currently being evaluated are discussed in detail in our forecast. Efficient risk management system The active management of risks is pursued at Sto by means of a comprehensive risk management system which forms an integral part of our business, planning and control processes. 30

33 Management Report for the Sto Group (IFRS) Sto AG This system allows us to identify and analyse risks in good time, to assess the expected effects on the earnings, finance and asset situation and to implement appropriate countermeasures. In 2009, we rigorously applied our strategy to avoid and hedge risks once again. The most important constituent of our risk management system is a detailed reporting system that has been standardised for the Group and which records all operating activities both quantitatively and qualitatively in accordance with a specified scheme, from purchasing through production to sales. Continuous monitoring of clearly defined key figures allows undesirable developments to be identified at an early stage and the swift initiation of countermeasures. The second important element of the risk management system is a risk manual which is binding throughout the Group. This describes various risk categories, guidelines for assessing risks and procedural instructions for every subsidiary. These two instruments are complemented by an annual risk inventory, which is used to document all current risks throughout the enterprise on a timely basis. The managers of the respective business units are required to notify the central investment controlling department immediately of any relevant new risks which are identified in the course of the year. Internal control system Risk management is complemented by an internal control system (ICS). With regard to the accounting process within the Sto Group, this system covers all principles, procedures and measures which are intended to ensure the effectiveness, economic efficiency and reliability of the consolidated accounting and compliance with the relevant legal requirements. The internal monitoring system forming part of the ICS is comprised of in-process elements and elements independent of the processes concerned. Important in-process measures are manual checks such as the "dual control principle" and automated IT process controls. Another central element of the ICS is the SAP software system which is implemented at virtually all Sto companies as a means of controlling the IT-based accounting process. Uniform and consistent application of the SAP system ensures the correct and reliable recording and processing of accounting data and details throughout the Group. Access to the various types of data is clearly regulated and corresponding access restrictions are in place. Some years ago we additionally drew up a manual together with our auditors detailing the consolidated accounting guidelines, which is revised on a regular basis. These guidelines provide the basis for drawing up the annual financial statements in accordance with IFRS which are to be included in the consolidated financial statement. The aim of the guidelines is to ensure the uniform implementation of valuation and reporting rules throughout the Sto Group. All balance sheets, income and cash flow statements drawn up by the subsidiaries and other business units are audited by the Group accounting department and the central investment controlling department to verify that they are correct, complete and in compliance with the accounting guidelines. Formal requirements include the compulsory use of a standardised and complete set of forms within the Sto Group and the application of a uniform system of accounts throughout the Group. The guidelines also include specifications on the presentation and handling of Group accounting and the corresponding balance reconciliation. With regard to correct accounting at Sto AG, the Group auditor and other auditing bodies such as the tax inspectorate are integrated into the overall control system. The most important monitoring measure independent of the business processes concerned with regard to the 31

34 Sto AG Management Report for the Sto Group (IFRS) consolidated accounting process is auditing of the consolidated financial statements and the incorporated individual financial statements of the Group companies by the Group auditor. This ensures in particular that inventories are taken correctly and that assets and liabilities are assessed, valued and reported appropriately in the consolidated financial statements. The compulsory measures and accounting records additionally provide reliable and traceable sources of information. The controlling activities which are intended to ensure the regularity and reliability of the accounts cover auditing with reference to specific ratio analyses and the processing and controlling of highly complex transactions by different persons. The separation of administrative, implementing, accounting and approval functions and the performance of these functions by different persons (dual control principle) reduces the attendant risks. The regular controlling meetings between the Group management and the managers of the subsidiaries are a further element of the ICS. A meeting focusing on the annual financial statements also takes place for each company between Group accounting representatives and representatives from the respective subsidiaries. These meetings are also attended by the local auditor. The effectiveness of the risk management and internal control system is verified on a regular basis in accordance with the statutory requirements externally by our auditors, and internally by the Group controlling and Group accounting departments. The Supervisory Board, and the Audit/Finance Committee in particular, is kept informed on a regular basis by the Board of Directors and the auditor. By way of qualification it should be pointed out that decisions based on personal judgements, flawed controls, criminal actions by individuals or other circumstances may impair the effectiveness and reliability of the deployed internal control system, in view of which even Groupwide application of the deployed systems cannot fully guarantee the correct, complete and timely recording and reporting of facts in the consolidated accounting. Essentially, the risks for the Sto Group are as follows: Overall economic and industry-specific risks Sto AG with its facade systems, coatings and concrete repair products is dependent to a substantial degree on the underlying trends in the construction industry. Demand in Germany Sto's largest volume market plays a very important role. Sales of building products are very sensitive to the general level of economic activity as well as to overall economic and taxrelated conditions. The potential risks present in such circumstances were evident in the crisis of Germany s main construction sector following the boom after German reunification, a crisis that lasted many years. The prolonged slump, which began in the mid 1990s and did not end until 2005, led to intense competition and strongly deteriorating prices as a result of high levels of surplus capacities. Risks in the procurement of raw materials The Sto Group uses raw materials such as marble and quartz sands, cement, silicates, silicones and aqueous dispersion agents in the manufacture of its facade and coating products. This entails cluster risks that may arise from the concentration tendencies on procurement markets. We consider these types of risk to be manageable, since sufficient quantities of these raw materials are available. We therefore do not expect any major problems in terms of availability in future. Prices of materials based on crude oil, including silicates, silicones and polystyrene insulating board, depend to a certain extent on the current price of crude oil, which is subject to strong fluctuations. Furthermore, these prices are expected to increase in the long term. We 32

35 Management Report for the Sto Group (IFRS) Sto AG counter this risk through a systematic and medium-term orientated purchase policy, which is implemented by procurement teams created specifically for this purpose. Through numerous activities, for example the bundling of purchase volumes or the substitution of products, we are in a position to achieve savings and to reduce dependencies. Dependence on weather conditions The majority of Sto products are applied in outside areas, and their use is therefore dependent on weather conditions. Measures introduced a number of years ago to reduce this dependency have so far enjoyed only limited success. Consequently, a long and hard winter can still negatively impact on sales, the effects of which can only be partly recouped in the following period due to limited processing capacity. Such weather-induced declines in the volume of business can lead to significant losses in earnings. Environmental risks The manufacturing processes for Sto products pose only minor environmental risks because they use only negligible quantities of hazardous substances. Furthermore, production is carried out in modern, automated manufacturing facilities, which reduces the level of risk even further. We have also implemented an environmental management system geared to international standards. In addition, production is monitored by specially trained environmental control officers at all Sto locations. You can find more information about our environmental protection measures in the section entitled "Procurement, production and the environment" and in the Sustainability Report in this annual report. Sales risks Future sales of Sto products do not show any increased risks, either. There is already plenty of potential for facade systems on the domestic market alone. About 75 % of existing buildings in Germany still do not meet the statutory requirements applicable to new buildings. Furthermore, the upward trend in energy prices in the long term and additional statutory requirements on emission control and energy efficiency which are likely to be introduced may be expected to prompt increased investment in the field of thermal insulation, both in Germany and internationally. There are good opportunities for the Sto Group to capture a strong share of the anticipated high level of demand, not least thanks to the expertise the company has acquired over many years in the renovation business. The risk in relation to future sales is further diminished as a result of the broad spectrum of our clientele. Payment default risks In times of recession the building industry also faces an increased risk of default on receivables. To avoid or mitigate the financial consequences arising from this, Sto has implemented a credit management system and adapted it to the specific conditions prevailing in individual countries. The most important component of the system in place in Germany is a set of rules containing guidelines for granting and monitoring merchandise credits. Strict application of these rules has allowed us to maintain the default quota at a low level even during difficult economic times. Risks arising from fluctuations in payment flows As a result of the seasonal variability in the level of sales of Sto products, the demand for liquidity to finance current business also varies greatly in the course of the year. There is a particular need for cash in the first few months of the year. In the second half of the year, cash inflows clearly exceed outflows. Risks arising from these fluctuations in payment flows are limited in the case of Sto, as we have adequate and variable lines of credit at our disposal which will be available until 2012 and which are backed by a 33

36 Sto AG Management Report for the Sto Group (IFRS) syndicated loan. These lines of credit allow us to cover all types of peaks in demand foreseeable today. These credit lines are tied to the performance of contractually stipulated financial targets (covenants). We were able to bridge the fluctuations in payment in 2009 with our own liquid funds. To reduce the exposure to liquidity risks further, we are also in constant and intensive communication with our banks and operate an active financial management system. This includes the use of derivatives in the form of interest swaps as a means of reducing the risk of changes in interest rates in the case of longterm liabilities to banks at variable interest rates. IT risks Optimum control of a globally operating company such as Sto can only be achieved through the use of modern information technologies. The ability to supply also depends on the availability of the relevant systems and data. Serious disruptions such as system outages or loss of data, for example, can severely hamper the ability to supply. We counter this risk by implementing redundant IT systems which contribute to the safekeeping of the entire data inventory. Through forward-looking planning and by providing intensive, ongoing training for our IT staff, we also ensure that operational reliability is guaranteed at all times even with the continual expansion of the operational business processing systems. A further risk in the IT area is the loss of confidential data, which could have a negative effect on Sto's competitive standing. In addition, attacks on our IT systems with the aim or disrupting operational processes cannot be ruled out. We counter these risks through the implementation of security technologies and through the installation of redundant, multiplestage firewall systems that protect Sto's entire IT environment against unauthorised access from the outside. Additional protection is provided by a multi-stage, heterogeneous virus scanner and by a provider-based, upstream spam filter. Warranty-related and legal risks Ongoing research and development activities are of strategic importance for the Sto Group. Innovations open up vast opportunities to develop additional markets and buyer groups, and to earn the loyalty of existing customers. At the same time, however, innovations can involve risks. Although newly developed products or versions of products are officially launched on the market only after extensive testing as a matter of principle, we will never be able to completely rule out the possibility of warranty claims against Sto, including such claims arising after some time has elapsed. On the one hand, this is due to the increasing complexity of our products and systems. Another reason is that European courts are increasingly following a trend towards more generous settlement of warranty claims in favour of end customers. Warranty risks in the United States are considerably higher than in Europe because of the legal system in place in the USA. Individual lawsuits pertaining to claims for similar damages can be grouped together into so-called class action suits, for example. On the basis of its experience in recent years, the US-based Sto Corp. has implemented measures to reduce the company's susceptibility to these types of claims. Complete protection against claims of this type is not possible, however, due to the nature of the legal system. Individual lawsuits against Sto Corp. from an earlier class action are still pending. We have set up an adequate level of provisions for the anticipated financial charges these may entail. A further consequence of a class action which was brought some years ago was the decision by the US insurance industry to cease providing insurance cover for the product risks arising from insulation systems. The effects of potential damages or liability claims on the financial and earnings 34

37 Management Report for the Sto Group (IFRS) Sto AG situation of the Sto Group cannot be assessed conclusively on account of the legal system. In order to further limit the risks inherent in our activities abroad, we engage the services of external consultants where necessary during decision-making procedures. Apart from the legal issues, which are becoming increasingly important, this also applies to technical questions. A further legal risk for Sto is that of liability associated with consultancy services. This arises as a result of Sto offering customers services to complement its product range. For example, employees of Sto AG provide their customers with support for tenders, quotations, technical issues and building design details. Sto's recently introduced in-house "Liability" guidelines instruct all employees on how to handle such issues both internally and in their dealings with customers. This clear set of guidelines has led to a marked reduction in liability risks. Currency risks Sto embarked on a consistent strategy of developing foreign regions at an early stage in an effort to reduce dependence on the German domestic market. As a result of the gradual internationalisation of our operations, we are increasingly exposed to currency risks. We control these risks by means of currency hedges. Our focus in doing so is on the currencies of countries where we do not have production facilities, i.e. where regular supply and payment flows are necessary to maintain business operations. This applies in particular to Switzerland, the Czech Republic, the United Kingdom and Hungary. In specific cases and where necessary, we also conclude additional currency hedges for smaller volumes in the Polish and Swedish currencies as well as in the US dollar. Overall risk exposure The assessment of overall risk is carried out using our risk management system. Following the assessment of current and potential future individual risks, and taking into account the counter-measures already initiated, the Board of Directors and the Supervisory Board have come to the conclusion that no assessable risks are discernible at present that could have enduring and significant adverse consequences for the asset, earnings and financial situation of the Sto Group. Forecast and opportunities report Revival of growth in the global economy in 2010 The surprisingly fast economic stabilisation which was to be observed in numerous countries in 2009 prompted most economic research institutes to revise their forecasts for 2010 upwards. The International Monetary Fund expects the world economy to grow by just under 4 %, for example (forecast as per end of January 2010). This rise is being driven first and foremost by the developing and emerging countries, whose aggregate output is likely to rise by around 6 %. From today's point of view the most dynamic increase will be again in China with a plus of about 10 %. The prospects for Russia have also been upgraded, with growth in the order of 3.6 % expected here. In contrast, the recovery in the industrialised countries will be muted as a whole. The IMF expects growth here as a whole to stand at around 2 %. This would leave economic activity for this group of countries still well below the level which applied prior to the global crisis in absolute terms. The rate of recovery in the USA is expected to be slightly above this average, at around 2.7 %. A more moderate revival is forecast for Europe. The European research network EUROFRAME forecasts 35

38 Sto AG Management Report for the Sto Group (IFRS) growth in the order of 1 % for the euro zone, for example (forecast as per December 2009). Growth in Germany is expected to be around 1.3 %. Demand in the construction sector shaped by regional factors The prospects for the European construction industry also remain muted as a whole in The EUROCONSTRUCT research association expects the total volume of construction to decline once again, by slightly over 2 %. A drop by as much as 4.3 % is forecast in the area of new housing construction. Housing renovation business is likely to remain roughly at the previous year's level, with a moderate drop of approx. 0.6 %. The situation for the construction industry is likely to remain difficult above all in Spain, Ireland, the United Kingdom and parts of northern Europe, while a continuing stable trend is emerging in the Germanspeaking countries. Growth is expected in the Slovak Republic and in Poland. In Germany the German Federal Building Association expects sales in the main construction sector to fall by around 1.5 %. This comparatively sound forecast will only hold true if the federal state and local government authorities maintain their investment activities and continue to follow the central government's expansionary course in 2010, however. In this case it may be possible to virtually balance out the expected 12 % decline in commercial building. The association forecasts a stable trend for housing construction. The Federal Office of Foreign Trade Information does not expect an upturn for the US construction sector in In the area of infrastructure and commercial construction in particular, the bfai predicts a further decline in the order of -1 % to -2 %. This means that stagnation at best is to be expected for the market as a whole, even if the recovery in housing construction continues. In contrast, the Chinese construction industry is likely to grow once again in Continuing demand is expected above all in the infrastructure segment. Housing construction is also set for a positive trend, as the need for new housing space will remain high in the face of the continuing process of urbanisation. Insulation for buildings acquires further importance in this context, as according to the eleventh five-year programme (2006 to 2010) the energy intensity of the Chinese economy is to be reduced by 20 % by the end of the year. Projected performance of the Sto business segments Assuming that the general economic conditions develop as forecast, Sto expects a further overall decline in sales in the Americas/Asia segment. This is due to declining business in the US as a result of the predicted weak demand in commercial construction. In Asia, we expect our subsidiaries to show sustained growth. This will not be sufficient to balance out the decline in the USA, however. We foresee a stable course of development for the Northern/Eastern Europe segment. This is based above all on the expected growth in sales among the northern European subsidiaries, which should benefit from the general economic stabilisation following the slump in demand which resulted from the economic downturn in the previous year. The forecast for Eastern Europe is subject to greater uncertainties. We assume that our subsidiaries will be able to keep their business volumes on a roughly stable footing in view of their good positioning in their respective markets. We expect growth in sales in 2010 to be somewhere in the middle of the single-digit percentage range in Western Europe. This growth will be driven first and foremost by Sto AG and the German and French subsidiaries. In view of the measures in place to boost the economy and the ongoing debate on 36

39 Management Report for the Sto Group (IFRS) Sto AG energy efficiency, an increase in the demand for external wall insulation systems is to be expected in both of these countries. The positive sales trend is also set to continue for Sto in Switzerland, Austria and Italy. Business is likely to remain difficult in the Netherlands and the United Kingdom on account of the unstable general economic conditions. The demand for construction services also appears set to remain in decline in the Spanish market. Sales at our young subsidiary Sto Ibérica will increase, however, as the accounts will be settled for a number of large-scale projects. Projected performance of the Sto Group On the basis of the expectations in the individual segments we expect consolidated revenues to rise in the 2010 financial year by around 2 % to approximately EUR 946 million, which would represent a return to the level attained in the 2008 financial year, before the onset of the global economic crisis. Despite the increase in sales, it does not appear likely at present that consolidated EBIT will attain the 2009 level. This is due in particular to a disproportionate rise in material and staff costs in relation to the business volume. The pressure on prices will also continue to increase in our industry. The rise in staff costs results from the increase in the size of the Group's workforce to adjust the staffing levels in individual countries to the higher sales volumes which are expected in the medium term. In part, these increases concern measures which were deferred in 2009 in view of the economic crisis. Recruitment will focus on Germany this year, primarily in order to further reinforce our sales organisation. A notable increase in the workforce is also planned in France in view of the favourable prospects for this market. The investment volume throughout the Group as a whole will total around EUR 21 million in 2010, once again falling short of the level of depreciation. Key focuses of investment activities will include measures to modernise our older production facilities. We will also be adding new sales offices and new locations to our sales network. Additional sales centres are planned in particular in Germany and France. Substantial final payments are also due following commissioning of the insulant factory in Lauingen. No major financing measures are planned in 2010, as we dispose of sound and long-term funds and high self-financing power. It is not possible to make any reliable predictions for the 2011 financial year at present. Uncertainty exists above all with regard to the knock-on effects of the global financial and economic crisis. The imponderables play a particularly significant role in the construction sector, which in the past has tended to respond more falteringly to economic trends than other branches of industry. In addition, the economic stimulus packages which have provided the construction industry with considerable support since 2009 will come to an end in Germany and other countries in It remains unclear whether alternative measures will be able to offset the future absence of these fiscal stimuli. Risks and opportunities for future development Predictions on the future course of business are subject to major uncertainty, as the international construction industry is now exposed to extremely volatile underlying economic conditions. In addition to the projected economic and sales scenarios, a prerequisite for achieving the forecast business performance is a stable political climate. Our planning is also based on our own assessment of the trends for the currencies relevant to the performance of Sto. Should these assumptions prove incorrect, the expectations described for 2010 and 2011 may deviate more or less from reality. 37

40 Sto AG Management Report for the Sto Group (IFRS) One risk in the current financial year is that the predicted revival of the global economy may fail to materialise. This would have severe repercussions for the construction sector. In addition to the lack of a revival in demand in individual countries a large number of insolvencies would also be likely in this case, as the financial situation of many construction companies is highly strained as a result of the recession. This may lead to an increase in losses from bad debts for Sto. Equally, the exchange rates of the currencies which are of importance to Sto may develop along less favourable lines than assumed in our planning. The dependency on weather conditions remains a major element of uncertainty. Due to the very cold winter worldwide in 2010 accompanied by high levels of snowfall, consolidated revenues remained below the comparable figures for the previous year until the middle of March this year. If the coming winter season in the fourth quarter also has adverse effects beyond the customary extent, the set sales target may be placed in doubt. Conversely, the 2010 financial year may harbour opportunities in the form of sales performance which is better than forecast in those countries which we have assumed will experience a restrained course of business on account of difficult underlying economic conditions. The USA and the United Kingdom in particular fall into this category. In Northern and Eastern Europe, higher growth rates than planned would be attainable in the event of a sustained economic recovery. Looking at the medium to long term, it is our view that operational opportunities outweigh the risks. This view derives from the high likelihood of rising prices for energy and raw materials in the long term, which will render thermal insulation ever more attractive on economic grounds alone. The possibility of insulation systems being used in future in regions in which they are less common at present, such as Northern Europe and Asia, also harbours opportunities. Sto might also benefit from such trends as a leading company in the EWIS sector. As external wall insulation systems markedly improve the energy efficiency of buildings, they help to achieve major reductions in emissions of CO 2 and other pollutants. This assures them of a vital role in combating climate change and air pollution. This should result in continually growing demand from ecologically oriented clients, in addition to which the major benefits might prompt governments to continue to subsidise facade insulation systems in the coming years. This should result in a substantial broadening of the customer base. General statement by the Board of Directors on the future course of development By virtue of its leading position in maintaining the value of buildings and in view of the attendant technical expertise, its strong sales organisation and its sound economic and financial base, the Sto Group is in a good position to maintain sustainable growth in the long term, coping with difficult economic cycles along the way. Our motivated and well trained workforce will stand us in good stead here. We will continue to take all the necessary measures to meet our social responsibilities towards our employees in the future. Constructive cooperation with employee representatives will remain an important element here. We will also continue to observe our social responsibility in keeping with Sto's guiding principle of "Building with conscience", always pursuing a sustainable approach in this context. Stühlingen, April 2010 Sto Aktiengesellschaft Board of Directors 38

41 Management Report for the Sto Group (IFRS) Sto AG 39

42 Sto AG Sto Share Sto Share Data on Sto preferential share Ticker symbol STO3 ISIN DE WKN Share category Non-voting preferential bearer share Market segment Regulated market Level of transparency General Standard German Securities Exchange sector DAXsector All Consumer Number of preferential shares 2,538,000 Number of ordinary shares not listed 4,320, on the stock markets 2009 got off to an inauspicious start for the international stock markets: the fear of a deep recession as a result of the economic and financial crisis sent shares plummeting to new lows in January and February. The beginning of March saw a turnaround, however, when it became apparent that the worldwide economic stimulus packages and massive cash injections from the reserve banks were successfully stabilising the economy and the banking sector. The consolidation process was confirmed in the following months by positive trends for key economic indicators. This encouraged hopes that the recession had bottomed out and that growth was in store again from In addition, strict cost cutting measures by numerous companies provided for surprisingly good profits in excess of expectations. Share price trend for 2009 (indexed on = 100) Sto preferential share DAX Construction Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. 40

43 Sto Share Sto AG The improved situation on the stock markets prompted an increase in share buying as of the second quarter of The growth in investor confidence was sustained up to the end of the year, providing for gains across the board which more than balanced out the losses incurred during the first months of the year. The key German index, DAX, closed the year on 5,957 points, for example, following a low of 3,666 points in March This represented an almost 24 % rise over the level at the end of the previous year (4,810 points). The Smallcap index SDAX gained around 27 % in the course of the year. Key figures Values per share in euros Earnings per preferential share Cash flow from current operations Shareholders' equity Distribution per preferential share Bonus Share price at year end* Year high* Year low* PER (31/12) PER (high) PER (low) Capitalisation of preferential shares on 31/12 (in EUR millions) Average daily trading volume (number of shares) 4,322 5,044 * XETRA closing price **XETRA and Frankfurt Clear gain for the Sto preferential share Virtually all stock market segments benefited from the trend towards bolstering share portfolios in Germany in Construction stocks also gained ground once again following their high losses in 2008, the Construction index gaining around 54 % from a low level. Their recovery was helped in part by the German government's economic stimulus package, which also benefited the construction industry. The price of the Sto preferential share rose year-on-year by around 36 % to EUR Its closing price was only marginally lower than the annual high of EUR which it attained at the beginning of December. The share price more than doubled in comparison to its annual low of EUR in February. While the performance of the Sto preferential share was slightly more muted than that of the Construction index in 2009, this was primarily attributable to the fact that our share had already begun its recovery from the stock market slump by the final quarter of 2008, in contrast to the sector index. The Sto preferential share continued this upward trend in The positive price trend was underpinned by Sto's solid operating performance despite the economic crisis. Investors were also attracted by the company's prospects: Sto is strongly positioned with its products in the fields of thermal insulation and improved energy efficiency two areas which are likely to harbour good potential for a long time to come. Based on the closing price for 2009, the market capitalisation of the million Sto preferential shares stood at EUR million, as compared to EUR million on the previous year's reporting date. Stable result unchanged dividend payout Despite the financial and economic crisis, consolidated revenues fell by only around 2.3 % to EUR million. This performance was underpinned in particular by good sales of facade systems in most countries of Western Europe. In addition, the customary decline in demand in the fourth quarter was markedly less pronounced in key regions than in previous years, on account of the mild weather. 41

44 Sto AG Sto Share The sound sales volume also provided the basis for a satisfactory earnings situation. In addition, Sto introduced additional stringent costcutting measures at the beginning of As a result, the consolidated operating result (EBIT) fell only by a moderate 1.1 % to EUR 82.3 million. Earnings before tax (EBT) rose as a result of an improved financial result by 3.3 % to EUR 78.9 million. Consolidated net income improved by 7.3 % to EUR 55.6 million, because the tax rate was lower than in the previous year. This results in earnings of EUR 8.66 (previous year: EUR 8.09) per preferential share and EUR 8.60 (previous year: EUR 8.03) per ordinary share. On the basis of the stable earnings situation, the Board of Directors and the Supervisory Board will be proposing to the Annual General Meeting that the dividend distribution remain unaltered. This means that shareholders will again receive a dividend of EUR 0.31 per preferential share and EUR 0.25 per ordinary share. This will be supplemented by a bonus at the previous year's level of EUR 2.06 per preferential and ordinary share. Based on the 2009 closing price, this would result in a dividend yield for the Sto preferential share of 3.8 %. Shareholder structure The shareholder structure remained essentially unchanged: of the million preferential shares, approx. 36 % were in the hands of institutional investors at the end of December The remaining preferential shares were free float. The number of non-listed ordinary Sto shares remained unchanged at 4.32 million. On the reporting date, 90 % of these were held by the Stotmeister family, and 10 % by Sto AG. Trading volume 2009 Sto preferential shares are traded on the regulated market on the stock exchanges in Frankfurt and Stuttgart, in the electronic trading system XETRA, and on the unofficial regulated market of the Berlin, Düsseldorf and Munich stock exchanges. By far the lion's share of the company's stock is traded on XETRA, with the Frankfurt stock exchange handling the second-largest trading volume. These two trading locations normally handle more than 90 % of daily volume. In all, around 1.1 million Sto preferential shares were traded in 2009, as compared to approx. 1.3 million in the previous year. An average of around 4,300 shares per day changed hands in 2009, as compared to around 5,000 in

45 Sto Share Sto AG 43

46 Sto AG Sustainability and Corporate Social Responsibility Sustainability and Corporate Social Responsibility company's guiding principle of "Building with conscience", which defined maintaining the value of buildings in strict compliance with the needs of mankind and nature as an overriding mission statement. As such, we were one of the first companies in our industry to incorporate social and ecological criteria into our management system. The company's dynamic course of development over the past decades attests to the success of this policy. StoVerotec produces high-quality facade and acoustic systems and architectural elements which consist of around 80 % expanded glass granulate. Recycled glass makes up around 93 % of this material. Sto's long-standing commitment to sustainable practice Sustainable and responsible practice is a topic which has come ever more to the forefront of public debate in the past five years. Sto AG is well acquainted with these issues, which it has been addressing in earnest since the 1980s. The results of this ongoing process have been incorporated into all aspects of our corporate policy and practice. We have systematically expanded our range of facade insulation systems and environmentally friendly coating materials, and we have long accorded high priority to efficient production processes in order to manufacture our products with the minimum possible input of energy and materials while also minimising emissions. We have always been fair in our dealings with suppliers and pursue forwardlooking personnel planning which offers our employees a high level of job safety and a wealth of career prospects. As a family-controlled public limited company, we are also committed to ensuring continuity at management level. Sto's far-sighted and responsible approach was encapsulated at the end of the 1980s in the Guiding principles revised sustainability principle reinforced In 2009 we revised our guiding principles. In so doing, we took account of the substantial changes which had occurred in the construction industry while at the same time preparing Sto AG and its staff for the impending change in the company management, with a new generation set to take the helm. The newly defined values provide a binding framework for the future and set out clear terms of reference for responsible and economically successful practice. A key result of the revision of our guiding principles was the even stronger integration of sustainability aspects into all relevant areas and at all levels. This underscores Sto AG's commitment to sustainable corporate management and social responsibility. This commitment and the further internationalisation of the company which is planned for the coming years prompted us to sign up to the United Nations' "Global Compact" business initiative. The companies participating in this worldwide pact have made a public and verifiable commitment to respect and protect human rights, to meet international labour standards, to fight corruption, and to implement forward-looking, comprehensive environmental protection policies. 44

47 Sustainability and Corporate Social Responsibility Sto AG In connection with our joining this UN initiative we introduced a new reporting system in 2009 to ensure that all business units of the Sto Group act in compliance with the "Global Compact" guidelines. We aim to exceed the minimum standards specified in these guidelines on all fronts. The following pages present a selection of the numerous activities which we are already pursuing in the areas of sustainability and corporate social responsibility (CSR). These examples break down into the categories economy, ecology and social issues. Economy Sto AG pursues a long-term corporate strategy. Our aim is to maintain sustainable growth and to increase the value of the company while according due regard to social and ecological criteria. This is crucial in the interests of longterm job security and in establishing Sto as a reliable partner for customers, suppliers and other stakeholders. In order to consolidate our company's sound economic basis, the revised guiding principles define the most important success factors in addition to setting out our commitment to sustainable and socially responsible practice. Sto AG does not see economy on the one hand and ecology and social aspects on the other as contradictory aims. Rather, they are mutually complementary by implementing efficient production processes, for example, we not only reduce our energy input and pollutant emissions but also lower our costs. We adhered firmly to this course in 2009, cutting the volumes of containers and tin requiring disposal by around 25 % by means of changes in the area of packaging, for example. 98 % of all waste occurring at Sto AG was recycled last year. Ecology Sto AG's core business line is the manufacture of facade insulation systems. Such systems enable substantial reductions in the energy consumption and pollutant emissions of buildings. An estimated 55 billion litres of heating oil were saved up to the end of 2009 as a result of the use of Sto systems, which have been available since This corresponds to the capacity of around 2,200 fully laden oil tankers or around 2 million lorries. The reduced consumption of heating oil has saved 170 million tonnes of CO 2, including around 13.6 million tonnes in 2009 alone. Our subsidiary StoVerotec produces highquality facade and acoustic systems and architectural elements which consist of around 80 % expanded glass granulate. Recycled glass makes up around 93 % of this material. Last year, StoVerotec produced approx. 838,000 m 2 of facade and acoustic panelling based on expanded glass granulate. This enabled the recycling of around 3,800 tonnes of glass. In 2009, Sto AG was the first manufacturer of external wall insulation systems to present environmental declarations for some of its products according to the EPD standard (EPD = Environmental Product Declarations). In these declarations we publish all the relevant environmental data, such as life cycle assessment results, together with the corresponding certificates and test reports. This information is of particular interest to the booming sustainable building segment. The process of certifying the entire external wall insulation system is to be completed in Sto has received various awards in the past for its scope of sustainable and environmentally friendly products and services. Four subsidiaries won awards in this area in The Dutch subsidiary Sto Isoned won the "Passief Bouwen Thermal insulation helps to protect the environment The energy savings from the use of Sto facade insulation systems correspond to around 55 billion litres of heating oil 4,000 l = x 14 million oil tanks 28,000 l x 2 million oil tanker lorries 25,000,000 l x 2,200 oil tankers Savings of heating oil between 1965 and 2009 through the use of facade insulation systems from Sto total a staggering 55 billion litres. The facade systems from the Black Forest have cut CO 2 emissions by around 170 million tonnes. In 2009 alone, Sto products reduced emissions of this combustion gas by around 13.6 million tonnes. 45

48 Sto AG Sustainability and Corporate Social Responsibility of our company, providing it with funding to the tune of one million euros. The Sto Foundation currently operates on an annual budget of around EUR 190,000. In addition to the funds from the Foundation's capital assets, Sto AG and its ordinary shareholders also contribute an annual allowance. Facade insulation is now generally recognised as a crucial element of energy-efficient building and renovation. A particularly effective variant offering a broad scope of design options is the ventilated rainscreen cladding system (StoVerotec Glas on the facade of the care and support centre in Oberföhring). EPD certificate Award 2009", for example, while Austrian subsidiary Sto Ges.m.b.H. scooped the CSR award "Kärnten TRIGOS 2009" in the Ecology category for the small and medium-sized business sector. The Polish subsidiary Sto-ispo received the "Top Builder" innovation award for the StoLotusan Color and StoLotusan Putz product groups. Sto Ibérica was awarded the Innovation Diploma for the photovoltaic rainscreen cladding system at the Spanish construction fair "Construmat". The Sto Group's largest site is its headquarters in Stühlingen. We require an annual 6.3 million kilowatt hours (kwh) of electricity here for our production, service and administrative facilities. These requirements are covered entirely with electricity from regenerative sources. We generate 5 % of the electricity ourselves with the aid of a water turbine which has been in use since Social issues Sto's commitment to social issues forms part of a long-standing tradition at the company. A key element of our efforts in this area is the non-profit-making Sto Foundation, which we established in 2005 to mark the fiftieth birthday The primary aim of the Sto Foundation is to support young people who are serving an apprenticeship in the painting, decorating and plastering trades or studying construction engineering or architecture at university. A six-member Foundation Council decides on the allocation of funding, ensuring that the manual and academic areas receive equal treatment. The funds are deployed for scholarships and to finance projects for particularly talented trainees and students, for grants to provide support during training for qualification as a master craftsman or during doctorate studies, or for general training and education purposes, for example. A special aspect of the Sto Foundation is the consideration of social components in the area of funding for manual trades. Socially disadvantaged young people beginning apprenticeships under difficult conditions qualify for support in this context. In the area of manual trades, further training for technical college teachers represents a key focus of funding by the Sto Foundation. In order to provide tomorrow's painters, decorators and plasterers with effective preparation for their future occupations, it is crucial that instructors and teachers have an up-to-date knowledge of the sector. The Sto Foundation has been committed to this fundamental task for some years now. Its further training seminars are organised in cooperation with the Hauptverband Farbe Gestaltung Bautenschutz, 46

49 Sustainability and Corporate Social Responsibility Sto AG The Sto Foundation has been funding further training for technical college teachers in the field of painting and decorating for some years now. Three-day seminars bring the teachers up to date on the latest technical advances. an umbrella association for paint, design and the protection of buildings. All the courses in 2009/2010 were fully booked within a few days of their announcement. In view of the undisputed need for these measures and their great success, the scope of the courses is to be expanded to include external wall insulation systems. A particularly impressive project which has been carried out in the area of architecture is the construction of a hospital and winter school building in the Himalayas which is self-sufficient in terms of energy. The PassivHaus was built in 2007 with the aid of architecture students from Aachen Technical University (RWTH) in a village in the Indian state of Jammu at an altitude of several thousand metres. The aim was to erect a building which does not require heating even at extremely cold outside temperatures as low as -40 degrees Celsius. Initial series of manual measurement in the winter of 2007/2008 confirmed that this aim was achieved. Following structural optimisation measures in the following summer, the building is now being evaluated by means of a detailed monitoring operation funded by the Sto Foundation. Information for follow-up projects in the region is to be collected and evaluated as part of this operation. In addition to the Foundation's activities, Sto also demonstrates social responsibility through its support of social projects. We have been working together for many years now with the Tannheim after-care clinic for children suffering from cancer, for example. We also help socially In the area of architecture the Foundation has supported a project by RWTH Aachen in which students built a school to PassivHaus standard in the Indian state of Kashmir. The school is situated in the village of Sani, at an altitude of 3,700 m in the Himalayan massif. The building requires no additional heating, even in extreme cold. 47

50 Sto AG Sustainability and Corporate Social Responsibility A strong team: Trainees from Sto joined forces with personnel from the St. Michael workshops for disabled persons to freshen up a home for the disabled. disadvantaged families in the region with the aim of safeguarding childrens' schooling. In this connection, we have also supported social projects in Eastern Europe in cooperation with ProHumanitate, for example. In order to strengthen the social competence of our trainees, we carried out a project last year in which they renovated a home for disabled persons together with the residents. 48

51 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) 49

52 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG, Stühlingen Consolidated income statement for 2009 Notes EUR EUR '000s 1. Revenues (1) 924,626, , Changes in product inventories 1,019, , Other internally generated assets capitalised (2) 31, Total revenues 923,637, , Other operating income (3) 12,598, , Cost of materials (4) 408,317, , Personnel expenditure (5) 240,145, , Other operating expenses (6) 180,961, ,062 EBITDA 106,811, , Depreciation and amortisation of intangible fixed assets as well as property, plant and equipment (7) 24,466, ,435 EBIT (Earnings before interest and taxes) 82,344, , Share in profits of associates (8) 76, Interest and similar income (9) 2,164, , Interest and similar expenses (9) 5,086, , Other finance income (10) 4, Other finance expenses (10) 492, ,517 EBT (Earnings before taxes) 78,857, , Taxes on income and earnings (11) 23,262, ,535 EAT (Earnings after taxes) 55,595, ,838 Of which: earnings share of minority interests 206, Of which: earnings share of the shareholders of Sto AG 55,388, ,728 Earnings per share basic / diluted in EUR Ordinary shares (12) Preferred shares (12)

53 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Sto AG, Stühlingen Consolidated statement of recognised income and expenses 2009 in EUR '000s EAT (Earnings after taxes) 55,595, ,838 Actuarial gains or losses 234, ,089 Deferred taxes 75, Cash flow hedges: fair value changes recognised in equity 841, ,045 transferred to the income statement 606, Deferred taxes 67, Currency translation differences 636, ,981 Income and expenses recognised directly in equity 308, ,578 Overall result 55,903, ,260 Of which: earnings share of minority interests 209, Of which: earnings share of the shareholders of Sto AG 55,694, ,156 For further information about equity, see No. (20). 51

54 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG, Stühlingen Consolidated balance sheet for the year ended 31 December 2009 Assets A. Non-current assets Notes EUR EUR '000s I. Intangible assets (13) 42,488, ,412 II. Tangible fixed assets (14) 193,190, ,373 III. Investments in associates (15) 18, Fixed assets 235,697, ,880 IV. Non-current trade receivables (17) 921, ,154 V. Non-current income tax receivables 4,601, ,441 VI. Non-current other receivables and financial assets (18) 1,508, ,290 VII. Deferred tax assets (11) 8,130, ,250 Other non-current assets 15,162, ,135 Total non-current assets 250,860, ,015 B. Current assets I. Inventories (16) 57,578, ,962 II. Current trade receivables (17) 100,367, ,239 III. Current income tax receivables 2,424, ,333 IV. Current other receivables and financial assets (18) 50,614, ,409 V. Cash and cash equivalents (19) 106,714, ,828 Total current assets 317,698, ,771 Total assets 568,558, ,786 52

55 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Liabilities A. Equity Notes EUR EUR '000s I. Subscribed capital (20) 17,556, ,556 II. Capital reserves (20) 53,229, ,229 III. Revenue reserves (20) 248,561, ,534 Share attributable to the shareholders of Sto AG 319,347, ,319 IV. Holdings of other shareholders (21) 1,516, ,307 Total equity capital 320,863, ,626 B. Non-current provisions and liabilities I. Provisions for pensions and similar liabilities (22) 36,323, ,324 II. Deferred tax liabilities (11) 5,404, ,166 III. Other non-current provisions (23) 5,206, ,486 IV. Non-current borrowings (24) 41,410, ,613 V. Other non-current liabilities (25) 442, Total non-current provisions and liabilities 88,787, ,650 C. Current provisions and liabilities I. Other current provisions (23) 45,785, ,391 II. Current borrowings (24) 17,634, ,375 III. Trade payables (26) 33,970, ,623 IV. Current income tax liabilities 10,104, ,554 V. Other current liabilities (25) 51,412, ,567 Total current provisions and liabilities 158,907, ,510 Total debt capital 247,694, ,160 Total assets 568,558, ,786 53

56 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG, Stühlingen Statements of changes in consolidated equity as at 31 December 2009 in EUR '000s Subscribed Capital Revenue reserves capital reserve Accumu- Currency Reserve lated translation for profits reserve pensions Status as at ,556 53, , Dividend payout 0 0 7, Income and expenses recognised ,729 3,981 1,503 Status as at ,556 53, ,629 3, Status as at ,556 53, ,629 3, Dividend payout , Income and expenses recognised , Status as at ,556 53, ,352 2,

57 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Revenue reserves On Sto AG Shares Total shareholders other equity Reserve for attributable shareholders cash flow shareholders' hedges Treasury stock equity , ,321 1, , , ,157 1, , , , ,320 1, , , ,320 1, , , , , , , ,349 1, ,864 55

58 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG, Stühlingen Consolidated cash flow statement for 2009 in EUR '000s Cash flow from operating activities Accounting profit 78,858 76,373 Depreciation of non-current assets (net of reversals) 24,466 24,434 Net profit/loss from disposal of non-current assets Net profit/loss from the fair-value measurement of investments in associates Net interest income/expense and other net finance income/expense 3,410 6,482 Income taxes paid 24,549 21,036 Change in tax assets and tax liabilities 916 2,713 Change in provisions 16,533 6,533 Change in net current assets 16,133 1,950 Cash flow from operating activities 113,236 87, Cash flow from investment activities Investments in property, plant and equipment and intangible assets 20,940 19,202 Payments for the acquisition of consolidated companies and other business units Payments made for shares in associates Payments received from the disposal of intangible assets and plant, property and equipment 1,386 2,138 Interest payments received 1,774 1,387 Dividends received 44 0 Disbursements for financial investments 39,289 14,000 Deposits from financial investments 14,000 0 Cash flow from capital spending 43,025 30, Cash flow from financing activities Payments for non-current borrowings 15,756 16,283 Payments for other borrowings 184 2,752 Dividend distribution 14,666 7,156 Interest payments 3,036 4,565 Cash flow from financing activities 33,642 30,756 Change in cash and cash equivalents from changes in exchange rates 317 1,860 Cash and cash equivalents at beginning of period 69,828 45,165 Change in cash and cash equivalents 36,886 24,663 Cash and cash equivalents at end of period* 106,714 69,828 * Cash and cash equivalents at the end of the period equal the item shown in the balance sheet The capital flow statement is explained in the Notes, in No. (27). 56

59 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Sto AG, Stühlingen Notes to the consolidated financial statements as of 31 December 2009 General information 1. Information on the Company In its capacity as the operating parent company, Sto AG, Stühlingen, whose majority shareholder is Stotmeister Beteiligungs GmbH, Stühlingen, produces and distributes paints, coatings of all kinds, heat and acoustic insulation systems, concrete maintenance systems and products and goods for the preservation of buildings. The address of its registered offices is Ehrenbachstrasse 1, Stühlingen, Germany. Sto AG has been entered in the commercial register of the Local Court of Freiburg under the number HRB It is listed in the "Regulated Market" segment for official trading at the stock exchange operated by Deutsche Börse AG, Frankfurt/Main. The other group companies engage in the same business as Sto AG. On 12 April 2010, the Board of Directors passed a resolution to authorise the submission of Sto AG's consolidated financial statements and the Group management report to the Supervisory Board. 2. Basis of preparation Sto AG has prepared its consolidated financial statements for the year 2009 in accordance with the International Financial Reporting Standards (IFRS) in the form to be applied in the European Union and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). All standards and interpretations subject to compulsory application in 2009 were observed. The amendment to IFRS 2 "Share-based remuneration" was observed for the first time. The change clarifies the definition of the term "conditions for exercise", stipulating that these comprise solely service and benefit conditions. In addition, the revised standard extends the rules for recognising the premature termination of share-based payment plans even in the event of such plans being terminated by employees. As the Sto Group does not offer any share-based payment as defined in IFRS 2, this amendment will not have any effect on its consolidated financial statements. The amendments to IFRS 4 "Insurance contracts" and to IFRS 7 "Financial instruments: Disclosures" were observed for the first time. The amendment to IFRS 4 had no impact on the consolidated financial statements. The amendment to IFRS 7 led to extended reporting on the fair value measurement of financial instruments. The amendment relates to the introduction of a three-stage fair value hierarchy for reporting purposes. This distinguishes between fair values according to the significance of the input parameters used for measurement purposes and illustrates to what extent observable market data is available to measure fair value. Moreover, the disclosures on the liquidity risk are to be improved by clarifying the extent of liabilities to be included in a schedule of terms to maturity. The disclosures on the measurement of fair values lead to additional entries being made in the notes. The information on the liquidity risk will not undergo any substantial changes due to the new rules. On account of IFRS 8 "Business segments", applied for the first time on 1 January 2009, segment reporting was adjusted both in terms of content and structure to the reports submitted to internal decision-makers on a regular basis. The Sto Group's segment reporting is based on the geographic location of its markets as is the case with its internal reporting. The standard has an impact on the presentation of segment reporting but not on the Group's asset, finan- 57

60 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) cial and earnings position. The comparative figures reported in segment reporting for the period under review were adjusted as though IFRS 8 had been applied the previous year. The revision of IAS 1 "Presentation of financial statements" was also applied for the first time in fiscal The new version of the standard contains significant changes to the presentation and disclosure of financial information in the annual financial statements. In future, the statement of changes in equity will only reflect transactions with shareholders in their capacity as such. All other changes to equity are to be reported in the statement of recognised income and expenses; in the Sto Group this is done in the form of two statements, a separate income statement and a statement of recognised income and expenses. Moreover, the standard provides for an entity to include a balance sheet in its financial statements at the beginning of the earliest period for comparison purposes if it applies an accounting method with retrospective effect or if it retroactively adjusts or reclassifies items in its financial statements. The revised IAS 23 "Borrowing costs" calls for the capitalisation of any borrowing costs that can be directly allocated to the acquisition, construction or manufacture of a qualified asset. This amendment applies to qualified assets the acquisition or production of which began on or after 1 January A qualifying asset is an asset that takes a period of at least one year to prepare for its intended use or sale. This standard must be applied for the first time to borrowing costs for qualifying assets which are first recognised on or after 1 January In the Sto Group, there were no borrowing costs required to be capitalised with reference to a qualified asset. The amendments to IAS 32 "Financial instruments: Presentation" and IAS 1 "Presentation of financial statements" terminable financial instruments and obligations arising from liquidation were observed for the first time. The change concerns the classification of terminable shareholder deposits as equity or as liabilities. Under the previous rules, it was in some cases necessary to recognise share capital as financial liabilities on account of the shareholders' statutory rights of termination. In the future, these shareholder deposits will as a rule be classified as equity provided that a settlement at the fair value of the instrument in question is agreed and the capital contributions made constitute a subordinated claim to the company's net assets. Given the corporate form of Sto AG and its subsidiaries and in the light of the applicable statutory and corporate provisions, these new rules did not have any effect on the classification, measurement and recognition of share capital in the consolidated financial statements for The amendments to IFRS 1 "First-time adoption of the International Financial Reporting Standards" and IAS 27 "Consolidated and separate individual financial statements according to IFRS" had to be applied for the first time during the last fiscal year. The amendments to IFRS 1 enable an entity to treat the acquisition costs of holdings in subsidiaries, joint ventures and associated companies in its IFRS opening balance sheet by using amounts reported under previous accounting rules or at fair values as substitute for acquisition costs. The changes to IAS relate to the separate individual financial statements of a parent company alone and stipulate in particular that all dividends of subsidiaries, joint ventures and associated companies are to be disclosed in the separate individual financial statements with an impact on profit and loss. The amendments have no impact on the consolidated financial statements of the Sto Group. 58

61 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG In the 2009 consolidated financial statement, the amendments to IFRIC 9 "Reassessment of embedded derivatives" and IAS 39 "Financial instruments: Recognition and measurement, including the rules relating to the use of the fair value option", were applied for the first time. This amendment served to clarify the assessment of embedded derivatives when reclassifying financial instruments. For the Sto Group, this amendment had no impact on the consolidated financial statements. The collective standard approved within the scope of the project "Improvements to IFRS 2008" was applied for the first time, except for the amendment to IFRS 5. The amendments to the various IFRS standards served to eliminate inconsistencies and clarify certain formulations. The first-time application resulted in no substantial impact on the consolidated financial statements. In addition, the use of the following interpretations was mandatory for the first time in the financial year 2009: IFRIC 13 "Customer loyalty programmes" was applicable for the first time in fiscal IFRIC 13 provides guidance on the recognition and measurement of customer loyalty programmes. In the Sto Group, the application of IFRIC 13 for the first time will lead merely to changes in the presentation of customer loyalty programmes in the income statement. The IFRIC 14 interpretation "IAS 19 The Limit on a Defined Asset, Minimum Funding Requirements and their Interaction" was also applied for the first time. IFRIC 14 deals with the guidelines for the determination of the maximum amount under a defined benefit plan that may be capitalised as an asset in accordance with IAS 19 Benefits to Employees. As the Sto Group does not have any defined-benefit assets, this interpretation will not have any effect on its consolidated financial statements. Under Section 315a of the German Commercial Code, Sto AG is required to prepare its consolidated financial statements in accordance with the standards issued by the International Accounting Standards Board (IASB) in the form endorsed by the European Union. In addition to the disclosures stipulated by IFRS, these financial statements also include disclosures and explanations required by German commercial law. The consolidated financial statements provide a true and fair view of the Group's net assets, financial condition and results of operations. This entails a true and fair description of the effects of the Group's business transactions, other events and conditions in accordance with the definitions and criteria contained in the IFRS framework for recognising assets, liabilities, revenues and expenses. The current/non-current distinction is observed in the recognition of assets and liabilities. The income statement has been prepared using the total-cost method. Sto's financial year is the same as the calendar year. The consolidated financial statements have been compiled in euros. 3. International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) which have been published but are not yet binding. In November 2009 the IASB published a revised version of IAS 24 "Related Party Disclosures". This revision simplifies the disclosure rules relating to entities in which the state has an interest. Moreover, the definition of related entities and persons was fundamentally revised. The revised version of IFRS 24 has not yet been endorsed by the European Union. It is to be applied for the first time to financial years beginning on or after 1 January The revised IAS 24 will lead to no substantial changes for the Sto Group. 59

62 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) In January 2008 the revised standard IAS 27 "Consolidated and Separate Financial Statements according to IFRS" was published and must be applied for the first time in the reporting period that begins on or after 1 July The changes primarily relate to accounting for shares without a controlling influence (minority shares), which will participate to the full extent in any losses of the Group in future, and to transactions that lead to loss of control of a subsidiary, the effects of which must be treated as impacting on profit or loss. In contrast, the effects of share sales that do not lead to a loss of control must be recognised under equity with no impact on profit and loss. According to the transitional provisions, prospective application is intended here. Accordingly, there are no changes for assets and liabilities resulting from such transactions prior to the time of first application of the new standard. In October 2009 the amendment to IAS 32 "Classification of Subscription Rights" was published by the IASB and is to be applied for the first time to financial years beginning on or after 1 February The changes have been incorporated into European law and refer to the classification of subscription rights. Certain subscription rights such as options and warrants in foreign currency (a currency other than the functional currency), in the case of the issuer to whose equity instruments these rights relate, are now to be accounted for as equity and no longer as liabilities. This amendment will have no impact on Sto's consolidated financial statements. In July 2008 the amendments to IAS 39 "Qualifying underlying transactions" were published. These changes must be applied retroactively starting with accounting periods commencing on or after 1 July The change indicates in concrete terms how the principles contained in IAS 39 for depicting hedge relationships are to be applied to the designation of a unilateral risk in an underlying transaction as well as to the designation of inflation risks as an underlying transaction. It is made clear that it is permissible to designate only part of the changes to fair value or the cash flow fluctuations of a financial instrument as an underlying transaction. Sto AG assumes that the changes will not impact on its asset, financial and earnings position since the Sto Group did not enter into any transactions of this kind. The amendments to IFRS 1 "First-time Adoption of the International Financial Reporting Standards" was published by the IASB in November 2008 and subsequently adopted in European law. These must be applied starting with accounting periods commencing on or after 1 January The amendments to IFRS 1 refer to the first-time adoption of the IFRS. Since the Sto Group is no first user, this amendment will have no impact on Sto's consolidated financial statements. In July 2009 and January 2010, additional amendments to IFRS 1 "First-time adoption of International Financial Reporting Standards" was published. These amendments comprise additional exceptions for first-time users of IFRS and have not yet been endorsed by the European Union. The application of these changes is mandatory for financial years commencing on or after 1 January These amendments will not have any impact on the Sto Group either. In June 2009, the IASB published an amendment to IFRS 2 "Share-based remuneration" on the scope of application and accounting for share-based remuneration with cash compensation. The amendment has been endorsed by the European Union and is to be applied for the first time to accounting periods beginning on or after 1 January The application of this 60

63 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG standard has no impact on the Sto Group's net assets, financial condition or results of operations. In January 2008, the amendment to IFRS 3 "Business Combinations" was published and has meanwhile been endorsed by the European Union. This amendment must be applied for the first time in accounting periods commencing on or after 1 July The material change concerns the introduction of an option to recognise minority interests either at their fair value or as a proportion of the identifiable net assets. As the Sto Group does not expect any material business combinations to arise in the financial year 2010, this will not have any impact on its consolidated financial statements. In November 2009, IFRS 9 "Financial instruments: classification and measurement" was published by the IASB. The new IFRS 9 deals with classification and measurement criteria of financial assets. The new standard has not yet been endorsed in European law to date and is to be applied to accounting periods beginning on or after 1 January The impact on the asset, financial and earnings position and presentation in the consolidated financial statements are currently being analysed. In April 2009, as part of the project improvements to IFRS 2009 a collective standard for the amendment of various IFRS was published and endorsed by the European Union. The primary objectives of these improvements are to eliminate inconsistencies and clarify formulations. In the Sto Group, these improvements are to be applied to the following accounting period. The Sto Group assumes that these changes will have no substantial impact on the consolidated financial statements. The key changes relate to the following standards: IFRS 1 "First-time adoption of International Financial Reporting Standards": Entry of the reference that any options of a counterparty to call for settlement of liabilities by issuing equity instruments has no influence on whether such liabilities are to be classified as current or non-current. IFRS 2 Share-based remuneration and IFRS 3 Business combinations: Clarification that, in addition to business combinations within the scope of application of IFRS 3, the formation of joint ventures or transactions involving joint control are excepted from the scope of application of IFRS 2. IFRS 5 "Non-current assets held for sale and discontinued operations": It is clarified that only the mandatory disclosures pursuant to IFRS 5 apply to non-current assets and groups thereof held for sale as well as discontinued operations. The mandatory disclosures provided in other IFRS are to be observed only if the respective standards or interpretations explicitly call for assets in accordance with IFRS 5 and discontinued operations. IFRS 8 "Business segments": The IASB clarifies that within the scope of segment reporting, the amounts relating to assets and liabilities need to be specified only if this disclosure is the subject of regular reporting to the primary decision-makers. This amendment was necessary because the past rule called for disclosure of segment assets in every single case, even where such information is not made available to the company's primary decision-makers. IAS 7 "Capital flow account": Clarification in IAS 7 that only expenses leading to an asset reported in the balance sheet can be recognised as cash flows from investment activity within the scope of the capital flow account. IAS 17 "Leases": Although the accounting rules relating to lease will change in the medium term, the 61

64 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) existing regulations were amended once again with the deletion of 14 and 15. IAS 18 "Revenues": Inclusion of general guidelines to determine the principal and agent within the scope of transactions in the Notes to IAS 18. To determine whether an enterprise acts as a principal or agent, all the relevant facts and circumstances are to be assessed and weighed. IAS 36 "Impairment of assets": Clarification that the lowest level of a business segment is applicable in line with the definition under IFRS 8.5. IAS 38 "Intangible assets": Clarification that the intangible assets acquired in the course of a business combination may possibly be separable only in connection with a relevant contract, identifiable asset or liability. In addition, it was clarified that a group of complementary intangible assets with similar useful economic lives may be recognised as a single asset. In addition, the rule in IAS 38 was amended to the effect that first of all the requirement the accounting companies need to be involved on a regular basis in the purchase or sale of intangible assets, and secondly that these assets need to be unique, is to be deleted. In addition, it was clarified that the methods mentioned for indirect measurement of the fair value of intangible assets are merely possible examples and not a final and exhaustive list of value measurement methods. IAS 39 "Financial instruments: Recognition and measurement": an addendum to IAS 39 to the effect that a variable early repayment penalty amounting to the difference between the original effective interest rate and the effective interest rate achievable on reinvestment of the amount repaid, which compensates the creditor for the loss of interest sustained, now does not preclude a close link between the repayment option and the debt contract. IFRIC 9 "Reassessment of embedded derivatives": Not only contracts acquired within the scope of a business combination as contemplated by IFRS 3 but also contracts assigned in the course of business combinations with the involvement of companies or business operations under joint control or on setting up a joint venture are to be removed from the scope of application of IFRIC 9. IFRIC 16 "Hedges of a net investment in a foreign operation": Elimination of a restriction in terms of which instruments that are held by the foreign operation to hedge itself were precluded from the range of permissible hedge transactions. In November 2006, IFRIC 12 "Service concession arrangements" was published. IFRIC 12 was endorsed by the European Union on 25 March 2009 and is of mandatory application at the beginning of the first accounting period after 29 March This interpretation governs the recognition of obligations obtained and rights received under service concession agreements in the financial statements of the service concession operator. In the Sto Group there are no concession holders as contemplated by IFRIC 12. Accordingly, this interpretation has no impact on the Sto Group. In November 2009, the IASB amended IFRIC 14 "IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction" in order to eliminate an unintended consequence in the treatment of advance contribution payments in cases calling for minimum funding requirements. The amendment to IFRIC 14 has not yet been endorsed by the European Union and is to be applied for accounting periods beginning on or after 1 January

65 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG This amendment has resulted in no modifications to the Sto Group's consolidated financial statements. IFRIC 15 "Agreements for the construction of real estate" was published in July This interpretation has already been endorsed by the European Union and provides guidance on the time and extent of earnings realised on projects for the construction of real estate. These changes are of mandatory application for financial years commencing on or after 1 January IFRIC 15 will have no impact on the consolidated financial statements since the Sto Group is not engaged in business activities of this kind. The interpretation IFRIC 16 "Hedge of net investments in a foreign operation" was likewise published by the IASB in July 2008 and has meanwhile been endorsed by the European Community. IFRIC 16 is to be applied prospectively to accounting periods beginning after 30 June This interpretation provides guidance for identifying the foreign currency risks that can be hedged within the scope of hedging a net investment, for establishing which group companies can hold the hedge instruments for the purpose of hedging the net investment, and for determining the foreign currency gain or loss to be reclassified from equity to profit or loss following the sale of the foreign operation hedged. For the Sto Group, this has no impact on the consolidated financial statements. In November 2008 IFRIC 17 "Distributions of non-cash assets to owners" was published; this interpretation is to initially be applied at the beginning of the first accounting period after 31 October This interpretation has meanwhile been endorsed and enacted by the European Union. This interpretation provides guidance on accounting for obligations that provide for non-cash dividends to be distributed to shareholders. This interpretation deals in particular with the time, measurement and disclosure of this obligation. Accordingly, such an obligation is to be recognised and measured at fair value whenever the company can no longer avoid this commitment. Recognition of this obligation and any change in the fair value of the asset affected are to be reported under equity. An effect on profit or loss amounting to the difference between fair value and the carrying amount of the asset only occurs at the time the asset is transferred to the shareholders. No non-cash assets are distributed to owners within the Sto Group. In January 2009, IFRIC 18 "Transfers of assets from customers" was published. This interpretation must be applied retrospectively for the first time in accounting periods commencing on or after 1 July IFRIC 18 was endorsed and enacted by the European Union. IFRIC 18 provides guidance on accounting for agreements in terms of which an entity receives non-cash assets or cash from a customer which the entity must use to connect the customer to a network and/or give the customer permanent access to the supply of goods or services. The interpretation deals in particular with the recognition criteria of customer contributions and the time and scope of revenue realised in the course of such business transactions. This interpretation will not affect the asset, financial and earnings position of the Sto Group since the latter has not entered into any agreements of this kind. In November 2009, IFRIC 19 "Extinguishing financial liabilities with equity instruments" was published. IFRIC 19 is of mandatory application for accounting periods beginning on or after 1 July 2010 and illustrates the requirements in cases where an entity renegotiates the terms and conditions of a financial liability with the creditor and the latter uses shares or other equity instruments of the company in full or 63

66 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) partial extinction of the liability. This interpretation has not yet been endorsed by the European Union. This interpretation is not expected to have any impact on the consolidated financial statements of the Sto Group. 4. Companies consolidated The consolidated financial statements include Sto AG as well as the domestic and non-domestic subsidiaries on which Sto AG is able to exercise a controlling influence as defined in IAS 27. IAS 27 defines control as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated for the first time upon the control being acquired, this generally being assumed to be the case with a share of 50 % or more. In the financial year ended 31 December 2009 there was no change to the companies consolidated. The companies consolidated are set out in the list of Sto AG's subsidiaries and investments which, as Appendix 1/1, forms part of the notes to the consolidated financial statements and has been lodged with the operator of the electronic "Bundesanzeiger". The following fully consolidated affiliated German companies organised as limited-liability entities or as partnerships satisfied the conditions set out in Section 264 (3) and/or Section 264 b of the German Commercial Code and come under the exemption rules: StoCretec GmbH, Kriftel Südwest Lacke + Farben GmbH & Co. KG, Böhl-Iggelheim Gefro Verwaltungs-GmbH & Co. KG, Stühlingen StoVerotec GmbH, Lauingen Hemm Stone GmbH, Kirchheim Malfa Farben GmbH, Freiburg 5. Consolidation principles The assets and liabilities of the domestic and non-domestic companies included in the consolidated financial statements are recognised and measured in accordance with the uniform accounting methods applied by the Sto Group. Proportionate investments in associates are accounted for using the same accounting methods. When subsidiaries are consolidated for the first time, their assets, liabilities and contingent liabilities are measured at their fair value as of the date of acquisition. If the price paid for the investment exceeds the identified assets, liabilities and contingent liabilities, this difference is accounted for as goodwill. Such goodwill is submitted to annual testing to determine any impairment in its value (impairment-only approach). If any impairment in the value of the goodwill is established, the corresponding loss is recognised accordingly. Receivables and liabilities as well as expenses and income between consolidated companies are netted. Intragroup balances and transactions are eliminated from Group inventories and assets. Deferred taxes are recognised on consolidation transactions recognised in profit/loss. The remaining consolidation methods and accounting policies applied in the previous year were retained in the year under review. 6. Presentation of material accounting and valuation policies The material accounting policies applied in the preparation of the consolidated financial statements are as follows: Currency translation Monetary items in a foreign currency (particularly cash and cash equivalents, receivables and liabilities) are translated at the closing rate and recognised in profit and loss. 64

67 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG cial, economic and organisational purposes. Assets and liabilities are translated at the closing rate and expenses and income at annual average rates. Equity capital is translated at historic rates. Any resultant currency translation differences are recognised separately under equity until such time as the subsidiary in question is deconsolidated. The exchange rates used for currency translation are set out in the following table: Closing rate on Average annual rate 1 EUR = Denmark DKK United Kingdom GBP Malaysia MYR Norway NOK Poland PLN Russia RUB Sweden SEK Switzerland CHF Singapore SGD Czech Republic CZK Hungary HUF USA USD People s Republic of China CNY Intangible assets Intangible assets acquired for good consideration are recognised at historical cost. Amortisation expense is calculated on a straight-line basis over the useful life of the assets in the absence of any impairment. They primarily comprise software, which is assumed to have a useful life of between three and eight years. Goodwill is not subject to systematic amortisation. Instead, it is submitted to regular impairment testing ( impairment-only approach ). The Sto Group determines on an annual basis Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. The financial statements of the consolidated companies prepared in a foreign currency are translated in accordance with the functionalcurrency principle using the modified closing rate method in accordance with IAS 21. The functional currency is defined as the national currency in question since the companies perform their business independently of finanwhether goodwill has been impaired. The value in use of the respective cash-generating unit at 31 December 2009 was determined to be the realisable amount. This realisable amount is compared with the carrying amount of the respective cash-generating unit. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. With the exception of Sto AG, the cash-generating units (CGU) identified for the purposes of calculating goodwill are identical to the legal entities. The Sto AG 65

68 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) CGU comprises Sto AG, Stühlingen, StoVerotec GmbH, Lauingen, and StoCretec GmbH, Kriftel. If goodwill is found to be impaired, its value is adjusted accordingly. If the impairment is greater than the value of the goodwill, then the excess amount is distributed across the assets of the cash generating unit and adjusted accordingly. The starting point is the current corporate planning of the respective legal entities as at 31 December This is based on forecasts derived from external estimates of the economic situation and market studies as well as internal maintenance investment plans. Despite inflationinduced increases in the prices of raw materials and commodities and fluctuations in the price of oil-based products, we assume that the gross profit margins will decline slightly in the light of gross profit margin trends in previous years prior to the commencement of the budget period. The weighted average capital costs (WACC) before taxes are determined by taking account of a risk-free basic interest rate, entrepreneurial risk (market risk premium multiplied by a beta factor calculated on the basis of a peer group analysis), a growth discount in perpetual annuity, borrowing costs as well as the consolidated capital structure. As a matter of principle, cash flows are discounted using a uniform Group interest rate which is adjusted to allow for any differences in the base interest rates of the individual currencies. In the year under review, pre-tax interest rates of between 11.2 % and 17.5 % (previous year: 8.8 % and 16.3 %) were applied to the corporate planning period (five years). The pre-tax interest rates for the key CGU Sto AG amount to 11.7 % (previous year: 10.4 %) and CGU Beissier S.A.S., La Chapelle La Reine/ Frankreich 13 % (previous year: 10.8 %). As in the previous year, the perpetual annuity is based on a growth rate of 1 %. Based on these calculations, there is no evidence at present to indicate that the carrying amounts of the respective cash-generating units could exceed the realisable amounts. The essential goodwill items are shown in No. (13). The sensitivity analysis for the CGU Sto AG has revealed that a sustained planning error by 40 % in terms of EBIT would not require a goodwill impairment. Research and development costs were taken to the income statement since capitalisation of the development costs in the form of internally generated intangible assets is not possible under IAS 38 where the requirements have not been met. Tangible fixed assets Property, plant and equipment are recognised at historical cost less cumulative systematic depreciation and cumulative impairment losses. The cost of acquiring property, plant and equipment comprises the purchase price including import duties and non-refundable purchase taxes as well as any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The cost of self-constructed items of property, plant and equipment encompasses the expenditure incurred in utilising goods and services for constructing it. In addition to the directly attributable costs, this also includes a reasonable share of the necessary overheads. Depreciation is calculated on a straight-line basis using the following estimated useful lives: Buildings Fixtures to land Technical equipment and machinery Other technical, operating and business equipment Useful lives 20 to 30 years 8 to 12 years 8 to 10 years 3 to 10 years 66

69 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Maintenance and minor repairs are immediately recognised in profit and loss. Assets under construction are recognised at historical cost within property, plant and equipment. They are not depreciated until such time as they become available for operation. Borrowing costs Borrowing costs capable of being directly assigned to the acquisition, construction or manufacture of asset for which a substantial period of time is required in order to render the asset ready for its intended use or sale are capitalised as part of the cost of acquisition or production of the relevant asset. All other borrowing costs are recognised as an expense in the period in which they were incurred. Borrowing costs are interest and other costs incurred by an entity in connection with borrowing activities. Borrowing costs for all qualified assets for which construction began on or after 1 January 2009 are required to be capitalised. In the Sto Group there were no qualified assets for which borrowing costs would have had to be capitalised. Leases Leased property, plant and equipment satisfy the conditions for classification as finance leases in accordance with IAS 17 provided that all the risks and rewards incidental to ownership of these assets are transferred to the Group company in question. In these cases, the relevant assets are recognised at the lower of the present value of the minimum lease payments or the fair value of the assets in question and are depreciated on a straight-line basis over their useful lives. The obligations arising from future lease payments are discounted and recognised as liabilities. In the case of operating leases, the lease payments are recognised directly in the income statement on a straight-line basis for the duration of the lease. Impairment of assets Property, plant and equipment and intangible assets are tested for any impairment whenever any events or changes in circumstances indicate that their carrying amount may no longer be recoverable. If, in the case of property, plant and equipment and intangible assets are initially recognised at cost, the carrying amount exceeds its recoverable amount, the difference is recognised as an impairment loss in the income statement. The recoverable amount is the higher of the fair value less cost of sale and the value in use. The fair value less cost of sale is the amount which can be recovered from the sale of the asset under normal market conditions, whereas the value in use is the present value of the estimated future cash flows expected from the continued use of an asset and its disposal at the end of its useful life. The realisable amount is estimated for an individual asset or, if it does not generate any cash flows independently from other assets, for the cash-generating unit. If the indication that an asset is impaired no longer exists or the impairment has decreased, the impairment loss is reversed and the proceeds taken to the income statement. No reversal is made to an impairment of goodwill. Investments in associates Investments in associates relate to two associated companies. An associate is an entity over which the Group has decisive control. Using the equity method, shares are accounted for at their cost of acquisition that represents the prorated equity acquired. The carrying amount is adjusted annually to allow for the share in such associates' profit/loss, dividends received, any impairments and other changes to their equity. 67

70 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Using the equity method, the Sto Group determines whether it is necessary to recognise an additional impairment for the shares of the Sto Group in associates measured according to the equity method. At each balance sheet date, the Sto Group determines whether there are objective indications as to whether the share of an associated valued according to the equity method might have been impaired. If this is the case, then the difference between the recoverable amount and the carrying amount of the share is recognised as an impairment in profit and loss. Financial instruments Financial instruments are defined in accordance with IAS 39 as contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. IAS 39 defines the following different categories for financial assets: Financial instruments to be measured at fair value through profit or loss (Fair Value through Profit or Loss = FVtPoL), Financial assets held to maturity (Held-to-Maturity Investments = HtM), Loans and receivables (Loans and Receivables = LaR) as well as financial assets available for sale (Available-for-Sale = AfS). Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss comprise assets classified as held for sale as well as financial assets which are initially recognised at their fair value. Financial assets are classified as held for trading if they are acquired for the purpose of being resold in the near future. Derivatives are also classified as being held for trading except for those which are designated as hedges and are effective as such. Gains or losses from financial assets which are classified as held for trading are recognised through profit or loss. Financial assets to be measured at fair value through profit or loss are analysed to establish whether the intention to sell them in the near future still is appropriate. For financial assets that cannot be traded on account of inactive markets and the intention to sell them in the foreseeable future is abandoned, management may decide to reclassify such financial assets in exceptional circumstances. The reclassification to loans and receivables, to available for sale or to held to maturity depends on the nature of the asset. This measurement has no impact on financial assets that were valued and classified at fair value through profit or loss by exercising the fair value option. Held-to-maturity financial assets: Non-derivative financial assets with fixed or determinable payments and a fixed maturity are classified as held-to maturity instruments when the Sto Group has the intention and ability to hold them to maturity and there is an active market for such assets. After initial recognition, held-to-maturity financial assets are measured at amortised cost using the effective interest method. Gains and losses are reported in the income statement for the period in which the assets are derecognised or impaired, and through the amortisation process. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are measured at amortised cost using the effective interest method net of any impairment losses. Gains and losses are reported in 68

71 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG the income statement for the period in which the loans and receivables are derecognised or impaired. Available-for-sale financial assets: Available-for-sale financial assets are those nonderivative financial assets that are designated as available for sale or are not allocated to any of the other three categories. After initial recognition, they are measured at their fair value. Unrealised gains and losses are recognised directly within equity. If such a financial asset is derecognised or impaired, the cumulative gains and losses hitherto recognised within equity are taken to the income statement. The Sto Group accounts for financial instruments at amortised cost or at fair value. Financial assets or parts thereof are derecognised when the Sto Group loses control over the contractual rights arising from the assets. Exceptions from this are bills or trade notes receivable passed on by us; these are cancelled only once they are settled by the drawee. Financial assets are assigned to one of the above categories upon initial recognition. Where permissible and necessary, they are reclassified at the end of the accounting period. All purchases and sales of financial assets in accordance with normal market conditions are recorded on the day on which the Sto Group assumes the obligation to buy or sell the asset. These transactions are in accordance with normal market conditions if delivery of the assets is prescribed within a period defined by market regulations or conventions. Financial liabilities are categorised as follows: Financial liabilities measured at fair value through profit or loss (Financial Liabilities Held-for-Trading = FLHfT) and Financial liabilities measured at amortised cost (Financial Liabilities measured at Amortised Cost = FLAC). Financial liabilities measured at fair value through profit or loss: Financial liabilities measured at fair value through profit or loss comprise financial liabilities held for trading as well as other financial liabilities which are initially recognised as financial liabilities at fair value through profit or loss. The Sto Group has so far not made use of the option to initially recognise financial liabilities at fair value through profit or loss. Fair value: The fair value of financial instruments traded in organised markets is determined by the market price listed on the balance sheet date. The fair value of financial instruments for which there is no active market is measured by using valuation methods. These valuation techniques include recent arms-length transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and other valuation models. Amortised cost: Held-to-maturity financial assets or liabilities as well as loans and receivables are measured at amortised cost, which is calculated using the effective interest method less adjustments, repayments and discounts or premiums on acquisition, including transaction costs and fees forming an integral part of the effective interest rate. In the case of current receivables and liabilities, amortised cost fundamentally equals the nominal or settlement amount. A financial liability is derecognised if the obligation underlying the liability is fulfilled, terminated or extinguished. 69

72 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) If an existing financial liability is exchanged by some other financial liability of the same lender subject to substantially different contractual terms and conditions, or if the terms and conditions of an existing liability are materially changed, then such an exchange or modification will be treated as derecognition of the original liability and recognition of a new liability. The difference between the respective carrying amounts is recognised through profit or loss. Inventories Inventories are recorded at the lower of cost and the net realisable amount. The net realisable amount is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Costs incurred in bringing the inventories to their present location and condition are recognised as follows: Raw materials, manufacturing supplies and goods purchased weighted average price Finished assets and assets under construction Material and direct labour costs as well as a reasonable share of the production overheads based on the normal capacity of production equipment net of borrowing costs. Trade receivables and other originated financial assets Trade receivables and other current assets are recognised at amortised cost net of any individual adjustments. Impairment losses, which take the form of individual or general adjustments, are recognised to reasonably allow for the risk of default, with the criterion for the extent of the adjustment essentially being the overdue period. In the presence of objective indications of impairment, the latter is recorded via an adjustment account through profit or loss. In the Sto Group, the adjustment account is essentially used for recognition of impairments of trade receivables. In the event of specific defaults, the receivable in question is derecognised. All receivables and financial assets are tested for impairment. Derivative financial instruments The Sto Group uses derivative financial instruments such as currency forwards and interest rate swaps to hedge interest and currency risks. These derivative financial instruments are recognised at their fair value as of the date on which the contract is entered, and measured in subsequent periods at their fair value. Derivative financial instruments are recognised as assets if they have a positive fair value and as liabilities if they have a negative fair value. Gains and losses from changes in the fair value of derivative financial instruments which do not satisfy the conditions for recognition as hedges are immediately taken to the income statement. The fair value of currency forwards is calculated on the basis of the current forward exchange rate for contracts with a similar maturity structure. The fair value of interest swap contracts is calculated by reference to the market values of similar instruments. For hedge accounting purposes, hedging instruments are recognised as follows: As fair value hedges if the instrument hedges the risk of a change in the fair value of a recognised asset or liability or an unrecognised firm commitment (excluding currency risk). As cash-flow hedges if the instrument hedges the risk of fluctuation in cash flows which can be allocated to a recognised asset or liability, the risk arising from a highly probable forecast transaction or the currency risk arising from an unrecognised firm commitment. As hedges of a net investment in a foreign operation. 70

73 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge. That documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument s effectiveness in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk. They are assessed on an ongoing basis to determine whether they have been highly effective throughout the financial reporting periods for which the hedge was designated. Hedges satisfying the strict hedge accounting criteria are accounted for as follows: Cash flow hedges: The portion of the gain or loss on the hedging instrument that is determined to be an effec - tive hedge is recognised directly in equity, while the ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss. The amounts recognised in equity are reclassified into profit and loss in the period in which the hedged transaction affects profit and loss, e.g. when the hedged income or expenditure is recorded or an expected sale is executed. If a hedge results in the recognition of a nonfinancial asset or a non-financial liability, the amounts recognised in equity become part of the acquisition costs as of the date on which the non-financial asset or non-financial liability is first recognised. If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognised under equity are reclassified into profit and loss. If the hedging instrument expires or is sold, terminated or exercised (not including the replacement or rollover of a hedging instrument into another hedging instrument), the cumulative gain or loss on the hedging instrument that is recognised directly in equity from the period when the hedge was effective remains recognised separately in equity until the forecast transaction or firm commitment occurs. In the Sto Group, derivative financial instruments are essentially currency forwards and options and interest rate swaps. These are used solely to hedge interest rate and currency risks. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and cash at banks including highly liquid deposits available at short notice, which can be converted quickly into certain cash amounts, with original settlement periods of three or fewer months and which are not subject to any material fluctuation in value. Treasury stock Sto AG's treasury stock is deducted from equity. The purchase, sale, issue and redemption of treasury stock is not recognised in profit and loss. Post-employment benefit provisions Actuarial measurement of the post-employment benefit provisions is based on the projectedunit-credit method for post-retirement benefit commitments as defined in IAS 19. This method takes account of the benefit obligations and entitlement accruing on the balance sheet date as well as expected life expectancy, future salary and pension trends and expected fluctuation. Average life expectancy is estimated on the basis of acknowledged biometric models. Actuarial gains and losses are recognised in equity after deferred taxes. 71

74 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Other provisions In accordance with IAS 37, provisions are recognised for present liabilities towards third parties from a past event which is likely to result in a future outflow of economic resources, the amount of which can be reliably estimated. Provisions are reviewed at each balance sheet date and adjusted in the light of the best current estimate. Provisions in which the interest effect has a substantial impact on the settlement of the obligation are recognised at the present value of the expected expenses. The discount is based on risk-adjusted market interest rates. The settlement amount also includes any expected increase in costs. If the conditions for recognising provisions are not met, the obligation in question is reported as a contingent liability provided that there is a reasonable likelihood of an outflow of resources embodying economic benefits. Trade payables and other originated financial liabilities Trade payables and other originated financial liabilities are measured at amortised cost. Any differences between historical cost and the settlement amount are reported in accordance with the effective interest method. Deferred taxes As a matter of principle, deferred taxes are recognised for all temporary differences between the taxable amounts and the consolidated balance sheet. Deferred taxes are recognised on tax losses provided that it is likely that they will be able to be used. They are not recognised if the temporary difference arises from goodwill or the initial recognition of other assets and liabilities in a transaction (other than a business combination) which affects neither accounting profit nor taxable profit (tax loss). Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences arising from shares in subsidiaries, associates and joint ventures unless the parent company is able to control the reversal of the temporary difference and the temporary difference is unlikely to reverse in the foreseeable future. Deferred taxes are measured in accordance with the applicable national income tax rates expected as of the date of realisation, on the basis of applicable or enacted tax law. Deferred tax assets which are not expected to be recognised in a reasonable period of time are adjusted. Deferred tax assets are re-assessed at each balance sheet date. Deferred tax assets and liabilities are netted if the Group has a legally enforceable right to set off the recognised amounts and they relate to income taxes levied by one and the same taxation authority for one and the same tax payer. Deferred taxes are recorded as tax income or expense in the income statement unless they relate to items recognised directly in equity, in which case they are also recognised in equity. Recognition of income and expenses As a matter of principle, revenues are not recognised until the goods or services in question have been supplied, i.e. the risks and rewards of ownership have been transferred to the customer. Operating expenses are reported as expense upon utilisation of the service or on the date on which they are caused. Interest income and expenses are recorded in the appropriate period. Dividends are recognised at the time when legal entitlement arises. Events after the balance sheet date Events occurring after the balance sheet date which provide additional material information on the Group's condition at the balance sheet date are included in the financial statements. 72

75 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Events occurring after the balance sheet date with an impact on value are disclosed in the Notes. Management estimates and judgements The preparation of the consolidated financial statements requires some use of assumptions and estimates which affect the extent and disclosure of assets and liabilities reported, income and expenses recognised and contingent liabilities in the period under review. The assumptions and estimates primarily relate to the value consistency of intangible assets in connection with the measurement of the cash generating units, goodwill in accordance with Note (13), the Group's own definition of the expected useful lives of property plant and equipment, the recoverability of receivables and the recognition and measurement of provisions. The values in use of the cash generating units are estimated, on the basis of expected future cash flows and a reasonable discount rate, to calculate the present value of these cash flows. To measure post-employment benefit provisions, management must make assumptions with respect to the fluctuation rate, future salary and pension trends, and the discount rate. The assumptions and assessments are based on premises which in turn reflect the knowledge available at that point in time. In particular, estimates of the Group's expected future economic performance are based both on the circumstances known on the date when the consolidated financial statements are prepared as well as on probable expectations as to future trends in business conditions both globally and in the Group's sector. Changes in these underlying conditions which deviate from these assumptions and are beyond management's control may cause actual amounts to vary from the original estimates. If actual trends deviate from those expected, the premises and, if necessary, carrying amounts of the assets and liabilities concerned are adjusted accordingly. Our insurance company in the USA has offered to extinguish the insurance cover still in place for specific legacy guarantee cases against a non-recurring payment in cash. Following an intensive analysis and discussions, we decided to accept this offer since we consider the compensation for the risk assumed to be sufficiently high. The financial consequences of this cash compensation are reflected in the items "Other current provisions" and "Deferred tax assets" since, for one thing, the risks assumed and valued at the inflow amount have led to an inflow in the case of the risk provisions already set up and, for another, the non-deductibility of this provision set up has given rise to deferred tax assets in the US. On the date of preparation of the consolidated financial statements there were no additional material risks to the underlying assumptions and estimates which, from a current perspective, would have required material adjustments of the carrying amounts of the assets and liabilities recognised in the consolidated balance sheet in the following accounting period. 73

76 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Group segment reporting at 31 December 2009 Notes on geographical segments by sales markets in EUR '000s Western Europe Other Northern/Eastern Europe America/Asia External revenues 751, ,899 91, ,326 82,056 93,906 Inter-segment revenues 25,854 28, Segment revenues 777, ,779 91, ,568 82,195 93,948 EBITDA 97,524 87,229 6,201 13,126 2,874 7,727 Depreciation 20,034 20,075 2,329 2,449 1,945 1,749 Operating result (EBIT) 77,490 67,154 3,872 10, ,978 EBT (Earnings before taxes) 73,760 61,173 4,191 11,440 1,054 6,125 Segment assets 444, ,692 56,128 59,020 52,882 48,954 Investments 18,599 16, ,515 1,129 2,545 Staff on balance sheet date 3,306 3, Notes on product groups in EUR '000s Facade coatings Facade systems Interiors External revenues 216, , , , , ,653 Segment reporting is explained in No. (28). 74

77 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Reconciliation/ consolidation booking entries Group , ,713 26,189 29, ,173 29, , , , , ,467 24, ,344 83, ,365 78,858 76,373 15,175 12, , , ,322 21, ,145 4,155 Other product groups Group , , , ,713 75

78 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Notes on the consolidated income statement (1) Revenues For the purposes of segment reporting, revenues are broken down by geographic market and business segment. (2) Other internally generated assets Other internally generated assets both in the year under review and in the previous year comprise the mandatory capitalisation of own products. (3) Other operating income in EUR '000s Income from the reversal of value adjustments for receivables and other assets 1,641 1,674 Income from the reversal of provisions and accrued liabilities 2,571 3,680 Currency translation gains 3,563 4,424 Income from expenses recharged to third parties Reimbursement of pre-retirement reduced working hours Proceeds received towards derecognised receivables Government funding Income from the disposal of assets 1,076 1,165 Damages 47 1,732 Other operating income 1,828 2,106 12,598 16,806 Government funding primarily relates to advances to fund research activity. This funding is subject to some conditions; we operate on the assumption that we fulfil these conditions. If this should not be the case, we would expect to incur repayment obligations of about TEUR 229. We have not included this risk under liabilities in our balance sheet. 76

79 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG (4) Cost of materials in EUR '000s Raw materials and manufacturing supplies 200, ,215 Goods purchased 201, ,008 Total materials and supplies to be consumed in the production process and goods purchased. 401, ,223 Temporary staff 4,192 4,545 Commission production 2, Total services purchased 6,531 5, , ,574 (5) Staff expenditure in EUR '000s Wages and salaries 196, ,698 Social-security contributions and expenditure on old-age pensions and support 43,644 42, , ,139 Expenditure on post-employment benefits primarily comprises additions to the post-employment benefit provisions as stated in Note (22). Annual average headcount Number Employees 4,033 3,986 Trainees ,197 4,150 In the year under review, research and development costs accounted for approx. 1.2 % with an impact on profit and loss (previous year: approx. 1.1 %). 77

80 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) (6) Other operating expenses Currency translation losses primarily comprise exchange rate losses arising between the date of the transaction and date of payment as well as currency translation using closing rates. Adjustments of receivables and other assets include allowance for irretrievable accounts which have not been adjusted as well as additions to adjustments. in EUR '000s Operating costs 20,012 22,511 Administration costs 34,154 33,143 Selling and marketing costs 72,921 78,462 Other staff costs 3,510 2,561 Rental and lease payments 24,527 23,950 Adjustments to receivables and other assets 9,543 7,146 Currency translation expense 2,939 6,258 Losses from the disposal of non-current assets Other expenses 13,066 15, , ,062 (7) Depreciation/amortisation The amortisation of intangible assets and the depreciation of property, plant and equipment are analysed in the appropriate parts of these Notes. As in the previous year, no impairment losses were recognised in the year under review. (8) Share in profit of associates Earnings from associates in the current financial year are accounted for by Productos Sto Balear S.L., Santa Maria del Cami/Spain. (9) Total net interest Interest and similar expenses include TEUR 163 (previous year: TEUR 146) from the compounding of interest of non-current provisions discounted in previous years. in EUR '000s Income from securities 11 1 Other interest and similar income 2,154 2,660 Interest and similar expenditure 3,278 4,924 Interest expense on post-employment benefit obligations 1,809 1,709 2,922 3,972 78

81 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG (10) Other net financial income/expense in EUR '000s Expense arising from fair-value measurement of derivatives 493 1,184 Income arising from fair-value measurement of derivatives 5 7 Depreciation on equity interests and assets in relation to associates 0 1,322 Other ,510 (11) Taxes on income and earnings Breakdown of income tax expense in EUR '000s Actual domestic tax expense 15,791 14,148 Actual non-domestic tax expense 13,203 9,793 Actual tax expense 28,994 23,941 of which off-period tax expense (453) (1,812) Income from the reversal of tax provisions (off-period) 3 45 Actual income tax expense 28,991 23,896 Deferred tax assets/liabilities domestic Deferred tax assets/liabilities non-domestic 5, Deferred tax assets/liabilities 5, Income tax expense reported 23,263 24,534 Corporate tax in Germany was levied at a rate of 15 % in the 2009 assessment period. Including trade tax and the solidarity surcharge, this results in an aggregate tax rate of 28.6 %. Off-period income taxes include tax expenses and tax income resulting from tax audits for recent years amounting to TEUR 163 (previous year: TEUR 1,835) %. Deferred taxes are measured using the tax rates valid or enacted as of the balance sheet date. The utilisation of unused tax losses from earlier years resulted in a reduction of TEUR 26 (previous year: TEUR 180) in income tax expense in The local income tax rates applicable to nondomestic companies range between 0 % and 79

82 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Unused tax losses were valued at TEUR 4,081 (previous year: TEUR 2,324). Unused tax losses of TEUR 719 (previous year: TEUR 790) are available for an indefinite period, while TEUR 1,338 (previous year: TEUR 0) may be utilised only within 5 years, and TEUR 2,024 (previous year: TEUR 937) only within 10 years, and TEUR 0 (previous year: TEUR 597) only within 15 years. In 2006, as a result of statutory amendments in Germany, a corporate tax reimbursement claim was recognised for the first time in the income statement and reported in the balance sheet at a present value of TEUR 6,077. The reimbursement claim had a present value of TEUR 5,298 at the balance sheet date (previous year: TEUR 5,838). Of the unused tax losses, a sum of TEUR 1,988 (previous year: TEUR 1,382) is assumed to be not available for the time being. Of this, TEUR 128 (previous year: TEUR 445) may be utilised for an indefinite period, while TEUR 1,860 (previous year: TEUR 0) can only be netted within 10 years and TEUR 0 (previous year: TEUR 937) only within 15 years. Changes in tax rates result in deferred tax liabilities of TEUR 93 (previous year: deferred tax assets of TEUR 78). Deferred tax assets set up in equity with no impact on profit or loss amounted to TEUR 37 on the balance sheet date (previous year: TEUR 104 in deferred tax liabilities reducing the level of equity). Utilisation of the option in accordance with IAS 19 to record actuarial profits and losses within equity resulted in an increase in equity of TEUR 74 in the current financial year (previous year: TEUR 589) due to the reversal of deferred taxes. Deferred taxes for cash flow hedge reserves increased the level of equity by TEUR 67 (previous year: TEUR 438). No deferred taxes were recognised on the profits retained by subsidiaries of TEUR 2,091 (previous year: TEUR 3,272) as historically these profits have always been used to extend business activities at the individual locations and will continue to be used for this purpose in the future. 80

83 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG The following deferred tax assets and liabilities are recognised to allow for recognition and measurement differences in the individual items of the balance sheet and the unused tax losses: Balance sheet item in EUR '000s Deferred tax assets Deferred tax liabilities Intangible assets Tangible fixed assets ,166 9,203 Investments in associates Other non-current assets Inventories 1,169 1, Current financial assets Current trade receivables Other current assets Special tax items Post-employment benefit provisions 1,953 1, Other non-current provisions 611 1, Non-current borrowings 1, Current provisions 6,213 2, ,187 Current borrowings Trade payables Other current liabilities 1, Unused tax losses Tax reimbursements not yet utilised Gross amount 14,044 9,329 11,317 12,245 Offset 5,913 6,079 5,913 6,079 Amount recognised in the balance sheet 8,131 3,250 5,404 6,166 Deferred tax assets and deferred tax liabilities are netted if the Group has a legally enforceable right to set off the actual tax reimbursement claims against the actual tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by one and the same taxation authority for the same tax payer. 81

84 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Reconciliation of expected and reported income tax expense in EUR '000s Accounting profit 78,858 76,373 Expected income tax expense (tax rate: 28.6 %; previous year: 28.6 %) 22,553 21,843 Reconciliation: Tax-free income, other deductions and permanent differences 1,344 1,577 Change in tax rate Deviations in local tax rates from deferred Group tax rate 1, Deferred tax assets on unused tax losses recognised for the first time 37 0 Tax reduction for unused tax losses not yet recognised Effects of non-recognition of unused tax losses Off-period taxes 449 1,768 Other effects Income tax expense reported 23,263 24,534 Effective tax rate (%) 29.5 % 32.1 % The reduction of the effective tax rate is essentially based on the effects of tax audits taken into account in the previous year. (12) Earnings per share Earnings per share are calculated by dividing the proportion of the earnings share of Sto AG's shareholders by the weighted average number of ordinary and preferred shares outstanding in the year under review. Basic earnings per share in accordance with IAS 33 stand at TEUR 21,968 for preferential shares (previous year: TEUR 20,523) and at TEUR 33,420 for ordinary shares (previous year: TEUR 31,205 ). In addition to shares outstanding, diluted earnings per share also include potential shares (e.g. from options). There were no potential shares as at 31 December 2009 or 31 December Accordingly, basic and diluted earnings per share are identical in both years. 82

85 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Ordinary shares Preferred shares Weighted average number of shares outstanding basic/diluted 3,888,000 3,888,000 2,538,000 2,538,000 in EUR '000s Earnings share of the shareholders of Sto AG 55,389 51,728 Basic/diluted earnings on: Ordinary shares 33,421 31,205 Preferred shares 21,968 20,523 in EUR '000s Earnings per share basic/diluted Ordinary shares Preferred shares In 2009, a dividend of EUR 0.25 per ordinary share plus a bonus of EUR 2.06 making a total of EUR 2.31 per ordinary share (total TEUR 8,981) and EUR 0.31 per preferred share plus a bonus of EUR 2.06 making a total of EUR 2.37 per preferred share (total: TEUR 6,015) was distributed from the unappropriated surplus for 2008, making a total of TEUR 14,996. In the financial year 2008, a dividend of EUR 0.25 per ordinary share plus a bonus of EUR 0.84 making a total of EUR 1.09 per ordinary share (total TEUR 4,238) and EUR 0.31 per preferred share plus a bonus of EUR 0.84 making a total of EUR 1.15 per preferred share (total: TEUR 2,919) was distributed from the unappropriated surplus for 2007, making a total of TEUR 7,

86 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Further notes on the income statement in accordance with IFRS 7 (financial instruments) The Sto Group categorises financial instruments as follows: Financial instruments at fair value through profit or loss Financial assets measured at amortised cost, and Financial instruments not coming within the scope of IFRS 7. Net profit/loss from financial assets categorised in accordance with IAS 39 in EUR '000s Assets Assets held for trading 129 1,192 Sum total of financial assets at fair value through profit or loss 129 1,192 Available-for-sale assets 0 0 Held-to-maturity assets 19 0 Loans and receivables 6,567 4,374 Liabilities Financial liabilities measured at amortised cost 501 1,158 * The amounts were rounded to 0 (zero). Net gains and losses from financial assets and liabilities at fair value through profit or loss include changes in the fair value as well as interest and exchange-rate related expenditure and income in connection with these financial instruments. Net gains and losses from loans and receivables are primarily derived from impairments and disposals. Net gains and losses from available-for-sale financial assets include the share in profit of associates. 84

87 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Total interest income and expense from financial instruments not recognised at fair value through profit or loss in EUR '000s Interest income 1,791 2,318 Interest expense 1,961 4, ,406 Impairment losses on financial assets by class in EUR '000s Measured at fair value 820 1,194 Measured at amortised cost 9,986 7,946 10,806 9,140 The measurement of the portfolio of financial instruments at fair value as at 31 December 2009 resulted in an expense, on balance, of TEUR 987. Income and expenses from measurement at fair value are reported under Other operating income and Other operating expenses, respectively, or in Net financial income under Interest and similar expenses or in Other financing expenses. 85

88 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Notes on the consolidated balance sheet (13 ) Intangible assets Changes in intangible assets from 1 January until 31 December 2008 in EUR '000s Industrial property rights and licences Business including or Advance Software Goodwill payments Total Cost of acquisition/manufacture 1 January ,387 36, ,838 Additions 1, ,175 Additions from initial consolidation Disposals 1, ,306 Transfers Exchange rate differences December ,938 36, ,774 Cumulative depreciation and impairment losses 1 January , ,934 Depreciation for the year 2, ,657 Disposals 1, ,307 Transfers Exchange rate differences December , ,362 Net carrying amount as at 31 December ,453 36, ,904 Net carrying amount as at 31 December ,576 36, ,412 86

89 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Changes in intangible assets from 1 January until 31 December 2009 in EUR '000s Industrial property rights and licences Business including or Advance Software Goodwill payments Total Cost of acquisition/manufacture 1 January ,938 36, ,774 Additions 1, ,633 Additions from initial consolidation Disposals 1, ,900 Transfers Exchange rate differences December ,123 36, ,751 Cumulative depreciation and impairment losses 1 January , ,362 Depreciation for the year 2, ,707 Disposals 1, ,897 Transfers Exchange rate differences December , ,262 Net carrying amount as at 31 December ,576 36, ,412 Net carrying amount as at 31 December ,861 36, ,489 87

90 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Goodwill Goodwill reported of TEUR 36,260 (previous year: TEUR 36,157) breaks down as follows: Cash Generating Units in EUR '000s Sto AG 15,760 15,760 Südwest Lacke + Farben GmbH & Co. KG, Böhl-Iggelheim 2,780 2,780 Beissier S.A.S., La Chapelle La Reine/France 3,635 3,635 Beissier S.A., Errenteria/Spain 2,679 2,679 Sto - ispo Sp. z o.o., Warsawu/Poland 2,402 2,402 Sto Épitöanyag Kft., Budapest/Hungary 1,764 1,764 Sto Italia Srl, Empoli/Italy 1,398 1,398 Sto Isoned B.V., Tiel/Netherlands 1,189 1,189 Sto Norge AS, Oslo/Norway 1,111 1,008 Others below TEUR 1,000 3,542 3,542 36,260 36,157 With the exception of Sto AG, the cash-generating units (CGU) identified for the purposes of calculating goodwill are identical to the legal entities. The Sto AG CGU comprises Sto AG, Stühlingen, StoVerotec GmbH, Lauingen, and StoCretec GmbH, Kriftel. Impairment testing did not reveal any need for adjustments in the years under review. 88

91 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG 89

92 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) (14) Property, plant and equipment Changes in property, plant and equipment from 1 January to 31 December 2008 in EUR '000s Land, similar rights and buildings including Other plant, building Technical operating and Advance on land owned and business payments and plant by others machinery equipment under construction Total Cost of acquisition/manufacture 1 January , , ,241 2, ,771 Additions 2,887 3,258 7,917 4,746 18,808 Additions from initial consolidation Disposals 2, , ,122 Transfers 901 2, ,286 0 Exchange rate differences December , , ,519 4, ,516 Cumulative depreciation and impairment losses 1 January , , , ,539 Depreciation for the year 7,187 6,324 8, ,778 Disposals 1, , ,940 Transfers Exchange rate differences December , , , ,143 Net carrying amount as at 31 December ,442 41,063 22,527 2, ,232 Net carrying amount as at 31 December ,053 39,989 21,965 4, ,373 of which assets classified under finance leases, carrying amount as at 31 December , , ,784 90

93 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Changes in property, plant and equipment from 1 January to 31 December 2009 in EUR '000s Land, similar rights and buildings including Other plant, building Technical operating and Advance on land owned and business payments and plant by others machinery equipment under construction Total Cost of acquisition/manufacture 1 January , , ,519 4, ,516 Additions 7,165 1,315 8,053 2,155 18,688 Additions from initial consolidation Disposals 2,893 1,545 6, ,021 Transfers 9 2,715 4,404 1, Exchange rate differences December , , ,893 4, ,505 Cumulative depreciation and impairment losses 1 January , , , ,143 Depreciation for the year 7,392 6,412 7, ,759 Disposals 2,782 1,543 6, ,443 Transfers 286 2,791 2, Exchange rate differences December , , , ,315 Net carrying amount as at 31 December ,053 39,989 21,965 4, ,373 Net carrying amount as at 31 December ,429 34,952 23,446 4, ,190 of which assets classified under finance leases, carrying amount as at 31 December , , ,640 91

94 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Of liabilities to banks, an amount of TEUR 15,021 (previous year: TEUR 20,773) was secured by land charges. Call options have mostly been agreed for the buildings and equipment leased under finance leases and these are expected to be exercised. The leases are based on a weighted interest rate of 4.6 %. Future lease payments are set out at their present value in the following table: in EUR '000s from 2015 Total Lease payments 1,451 4, ,256 Interest portions Carrying amount/present value 1,253 3, ,515 (15) Investments in associates The carrying amount of the investments in associates as at 31 December 2009 stands at TEUR 19 (previous year: TEUR 95). The following amounts are attributable to the Sto Group on account of the share of 33 % (previous year: 33 %) in Inotec GmbH: in EUR '000s Assets 2,274 2,795 Liabilities 1,830 2,273 Revenues 4,805 6,725 Net profit/loss for the period

95 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG On account of the full valuation adjustment in the previous year, the prorated profit / loss of Inotec GmbH for the period did not reduce the Sto Group's profit for the year. The cumulative contribution to earnings by Inotec GmbH amounts to TEUR 79. On account of the share quota of 33 1 /3 % (previous year: 33 1 /3 %) in the associate Productos Sto Balear S.L., the following values are to be assigned to the Sto Group: in EUR '000s Assets Liabilities Revenues Net profit/loss for the period 67 8 (16) Inventories in EUR '000s Raw materials and manufacturing supplies 15,685 18,468 Work in progress 2,687 2,065 Finished products and goods 38,795 42,099 Payments made on account ,578 62,962 Inventories are measured at the lower of cost or the net realisable amount. Impairments of the gross amount came to TEUR 2,521 (previous year: TEUR 2,407). Of this, an amount of TEUR 114 reduced earnings (previous year: TEUR 682 increase in earnings). 93

96 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) (17) Trade receivables in EUR '000s Carrying amount Carrying amount current non-current current non-current from Third parties 100, , ,960 1, ,114 Investments in associates The fair values of trade receivables equal their carrying amount. Adjustments of TEUR 12,744 (previous year: TEUR 10,775) were taken into account. Of liabilities to banks, an amount of TEUR 1,197 (previous year: TEUR 1,088) was secured by trade receivables at the balance sheet date. 100, , ,239 1, ,393 (18) Other receivables and financial assets in EUR '000s Carrying amount Carrying amount current non-current current non-current Other receivables and financial assets due from third parties 45,935 1,306 47,241 24,083 3,178 27,261 Other receivables and financial assets due from associates Other tax reimbursement claims 1, ,593 2, ,129 Prepaid expenses 2, ,827 2, ,646 Other payments made on account Positive fair value of financial derivatives ,614 1,509 52,123 29,409 3,290 32,699 Other receivables and financial assets due from third parties include cash investments due for settlement in more than three months. In addition, this item includes receivables from suppliers amounting to TEUR 5,088 (previous year: TEUR 4,573). Adjustments of TEUR 51 (previous year: TEUR 0) were taken into account for other receivables. Other receivables and financial assets due from associates include loans subject to arm's length interest rates. Other tax reimbursement claims include VAT reimbursement claims of TEUR 1,211 (previous year: TEUR 1,775). 94

97 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Derivative financial instruments have the following positive fair values: in EUR '000s Hedges against Currency risks 0 99 Interest risks Derivative financial instruments as a whole are described in greater detail in Note (29). (19) Cash and cash equivalents in EUR '000s Credit balances with banks 106,577 69,421 Cheques, cash in hand ,714 69,828 Credit balances are held at various banks in different currencies. (20) Equity capital Changes in equity capital and minority interests are analysed in the statement of changes in equity capital. Subscribed capital Subscribed capital equalled TEUR 17,556 as at 31 December It remains divided into 4,320,000 registered ordinary shares and 2,538,000 preferred shares with no voting rights with a nominal value of EUR 2.56 per share. The preferred shares attract an advance dividend of EUR 0.06 in excess of that payable on the ordinary shares, however no less than EUR If distributable profit is not sufficient to pay the priority dividend of at least EUR 0.13 on preferred shares in one or more fiscal years, then the missing amounts (without interest) are subsequently paid from the distributable profit of the following fiscal years once the share in the profit for those fiscal years has been distributed to the preferred shares and prior to a dividend being paid on ordinary shares. Preferred shares are traded on the official market of the stock exchanges in Frankfurt/Main and Stuttgart. Ordinary shares are not listed. Capital reserves Capital reserves essentially comprise additions from premiums. The reserves have been reduced by a reclassification to financial liabilities. The amount reclassified comprises the annual guaranteed dividend to be paid out to the preferred shareholders each year in accordance with the articles of association. The extent of the capital reserve remains unchanged year-onyear. Revenue reserves Revenue reserves comprise the following items: Reserve for accrued profit: Retained earnings include the profits earned by Sto AG and its subsidiaries but not distributed. Currency translation reserve: The currency translation reserve is used to record any differences arising from the translation of the financial statements of foreign subsidiaries. 95

98 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Post-employment benefit reserve: The post-employment benefit reserve contains actuarial gains net of actuarial losses from the post-employment benefit provisions arising from differences between actual and assumed trends as well as changes in such assumptions. Reserve for cash flow hedges: This reserve contains the portion of the gain or loss from cash flow hedges identified as constituting an effective hedge. Treasury shares: Sto AG, Stühlingen, holds treasury stock in the form of 432,000 registered ordinary shares with a notional nominal value of EUR 1,105, This is equivalent to 10 % of all ordinary shares or 6.3 % of the share capital of Sto AG. The treasury stock is not entitled to dividends. Notes on capital management The purpose of capital management is to ensure that the Group is able to effectively achieve its goals and pursue its strategies in the interests of the shareholders, employees and other stakeholders. In particular, management focuses on achieving the minimum return on invested assets sought by the capital market as well as enhancing the return on capital. To this end, it seeks to unlock as much value as possible within the Group and its subsidiaries to the benefit of all stakeholders. In selecting financial instruments, the Group attaches importance to matching-maturities finance, which is achieved by managing the terms of these financial instruments. Proposed dividend In accordance with Section 58 (4) of the German Companies Act, the dividend distributed is based on the unappropriated surplus recorded in the financial statements prepared according to German commercial law. The financial statements prepared by Sto AG according to German commercial law carry a distributable profit of TEUR 66,472. At the annual general meeting, the Board of Directors of Sto AG will be asking the shareholders to authorise a dividend of EUR 0.25 plus a bonus of EUR 2.06 for a total of EUR 2.31 per ordinary share, and EUR 0.31 plus a bonus of EUR 2.06 for a total of EUR 2.37 per preferred share, i.e. a total distribution amount of TEUR 14,996 with TEUR 51,000 to be retained and the balance of TEUR 476 to be carried forward to new account. 96

99 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG The capital structure at the balance sheet date is as follows: in EUR '000s change in % Equity attributable to the shareholders of Sto AG 319, , % Current borrowings 17,635 20,375 Non-current borrowings 41,411 54,612 Less cash and cash equivalents 106,714 69,828 Net assets/liabilities 47,668 5,159 % of equity capital 15 % 2 % In 2009 the equity capital attributable to the shareholders of Sto AG rose by 15 % over the previous year. This was due solely to the increase in revenue reserves. Due to the reduction of financial liabilities and an increase in cash and cash equivalents, no net debt position arose during the financial year. The ratio of net debt to equity amounted to 2 % in the previous year. Under the terms of the syndicated loan of August 2006, the Group is bound by minimum capital requirements stipulated by the bank syndicate as the lender, under which net debt must not exceed equity capital. Any failure to comply with these minimum capital requirements entitles the lenders to terminate the syndicated loan for good cause. These external minimum capital requirements were observed. (21) Minority interests Minority interests in equity are accounted for by shareholders in Sto Italia Srl, Empoli/Italy, and Sto s.r.o., Prague/Czech Republic. (22) Post-employment benefits and similar obligations Provisions for post-employment benefits are recognised in accordance with entitlement arising under the company pension scheme. The benefits provided by the Group vary according to the legal, tax and economic situation in the individual country and are based on the length of service and date of entry of the entitled employees. The Group pension scheme primarily comprises defined-benefit obligation plans. In addition, there are also some defined-contribution plans. In the case of defined-contribution plans, the Company pays contributions into public or private pension funds in accordance with statutory or contractual obligations. Upon payment of these contributions, no further obligations accrue for the Company. Current contribution payments (net of contributions to statutory pension funds) are reported as post-employment benefit expense for the year in question and were valued at TEUR 506 in 2009 (previous year: TEUR 450). In Germany, contributions to statutory pension funds came to TEUR 9,897 (previous year: TEUR 9,837). The company pension schemes operated within the Sto Group are for the most part based on internally funded defined-benefit plans. Benefit obligations assumed by the German companies primarily entail fixed amounts based on length of service. Post-employment benefit provisions are calculated in accordance with IAS 19 (Employee Benefits) using the projected unit credit method, which is the standard international method. For this purpose, future obligations are measured on the basis of the prorated benefits accruing at the balance sheet date. 97

100 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) In making this assessment, assumed trends in the relevant determinants influencing the size of the benefits are taken into account. Actuarial calculations are necessary for all pension systems. Actuarial gains or losses arise from changes in the plan assets or deviations in actual trends (e.g. income and pension increases, changes in interest rates) or from changes in the assumptions underlying calculations. In accord- ance with the option afforded under IAS 19, all actuarial gains and losses are recognised in equity in full in the period in which they arise. Net actuarial gains and losses reported within revenue reserves, which result primarily from a change in the discounting rate, stand at TEUR 1,033 (previous year: TEUR 1,267). The following amounts for benefits were recognised in the balance sheet: in EUR '000s Present value of unfunded obligations 36,323 32,324 32,533 34,883 33,632 These amounts match the post-employment benefit provisions reported in the balance sheet. The following amounts are reported in the income statement: in EUR '000s Current service cost 1,190 1,263 Revenue from plan assets 2,215 0 Interest on obligation 1,809 1,709 Sum total of the expenses recognised in the income statement 5,214 2,972 Current service cost and revenue from plan assets are included in staff costs; interest on the obligation is reported under interest expenses, note (9). 98

101 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Post-employment benefit obligations (net debt reported in the balance sheet) changed as follows: in EUR '000s DBO (=Post-employment benefit provisions) at 1 January 32,324 32,533 Actuarial losses/gains 234 2,087 Current service cost 1,190 1,263 Revenue from plan assets 2,215 0 Interest on obligation 1,809 1,709 Pension payments 1,449 1,094 DBO (net debt/post-employment benefit provisions reported in the balance sheet) as at 31 December 36,323 32,324 Post-employment benefit provisions are calculated on the basis of the following assumptions: in % Germany Foreign markets Discount rate as at 31 December Future salary increases Future pension increases Fluctuation rate The Heubeck 2005 G tables were used as the biometric basis for calculations for the German companies from 31 December Historical adjustments, i.e. the effects of any difference between expected and actual actuarial assumptions are set out in the following table, with a positive percentage indicating that the actual present value of the obligation is below the expected present value: in % Difference between expected and actual trends in the present value of the obligations

102 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) (23) Current and non-current other provisions in EUR '000s Staff Production Sales Other division division division provisions Total Status as at 1 January , ,537 1,116 36,221 Currency differences Utilisation 5, , ,277 Additions/formation 5, , ,225 Interest cost Reversal ,609 Status as at 31 December , ,470 1,383 40,877 Currency differences Utilisation 5, , ,015 Netting of plan assets 3, ,355 Additions/formation 4, ,142 1,479 29,337 Interest cost Reversal , ,890 Status as at 31 December , ,645 2,217 50,992 of which current 4, ,618 2,152 45,785 Provisions in the field of staff have been set aside for pre-retirement reduced working hours, anniversary expenses, termination settlements and similar obligations, among other things. Owing to a new type of insolvency protection of the obligations arising from pre-retirement short-time work arrangements, the assets formerly reported under other assets were reported as plan assets for the first time in the financial year 2009 and netted with the corresponding provision. Provisions in the sales area cover amounts set aside to allow for all selling risks, i.e. primarily provisions for warranty claims. (24) Current and non-current borrowings in EUR '000s Carrying amount Carrying amount current non-current current non-current Liabilities to banks 16,416 32,696 49,112 18,607 47,020 65,627 Mandatory guarantee dividend to preferred shareholders 330 4,090 4, ,090 4,420 Liabilities under finance leases 889 4,625 5,514 1,438 3,503 4,941 17,635 41,411 59,046 20,375 54,613 74,

103 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG The covenants applicable to finance leases are described in Note (14). (25) Current and non-current other liabilities in EUR '000s Carrying amount Carrying amount current non-current current non-current Advance payments received on orders Negative fair value of financial derivatives 1, ,803 1, ,021 Other liabilities Relating to taxes 5, ,731 5, ,541 Social security liabilities 1, ,775 1, ,969 Liabilities towards employees 23, ,534 22, ,897 Liabilities towards customers 9, ,307 8, ,826 Other 8, ,092 8, ,577 51, ,854 49, ,628 Derivative financial instruments have the following negative fair values: Derivative financial instruments as a whole are described in greater detail in Note (29). in EUR '000s Hedges against Currency risks Interest risks 1,482 1,021 1,803 1,021 (26 ) Trade payables The fair values of trade payables do not differ materially from the carrying amounts reported. in EUR '000s from Third parties 33,630 35,262 Investments in associates ,971 35,

104 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Further notes in accordance with IFRS 7 (Financial instruments) Reconciliation of balance sheet items with financial instrument categories as at 31 December 2008 in EUR '000s Measurement Carrying Financial instruments No category acc. to amount financial IAS 39 Amortised Fair value Not in instrument acquisition costs scope of application Carrying amount Fair value of IFRS 7 Assets Investments in associates n.a Trade payables LaR 110, , , Income tax receivables n.a. 8, ,774 Other receivables and financial assets - Available-for-sale financial assets AfS Held-to-maturity investments HtM 15,049 15,049 15, Financial assets held-for-trading FAHfT Derivative assets with hedge relationship n.a without hedge relationship FAHfT Other assets LaR/n.a. 17,046 11,884 11, ,162 32,699 27,161 27, ,162 Deferred tax assets n.a. 3, ,250 Cash and cash equivalents LaR 69,828 69,828 69, Liabilities Deferred tax liabilities n.a. 6, ,166 Borrowings FLAC 74,988 74,988 80, Trade payables FLAC 35,623 35,623 35, Income tax liabilities n.a. 8, ,554 Other liabilities - Derivative liabilities with hedge relationship n.a without hedge relationship FLHfT Other liabilities FLAC/n.a. 48,606 12,588 12, ,018 49,627 12,588 12, ,

105 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Reconciliation of balance sheet items with financial instrument categories as at 31 December 2009 in EUR '000s Measurement Carrying Financial instruments No category acc. to amount financial IAS 39 Amortised Fair value Not in instrument acquisition costs scope of application Carrying amount Fair value of IFRS 7 Assets Investments in associates n.a Trade payables LaR 101, , , Income tax receivables n.a. 7, ,026 Other receivables and financial assets - Available-for-sale financial assets AfS Held-to-maturity investments HtM 6,708 6,708 6, Financial assets held-for-trading FAHfT Derivative assets with hedge relationship n.a without hedge relationship FAHfT Other assets LaR/n.a. 45,032 40,375 40, ,657 52,122 47,300 47, ,657 Deferred tax assets n.a. 8, ,131 Cash and cash equivalents LaR 106, , , Liabilities Deferred tax liabilities n.a. 5, ,404 Borrowings FLAC 59,046 59,046 59, Trade payables FLAC 33,971 33,971 33, Income tax liabilities n.a. 10, ,105 Other liabilities - Derivative liabilities with hedge relationship n.a. 1, ,098 0 without hedge relationship FLHfT Other liabilities FLAC/n.a. 50,051 13,313 13, ,738 51,854 13,313 13, ,098 36,

106 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) The carrying amounts of the financial instruments are aggregated as follows in accordance with the categories stipulated in IAS 39: in EUR '000s Available-for-sale (AfS) Financial assets held for trading (FAhfT) Held-to-maturity investments (HtM) 6,708 15,049 Loans and receivables (LaR) 248, ,104 Financial liabilities measured at amortised cost (FLAC) 106, ,199 Financial liabilities held for trading (FLHfT) Balance sheet items measured at fair value in EUR '000s Level 1 Level 2 Level 3 Financial assets measured at fair value through profit or loss - Derivatives Other Available-for-sale financial assets Financial assets measured at fair value Financial assets measured at fair value through profit or loss - Derivatives Financial assets measured at fair value The following financial assets and liabilities accounted for at fair value are structured according to the following valuation categories: Level 1 Financial instruments traded in active markets, the listed prices of which were adopted unchanged for measurement purposes. 104

107 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Level 2 The measurement is made on the basis of valuation methods in which the influential factors are derived either directly or indirectly from observable market data. Level 3 The measurement is effected using valuation methods where the influential factors are not based exclusively on observable market data. In the 2009 reporting period there were no transfers between measurements at fair value at Level 1 and Level 2 and no transfers to or from measurements at fair value at Level 3. Trend relating to adjustments of financial instruments valued at amortised cost (refers solely to trade receivables, other receivables and financial assets): in EUR '000s Amount on 1 January 10,775 11,155 Exchange rate differences Additions 7,542 4,475 Utilisation 3,940 2,858 Reversals 1,658 1,674 Amount on 31 December 12,795 10,

108 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Other disclosures (27) Cash flow statement The cash flow statement shows how the Group s liquidity position has changed in the course of the year under review as a result of cash inflows and outflows. For this purpose, it distinguishes cash flow from operating activities, cash flow from investing activities and cash flow from financing activities (IAS 7 Cash Flow Statements).The cash flow statement covers only the cash and cash equivalents reported in the balance sheet that include financial investments with an original term of up to 3 months. Based on earnings before taxes, the cash flow is indirectly derived from operating activities. Earnings before taxes are adjusted to take account of non-cash expenses (essentially depreciation) and non-cash income. Cash flow from operating activities reflects changes in working capital. Cash inflows and outflows from investing and financing activities are calculated using the direct method. Investing activities comprise disbursements for additions to intangible assets and tangible fixed assets, payments arising from the acquisition of consolidated companies and other business units, disbursements for the acquisition of consolidated companies and other business units, interest received, payments arising from the disposal of intangible assets and property, plant and equipment, as well as disbursements for financial investments. Financing activities comprise cash outflows from payments to shareholders, interest payments and the repayment of loans, as well as changes to other borrowings. Changes in items of the balance sheet analysed for the cash flow statement cannot be directly derived from the balance sheet on account of non-cash currency translation effects and other non-cash transactions. (28) Segment reporting IFRS 8 was applied to the Sto Group for the first time in the financial year For the purpose of corporate management by the Board of Directors, the Group is divided up into geographical business units. The geographical business units were consolidated in the segments of western Europe and Other, with the segment Other being broken down into the regions of northern/ eastern Europe and the Americas/Asia. The business segment of western Europe comprises the geographical business units of the euro zone, Switzerland and the United Kingdom. Internal reporting is essentially carried out in accordance with IFRS. The activities of all segments extend to include the production and distribution of facade coatings, facade systems and interior products. The netting prices between segments conform to arm's-length conditions. Transfers between business segments are eliminated on consolidation. The segment results in the Sto Group are reported in the earnings categories of EBITDA, EBIT and EBT. The share of earnings from associates, amounting to TEUR 77 (previous year: TEUR 383) has not been assigned to any segment and is reported within the scope of Reconciliation/consolidation booking entries. Depreciation/amortisation and investments relate to property, plant and equipment and intangible assets. Segment assets essentially comprise property, plant and equipment, intangible assets, inventories, trade receivables from third parties as well as other receivable and financial assets from third parties. The inter-segment results are eliminated in the Reconciliation/consolidation booking entries column. This column also includes the items which cannot be assigned to individual segments. No material adjustments were made. Owing to the broad customer structure of the Sto Group, there is no customer with whom at least 10 % of sales revenues are generated. 106

109 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG The breakdown of sales revenues is made according to the customer's home country. in EUR '000s Germany Other Total Germany Other Total External revenues 450, , , , , ,713 Intangible assets, property, plant and equipment 168,040 67, , ,861 70, ,785 (29) Financial risk management and financial instruments Hedging policy The Sto Group's international activities expose it above all to interest and currency risks. The purpose of risk management is to minimise or to exclude these risks. To this end, the usual instruments such as currency forwards and options or interest rate swaps are used. Hedging guidelines Guidelines have been adopted to govern the scope for hedging and internal monitoring. As a matter of principle, the type and scope of hedging operations are determined by the hedged contract. Hedges may be used only to protect existing or planned transactions. For this purpose, only financial instruments with approved counterparties may be transacted. Liquidity risk A liquidity forecast covering a defined period as well as unused credit facilities available to the Sto Group ensure adequate liquidity at all times. The main credit facilities were estab - lished in connection with the syndicate finance agreement entered into in 2006 and expiring in The remaining credit facilities were arranged to expire in 2015 at the latest. The following table sets out the undiscounted contractually agreed cash outflows from financial instruments. in EUR '000s Cash outflows Carrying Cash outflows Carrying amount amount up to 1 year years years up to 1 year years years Borrowings* 19,188 38,931 3,372 61,491 22,943 51,119 6,629 80,691 Trade payables 33, ,971 35, ,623 Other borrowings 13, ,308 12, ,588 Derivatives ,948 39,320 3, ,653 71,179 51,119 6, ,927 * Even beyond the year 2019, there is an annual commitment for payment of TEUR 330 arising from the claim of preferential creditors to the guaranteed dividend. 107

110 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Credit and default risk arising from financial assets The credit and default risk arising from financial assets entails the risk of a counterparty defaulting and is limited to the maximum net carrying amount of the receivable due from the defaulting counterparty. In connection with the investment of cash and holdings of derivative financial assets, the Group is exposed to the risk of losses in the event of financial institutions failing to honour their obligations. The Sto Group seeks to mitigate such risks by means of diversification and the careful selection of counterparties. At the moment, no cash investments or derivative financial assets are overdue or impaired on account of defaults. Allowance is made for risks from originated financial instruments by making adjustments to receivables. On account of its broad customer structure, there is no conspicuous clustering of default risks within the Sto Group. No collateral meeting the requirements specified in IFRS was held in the year under review. Analysis of net carrying amounts: in EUR '000s Carrying not yet overdue amount due and not and not value-adjusted value-adjusted value-adjusted Other financial assets 15, ,796 Trade receivables 82,960 21,135 6, ,392 Other assets 11, , ,473 21,159 6, ,929 in EUR '000s Carrying not yet overdue amount due and not and not value-adjusted value-adjusted value-adjusted Other financial assets 40, ,186 Trade receivables 60,457 20,699 20, ,288 Other assets 6, , ,325 20,828 20, ,

111 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG The Sto Group assesses the credit rating of individual customers to reduce the risks arising from trade receivables. Information is obtained and regularly updated to assess the credit quality of financial assets which are neither overdue nor adjusted. On the basis of this and other information, the financial assets are classified and credit limits defined. Customer ratings are subject to ongoing monitoring by Credit Management. Analysis of maturity of the net carrying amounts of overdue and non-adjusted financial assets: in EUR '000s overdue Carrying more than more than amount up to days up 60 days up more than days to 60 days to 90 days 90 days Other financial assets Trade receivables 11,323 4,560 1,942 3,310 21,135 Other assets ,341 4,566 1,942 3,310 21,159 in EUR '000s overdue Carrying more than more than amount up to days up 60 days up more than days to 60 days to 90 days 90 days Other financial assets Trade receivables 11,744 4,617 1,196 3,142 20,699 Other assets ,798 4,617 1,196 3,217 20,828 As at 31 December 2009, the Sto Group did not have any financial instruments for which the applicable contract had been modified to prevent them from becoming overdue. 109

112 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Currency risk Currency risks in connection with current receivables and liabilities are hedged by means of currency forwards and options. The currency hedge as at 31 December 2009 related only to USD/EUR, CDN/USD and CHF/EUR; the change in fair value was recognised in the income statement with an impact on profit and loss. All non-functional currencies in which the Sto Group holds financial instruments are used as relevant risk variables in the sensitivity analysis stipulated by IFRS 7. If the euro had been 10 % lower/higher against other currencies, net profit and equity would have been down/up by TEUR 290 (previous year: TEUR 395), respectively. Interest rate risk The Sto Group's exposure to interest rate risks arises from changes in market interest rates, particularly for current and non-current floatingrate liabilities. Cash flow hedges in the form of interest swaps are transacted to minimise the risk. The Sto Group uses interest swaps to reduce the risk of changes in floating interest rates in connection with non-current interest-bearing bank borrowings. The cash flow hedge portion is set out below in the table entitled "Valuation of derivative financial instruments". The Sto Group identifies interest rate risks as defined in IFRS 7 by means of a sensitivity analysis. This sets out the effects of risk-relevant market interest rates on the Group's net borrowing costs and equity capital. If market interest rates as at 31 December 2009 had been 100 basis points (bp) higher, net profit after tax all other things being equal would have been TEUR 377 higher (previous year: TEUR 153). If, by contrast, they had been 100 bp lower, net profit after tax all other things being equal would have been TEUR 388 (previous year: TEUR 154) lower. In addition to the above effect, equity capital would have risen by TEUR 370 (previous year: TEUR 1,137) or declined by TEUR 361 (previous year: TEUR 1,187) after taxes. Valuation of derivative financial instruments The fair values of derivative financial instruments are determined on the basis of reference prices and measurement models. in EUR '000s Nominal Market value Nominal Market value volume total volume total Forward exchange operations/options 18, , Interest rate swaps/caps 79,171 1, , ,239 1, ,

113 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Interest rate swaps/caps include cash flow hedges with a fair value of TEUR 1,098 (previous year: TEUR 867) and a corresponding nominal volume of TEUR 32,000 (previous year: TEUR 42,000). Cash flow hedges for interest payments were categorised as being highly effective up until Accordingly, an unrealised loss of TEUR 236 net of deferred taxes of TEUR 67 was recognised in equity as at 31 December The change to the nominal volume of interest swaps/caps is due to the repayment of loans in 2009 as well as the sale and conclusion of additional interest hedges. The remaining terms of the currency derivatives are less than 1 year and those of the interest derivatives between 1 and 7 years. The nominal volume of a derivative hedge transaction is the notional reference amount for which the payments are derived. The hedged contract and the risk are not the same as the nominal volume but only reflect the exchange or interest rate change to which they refer. The fair value is the amount which the Sto Group would have paid or received at the balance sheet date if the hedge had been settled. As the hedges are for the most part standard tradable financial instruments, fair value is derived from valuation models. (30) Contingencies in EUR '000s Guarantees Other contingent liabilities (31) Litigation Neither Sto AG nor any of the members of its Group are involved in any court litigation or arbitration proceedings which are liable to exert a material influence on the Group's economic situation or which have done so in the past two years. There is no evidence that any such litigation or proceedings will arise in the future. Appropriate provisions have been set aside by the individual Group companies to pay any expenses arising from other court litigation or arbitration proceedings. (32) Other financial obligations in EUR '000s Maturity within between after one year years years Obligations under rental contracts and leases 57,230 16,518 33,447 7,265 Obligations under maintenance contracts 3,726 2,280 1, Acceptance obligations 2,488 2, Other liabilities ,615 21,353 34,983 7,279 in EUR '000s Maturity within between after one year years years Obligations under rental contracts and leases 61,717 17,662 34,263 9,792 Obligations under maintenance contracts 5,230 3,504 1, Acceptance obligations 5,519 5, Other liabilities ,593 26,654 36,137 9,802 The obligations under rental contracts comprise primarily building rental contracts, while the obligations under leases relate to the vehicle fleet, equipment and IT hardware. 111

114 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Of the acceptance obligations, an amount of TEUR 2,229 (previous year: TEUR 732) were items of tangible fixed assets. (33) Auditors' fees The following fees paid to the auditors of the consolidated financial statements, Ernst & Young AG, Wirtschaftsprüfungsgesellschaft, for services provided are recorded as expenses in 2009: in EUR '000s Audits of the financial statements Tax consulting services 34 7 Other certification or valuation activities 7 5 Other services (34) Events after the balance sheet date There were no events worthy of mention up to 12 April (35) Disclosures on related parties (IAS 24) IAS 24 defines related parties as persons or entities liable to be influenced by the reporting entity or capable of influencing the reporting entity. All business relations with related parties are conducted on arms-length terms. Members of the Board of Directors and the Supervisory Board of Sto AG are members of the management boards and supervisory boards of other companies with which Sto AG maintains relations, in some cases as part of its ordinary business activities. All transactions with such companies are conducted on arms-length terms. The volume of deliveries and services between companies in the Sto Group and related parties are set out in the following table: 112

115 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG in EUR '000s Rendered Received Deliveries Deliveries Payables and and Receivables compared Share Services Services to with Inotec GmbH, Waldshut-Tiengen 33 % ,223 4, Productos Sto Balear S.L., Santa Maria del Cami/Spain 33 ¹/ ³ % In the previous year, a loan receivable from Inotec GmbH amounting to TEUR 800 was fully adjusted. No goods or services were provided to or received from Stotmeister Beteiligungs GmbH as a related party in the year under review or in the previous year. Similarly, there were no receivables or liabilities. (36) German Corporate Governance Code In December 2009, the Board of Directors and Supervisory Board of Sto AG issued the declaration of conformance with the recommendations of the Government Commission on German Corporate Governance Code in accordance with Section 161 of the German Companies Act. (37) Remuneration of the Board of Directors and the Supervisory Board The remuneration paid to the members of the Board of Directors complies with the statutory provisions contained in the German Companies Act. The short-term remuneration paid to members of the Board of Directors for 2009 came to TEUR 3,262 (previous year: TEUR 3,194); for future services after the end of the employment relationship (current service cost, revenue from plan assets) remuneration came to TEUR 1,895 (previous year: TEUR 26). Members of the Board of Directors are entitled to post-employment benefits under certain circumstances. In the financial year 2009, as part of the restructuring of remuneration paid to the Board of Directors not only was variable remuneration capped; old-age pension schemes were also adjusted. This resulted in a non-recurring allocation of TEUR 1,866 to pension reserves. As at 31 December 2009, the post-employment benefit provisions for the current members of the Board of Directors stood at TEUR 2,319 (previous year: TEUR 394). Post-employment benefit provisions for former members of the Board of Directors and the Supervisory Board were valued at TEUR 1,890 as at 31 December 2009 (previous year: TEUR 1,921). The remuneration paid to former members of the Board of Directors and the Supervisory Board came to TEUR 206 (previous year: TEUR 201). Remuneration paid to Sto AG's Supervisory Board came to TEUR 398 (previous year: TEUR 394). The total remuneration paid to the Board of Directors, taking account of the non-recurring adjustment to the pension rules and the remuneration paid to the Supervisory Board for the financial year 2009 amounted to TEUR 5,426 (previous year: TEUR 3,614). The need for disclosure in accordance with Section 314 No. 6a sentence 5 9 of the German Commercial Code (HGB) has been dispensed with pursuant to Section 314 (2) sentence 2 of HGB, read in conjunction with Section 286 (5) of HGB. 113

116 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Members of the Board of Directors: Jochen Stotmeister Chairman, Board member for Marketing and Sales Grafenhausen, Dipl.-Betriebsw. (FH) Member of the BOD of Sto Corp., Atlanta/USA Member of the Supervisory Board of Golf AG Obere Alp, Stühlingen Gerd Stotmeister Deputy Chairman, Chief Technology Officer, Allensbach, Dipl.-Ing. (FH) Member of the BOD of Shanghai Sto Ltd., Shanghai/China Member of the Administrative Board of Sparkasse Bonndorf-Stühlingen Curator of the Fraunhofer Institute for Construction Physics (IBP), Stuttgart Advisory Board member of Handte Umwelttechnik GmbH, Tuttlingen Hans-Dieter Schumacher CFO, Tuttlingen, Dipl.-Kfm. Member of the BOD of Sto Corp., Atlanta, USA President of the Administrative Board of Sto AG Schweiz, Niederglatt, Switzerland Members of the Supervisory Board: Dr. Max-Burkhard Zwosta (Chairman), Wittnau Chartered Accountant and Tax Consultant Supervisory Board Chairman of Brauerei Ganter GmbH & Co. KG, Freiburg Supervisory Board Chairman of Ganter Grundstücks GmbH, Freiburg Supervisory Board Chairman of Freicon AG, Freiburg Member of the Supervisory Board of Storopack Hans Reichenecker GmbH, Metzingen (until 31 December 2009) Chairman of the Advisory Board of alfer aluminium Gesellschaft mbh, Wutöschingen Helmut Göbeke-Teichert Deputy Chairman and Employee Representative, Marbach Trade Union Secretary IG Bergbau, Chemie, Energie Member of the Supervisory Board of Parker Hannifin Holding GmbH, Bielefeld Member of the Supervisory Board of Parker Hannifin Management GmbH, Bielefeld Helmut Hilzinger Willstätt, Managing Shareholder of Hilzinger GmbH, Willstätt Mag. Dr. Heimo Scheuch Vienna/Austria, Chairman of the Board of Directors of Wienerberger AG, Vienna/Austria Member of the Supervisory Board of Soravia Group AG, Vienna/Austria Peter Zürn Westernhausen, Member of the Management of the Würth Group, Künzelsau Member of the Supervisory Board of Würth Modyf Norge AS, Skytta, Norway Member of the Supervisory Board of Würth á Islandi ehf., Garðabær, Iceland President of the Administrative Board of Würth Phoenix S.r.l., Bolzano/Italy Member of the Administrative Board of Würth AG, Arlesheim/Switzerland Member of the Administrative Board of Würth International AG, Chur/Switzerland Member of the Administrative Board of Würth Svenska AB, Örebro/Sweden Member of the Advisory Board of Würth Norge AS, Hagan/Norway Prof. Dr.-Ing. Klaus Sedlbauer Stuttgart-Feuerbach, Chair of Construction Physics at the University of Stuttgart 114

117 Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Sto AG Head of the Fraunhofer Institute Stuttgart, Holzkirchen and Kassel Chairman of the Supervisory Board of Calcon AG, Munich Senator of the Fraunhofer Gesellschaft, Munich Charles Stettler Stäfa/Switzerland, Member of the Board of Directors of Zürcher Kantonalbank, Zurich/Switzerland Member of the Board of Directors of Swisscanto AG, Basel, Switzerland Member of the Foundation Council of Swisscanto-Supra-Sammelstiftung der Kantonalbanken, Basel/Switzerland Member of the Foundation Council of Swisscanto Freizügigkeitsstiftung der Kantonalbanken, Basel/Switzerland Management Board member of Hauseigentümerverband Zürich, Zürich/Switzerland Member of the Board of Directors of the Deposit Guarantee Fund of Swiss Banks, Basel/Switzerland Member of the Board of Directors of Sto AG, Niederglatt/Switzerland Holger Michel Employee Representative, Burgdorf Trade Union Secretary of IG Bergbau, Chemie, Energie Member of the Supervisory Board of Pirelli Deutschland GmbH, Breuberg Member of the Supervisory Board of HT Troplast GmbH, Troisdorf Erhard Röhl Employee Representative, Wiesbaden Technical Coordinator at Sto AG Werner Trunz Employee Representative, Donaueschingen Head of Organisation and IT of the Sto Group Klaus Eigenstetter Employee Representative, Bonndorf Personnel Officer of Sto AG Stühlingen, 12 April 2010 Sto Aktiengesellschaft The Board of Directors Jochen Stotmeister (Chairman) Gerd Stotmeister (Deputy Chairman) Hans-Dieter Schumacher Melitta Menstell-Cooper Employee Representative, Stühlingen Chairperson of the Group Employee Representative Council and Chairperson of the Weizen Employee Representative Council at Sto AG 115

118 Sto AG Income statement, statement of recognised income and expenses, balance sheet, notes Sto Group (IFRS) Appendix 1/1 of Notes Breakdown of equity interests pursuant to Section 313 (2) HGB (German Commercial Code) Domestic markets Capital share in % Name, registered office StoVerotec GmbH, Lauingen 100 StoCretec GmbH, Kriftel 100 Gefro Verwaltungs-GmbH & Co. KG, Stühlingen 100 Südwest Lacke + Farben GmbH & Co. KG, Böhl-Iggelheim 100 Südwest Lacke + Farben Verwaltungs-GmbH, Böhl-Iggelheim 100 Malfa Farben GmbH, Freiburg 100 Hemm Stone GmbH, Kirchheim 100 Inotec GmbH, Waldshut-Tiengen 33 Foreign markets Capital share in % Name, registered office Sto Ges.m.b.H., Villach/Austria 100 Sto S.A.S., Bezons/France 100 Beissier S.A.S., La Chapelle La Reine/France 100 Beissier S.A., Errenteria/Spain 100 Sto SDF Ibérica S.L., Mataró/Spain 100 Productos Sto Balear S.L., Santa Maria del Cami/Spain 33 ¹/ ³ Sto Isoned B.V., Tiel/Netherlands 100 Sto N.V., Asse/Belgium 100 Sto Italia Srl, Empoli/Italy 52 Sto Finexter OY, Tampere/Finland 100 Sto Scandinavia AB, Linköping/Sweden 100 Sto Danmark A/S, Hvidovre/Denmark 100 Sto Norge AS, Oslo/Norway 100 Sto - ispo Sp. z o.o., Warsaw/Poland 100 Sto Épitöanyag Kft., Dunaharaszti/Hungary 100 Sto s.r.o., Prag/Czech Republic 85 Sto AG, Niederglatt/Switzerland 100 Visco-Tec AG, Pratteln/Switzerland 100 Sto Ltd., Paisley/United Kingdom 100 Sto Corp., Atlanta/USA 100 Sto SEA Pte. Ltd., Singapore, Singapore 100 Sto SEA Sdn. Bhd., Masai, Malaysia 100 Shanghai Sto Ltd., Shanghai/China 100 Langfang Sto Building Material Co. Ltd., Hebei/China 100 Wuhan Sto Building Material Co. Ltd., Hubei/China 100 OOO Sto, Moscow/Russia

119 Audit certificate Sto Group Sto AG Audit certificate, Sto Group Based on the final results of our audit of the consolidated financial statements and the Group management report we have issued the following auditors report. We have audited the consolidated financial statements, comprising the income statement, the statement of recognised income and expenses, the balance sheet, the statement of changes in equity, the cash flow statement, and the notes to the financial statements, together with the Group management report of Sto AG, Stühlingen, for the financial year from 1 January until 31 December The preparation of the consolidated financial statements and the Group management report in accordance with IFRS as they are to be applied in the EU and additionally Section 315a (1) of the German Commercial Code are the responsibility of the Company's legal representatives. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit of the consolidated financial statements in accordance with Section 317 HGB and generally accepted standards in Germany for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with (German) principles of proper accounting and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the consolidated financial statement and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of the companies included in consolidation, the determination of the companies to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the general partner, as well as evaluating the overall presentation of the consolidated financial statements and Group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit did not give rise to any objections. In our opinion, based on the findings of our audit, the consolidated financial statement complies with legal requirements and gives a true and fair view of the net assets, financial position and results of operations of the Group in accordance with IFRS as they are to be applied in the EU and also Section 315a (1) of the German Commercial Code. The Group management report is consistent with the consolidated financial statements and, as a whole, provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Villingen-Schwenningen, 12 April 2010 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Nietzer Accountant Greiner Accountant 117

120 Sto AG Responsibility statement by the legal representatives of the Sto Group Responsibility statement by the legal representatives of the Sto Group To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. Stühlingen, 12 April 2010 Sto Aktiengesellschaft The Board of Directors Jochen Stotmeister (Chairman) Gerd Stotmeister (Deputy Chairman) Hans-Dieter Schumacher 118

121 119

122 Calendar of events in 2010 Interim report on the first half of May 2010 Annual General Meeting June 2010 Report on the first half of August 2010 Interim report on the second half of November 2010 Electronic publication of the annual financial statements for April 2011 The annual financial statements of Sto AG (German GAAP) are available in electronic form at as well as at Sto's corporate website at In addition, it is published on the Company web site or can be ordered free of charge for delivery by post: Sto AG Abteilung F-S Ehrenbachstrasse Stühlingen This report contains forward-looking statements which are based on the Management's current assumptions and estimates concerning future developments. Such statements are subject to risks and uncertainties which Sto cannot control or estimate precisely. If any uncertainty arises or the assumptions on which these statements are based prove to be incorrect, actual results may differ materially from these statements. Sto is under no obligation to update forward-looking statements to incorporate any events which come to light after the publication of this report. Publisher's details Published by Concept and design Text Printing Sto AG, Stühlingen Straub Druck+Medien AG TIK Text, Information & Kommunikation GmbH Straub Druck+Medien AG Photographic credits Martin Duckeck, Ulm: Title, p. 29 Bernd Schumacher, Freiburg: P. 4 Wolfgang Pulver, Munich: P. 46 Tillmann Heuter, Aachen: P. 47 bottom Sto AG: P. 2, 12, 13, 14, 44, 47 top,

123 Head office Sto AG Ehrenbachstrasse Stühlingen, Germany Telephone [email protected] Branches/Sales centres/distribution partners Addresses and information can be obtained by calling: Telephone Holding company, national Inotec GmbH Waldshuter Strasse 25 D Waldshut-Tiengen Telephone [email protected] Holding company, international Productos Sto Balear Polígono Industrial Son Llaut Parcela 12. Local A E Santa Maria Del Camí Telephone [email protected] Subsidiaries, national StoCretec GmbH Gutenbergstr. 6 D Kriftel Telephone [email protected] StoVerotec GmbH Hans-Martin-Schleyer Strasse 1 D Lauingen/Donau, Germany Telephone [email protected] SÜDWEST Lacke + Farben GmbH & Co. KG Iggelheimer Str. 13 D Böhl-Iggelheim Telephone [email protected] Hemm Stone GmbH Mergentheimer Strasse D Kirchheim Telephone [email protected] Subsidiaries, international Belgium Sto NV/SA Z.5 Mollem 70 B-1730 Asse Telephone [email protected] China Shanghai Sto Ltd. 288 Qingda Road Pudong CN Shanghai Telephone Finland Sto Finexter OY Mestarintie 9 FI Vantaa Telephone [email protected] France Beissier S.A.S. Quartier de la Gare F La Chapelle La Reine Telephone [email protected] France Sto S.A.S. 224, rue Michel Carré F Bezons Telephone [email protected] Italy Sto Italia Srl Via G. di Vittorio, 1/3 Zona Ind. le Terrafino I Empoli (Fl) Telephone [email protected] Malaysia Sto SEA Sdn. Bhd. No. 8, Jalan Bukit 3 Kawansan MIEL Bandar MY Masai Telephone +607, [email protected] Netherlands Sto Isoned BV Lingewei 107 NL-4004 LH Tiel Telephone +31, [email protected] Norway Sto Norge AS Caspar Storms Vei 12 N-0664 Oslo Telephone [email protected] Austria Sto Ges.m.b.H Richtstr. 47 A-9500 Villach Telephone [email protected] Poland Sto ispo Sp. z o.o. ul. Zabraniecka 15 PL Warszawa Telephone [email protected] Russia OOO Sto Ul. Bolshaya Yakimanka 31 RU Moscow Telephone +7,495, [email protected] Switzerland Sto AG Südstrasse 14 CH-8172 Niederglatt/ZH Telephone [email protected] Singapore Sto SEA Pte. Ltd. 159 Sing Ming Road #03-08 Amtech Building SG-Singapore Telephone [email protected] Sweden Sto Scandinavia AB Gesällgatan 6 S Linköping Telephone [email protected] Spain Beissier S.A. Txirrita Maleo 14 E Errenteria Telephone +34,902,100,250 [email protected] Spain Sto Ibérica S.L. Pol. Ind. Les Hortes del Cami Ral Via Sergia, 32 - nave 1 E Mataró (Barcelona) Telephone [email protected] Czech Republic Sto s.r.o. estlice 271 CZ Dob ejovice Telephone [email protected] U.K. and Ireland Sto Ltd. 2 Gordon Avenue Hillington Park GB-Glasgow G52 4 TG Telephone +44,141, [email protected] Hungary Sto Épitöanyag Kft. Jedlik Ányos u. 17 H-2330 Dunaharaszti Telephone [email protected] USA Sto Corp Camp Creek Parkway Building 1400, Suite 120 Atlanta, GA USA Telephone [email protected] Denmark Sto Danmark A/S Avedøreholmen 86 DK-2650 Hvidovre Telephone [email protected] International distribution partners Addresses and information available from: Telephone

124 Head office Sto AG Ehrenbachstrasse Stühlingen, Germany Switchboard Telephone Telefax Info Service Telephone Telefax [email protected] Printed in Germany