Maschinenfabrik Berthold Hermle : Annual report

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Annual Report https://www.hermle.de 2024 CONTENTS HERMLE 3 Indices 3 Company executive bodies 4 Company history 5 Highlights 2024 6 Introduction by the Management Board 8 REPORTS 10 Report of the supervisory board 12 Management report of the AG and consolidated report 16 Hermle share 34 From the company: Solutions for current industry trends 36 CONSOLIDATED FINANCIAL STATEMENTS 40 Consolidated balance sheet 42 Group income statement 44 Income statement 44 Statement of comprehensive income 45 Group cash flow statement 46 Group equity statement 48 Notes to the consolidated financial statements 50 Development of the consolidated fixed assets 2024 50 Development of the consolidated fixed assets 2023 52 Consolidated segment reporting 54 Assurance of the legal representatives 85 Declaration of compliance pursuant to Section 161 of the German Stock Corporation Act (AktG) 86 FURTHER INFORMATION 88 by Maschinenfabrik Berthold Hermle AG Balance sheet 90 Development of assets 92 Income statement 94 Proposal on the appropriation of profits 95 Hermle Worldwide 97 INDICES HERMLE GROUP Change €m 2020 2021 2022 2023 2024 2024/2023 Turnover 296.9 376.0 474.1 532.3 -8.3% - Domestic 112.2 139.2 171.5 203.3 -11.7% - International 184.7 236.8 302.6 329.0 -6.2% Orders received 242.5 439.1 534.1 494.8 -7.8% Order backlog 44.8 107.9 168.0 130.5 -24.4% Investments 21.6 8.6 10.4 33.2 54.5% - Property, plant and equipment 1 21.6 7.6 10.4 33.2 54.5% - Financial assets - 1.0 - - - Depreciation 10.4 11.3 11.2 11.6 25.0% - Property, plant and equipment 1 10.4 11.3 11.2 11.6 25.0% - Financial assets - - - - - Operating result 54.2 74.6 99.6 115.8 -26.3% Net income 40.1 54.9 71.8 87.6 -24.8% Cash flow 50.5 66.3 87.8 99.1 -18.6% Balance sheet total 347.0 415.0 467.8 506.4 -4.3% Equity 274.4 305.2 334.8 366.9 -2.2% Employees (reporting date 31 December) 1304 1320 1383 1511 6.1% 487.9 179.4 308.5 456.2 98.7 51.3 51.3 - 14.5 14.5 - 85.3 65.9 80.7 484.6 358.9 1603 1 Property, plant and equipment and intangible assets For ease of reading, the terms used in this annual report, such as employee and worker, should be broadly representative and inclusive for all persons. This annual report is published in the original German version and in an English translation. In case of deviations between this English translation and the original German version of this annual report, the original German version takes precedence. COMPANY EXECUTIVE BODIES SUPERVISORY BOARD MANAGEMENT BOARD Dietmar Hermle Chair, Entrepreneur Lothar Hermle Deputy Chair, Entrepreneur Dr. Sonja Zobl-Leibinger Deputy Chair, Lawyer Prof. Dr. Wolfgang Kuhn Entrepreneur Gerd Grewin* Industrial Foreman, Control Technician, Chair of the Works Council Andreas Borho* Industrial Business Management Assistant Günther Beck Areas of responsibility: Finances Information technology Franz-Xaver Bernhard Areas of responsibility: Research & development Sales Benedikt Hermle Areas of responsibility: Materials management . Production . Service . Human resources *Elected employee representatives Additional Management Board and Supervisory Board positions are stated in the Appendix on page 84. COMPANY HISTORY 1938 Founding of Berthold HERMLE, a bolt and machine screw manufacturer, in the southwestern German town of Gosheim. Production of turned parts begins. 1953 Conversion to Maschinenfabrik Berthold HERMLE KG. 1956 Centrifuge production begins. 1957 Milling machine production begins. 1972 Presentation of first HERMLE universal milling machine. 1975 Production of numerically-controlled milling machines. 1978 Start of production of CNC controlled milling machines. 1984 Conversion to Maschinenfabrik Berthold HERMLE GmbH & Co. 1990 Conversion to Maschinenfabrik Berthold HERMLE AG, company is publicly traded on the stock exchange. Company opens new sales and administration building in Gosheim. 1992 Start of comprehensive restructuring of the HERMLE Group in Germany and abroad. 1995 Optimisation of the company as part of the 2000 Concept. 1997 HERMLE Vertriebs GmbH commences operations. 1998 Founding of HLS HERMLE Systemtechnik GmbH as a joint venture for customer-specific automation of HERMLE machines. 1999 HERMLE (Schweiz) AG is founded in Switzerland as a sales and service hub. Opening of the new Technology and Training Centre in the Kassel-Lohfelden business park. 2000 Our technology and training centre opened at the company headquarters in Gosheim. 2001 US branch becomes independent entity as HERMLE Machine Co. LLC. Founding of HERMLE Nederland B.V. 2003 Service and sales centre commissioned in North America. 2004 Opening of the customer service centre at the location in Gosheim. Opening of the sales branches and representative offices in China, Austria and the Czech Republic. 2005 Founding of the export business HERMLE WWE AG in Switzerland and a Russian subsidiary. 2006 Founding of HERMLE Italia S.R.L. 2009 During the financial crisis, the concept of the breathing company proves itself once again: Despite the drop in demand, HERMLE manages to make a profit and avoid job losses. Founding of a branch in Denmark as well as a representative office in Bulgaria. 2011 HERMLE opens a branch in Poland. A new warehouse and logistics centre commences operations at the company headquarters in Gosheim. 2014 At its Gosheim location, the company moves into a state-of-the-art production facility for the assembly of large machines and automated plant and opens a new restaurant for customers and visitors. 2016 Second production facility is established in Zimmern ob Rottweil. 2017 Expansion of machining operations at the location in Gosheim. 2018 Acquisition of all shares in the former joint venture HLS, which specialises in automation. 2019 Founding of a subsidiary in Mexico. 2020 HERMLE manages to overcome the economic slump caused by the COVID-19 pandemic and keep its workforce intact. Founding of HERMLE South East Asia (Thailand). Opening of an ultra-modern sheet metal production facility at the location in Zimmern ob Rottweil. As a full-range supplier, HERMLE now supplies automation solutions for the entire spectrum of machines. 2022 HERMLE establishes a subsidiary in China. 2023 Founding of a French subsidiary as well as HERMLE South East Europe (Romania) for developing the markets in Eastern Europe. Opening of a new service branch in Arizona (USA). HIGHLIGHTS 2024 JANUARY Opening of the new spindle production facility - Spindle assembly and repair services move to the refurbished premises of the former sheet metal production facility in Gosheim at the beginning of 2024. Continuous climate control, effective room cleanliness measures and state-of-the-art test benches ensure enhanced product quality. Temperature control also benefits workers in this area, supported by comprehensive noise reduction measures and an ergonomic workplace design. HERMLE also optimises processes in this strategically important area through a well-planned room layout and the direct placement of spindle repair facility adjacent to the assembly area. APRIL Expansion of spindle expertise - HERMLE acquires Gebr. Grieswald GmbH & Co. KG in Burladingen through an asset deal, thus further strengthening its core expertise in spindle technology. The roughly 20 employees of the former supplier are also taken on. Grieswald specialises in high-precision ground parts that HERMLE requires for spindle assembly. Over the following months, the plant is increasingly restructured to meet HERMLE's requirements and increase the proportion of in-house spindle parts. Open House: Presentation of the first GEN2 models - HERMLE welcomes more than 2,500 visitors from around 1,100 companies and over 30 countries to the 2024 Open House event. Trade visitors show particular interest in the first GEN2 machine models. While the basic design and mechanics of these GEN2 machining centres remain unchanged, their electrical architecture and interfaces have been completely redesigned to meet the latest technological standards. As a result, they are fully geared towards future-proofing, ease of service and flexibility. 25 years of HERMLE Schweiz - In 2024, HERMLE (Schweiz) AG, founded in 1999, reflects on 25 years of success. The subsidiary's positive development is driven by its strong presence in numerous high-tech sectors, including medical technology, in Switzerland. Based in the canton of Schaffhausen, 25 employees now serve customers throughout Switzerland and Liechtenstein. Their main focus is on sales, service and application engineering. MAY State-of-the-art training in Gosheim - The HERMLE training workshop and the assembly learning location (LOMO) move to cutting-edge facilities at the company headquarters in Gosheim. Apprentices can learn a future-oriented trade in a productive and pleasant atmosphere spread across 800 square metres of the former sheet metal production facility. The close spatial proximity between the training workshop and the assembly learning location promotes intensive exchange, while providing specific learning and working environments for both areas. The digital training management offering is also available on site. This ensures a balanced learning environment, where practical skills are combined with state-of-the-art technologies. JULY Construction of the new application centre - Preparations for the next construction phase at the company headquarters begin with the demolition and removal of old building sections: HERMLE is building a new application centre in Gosheim to ensure sufficient space for showcasing large machining centres and automation solutions. A canteen serving the over 1,000 employees at the location will be integrated into the new facility. Foundation work is set to commence at the beginning of 2025, and the building shell is due to be completed by the end of the year. AUGUST Larger location in Zimmern ob Rottweil opens - Following completion of the additional production facility in Zimmern ob Rottweil, the automation assembly team is set to move into the new workshops. Further storage and logistics space as well as the second module of a photovoltaic system are put into operation. HERMLE can generate enough CO2-neutral electricity to meet the power requirements for the buildings' air conditioning applications on days with sufficient sunlight. The next step is the installation of a new large machining centre for machining operations. SEPTEMBER HERMLE at AMB and IMTS - HERMLE will be exhibiting at the two most prominent mechanical engineering trade shows of the year, AMB in Stuttgart and IMTS in Chicago, with large stands and an extensive product range. Alongside other GEN2 models and compatible automation components, the emphasis will be on integrating an extensive range of technologies into the machining process. At AMB, HERMLE will utilise a C 42 U MT GEN2 machining centre to demonstrate the combination of 13 manufacturing technologies in just one component, thus exemplifying the great versatility of HERMLE products. INTRODUCTION BY THE MANAGEMENT BOARD DEAR SHAREHOLDERS, BUSINESS PARTNERS AND FRIENDS OF THE COMPANY, HERMLE, like many other companies, faced numerous challenges in 2024. The turbulent times we are currently going through have had an inevitable impact on us, too. The great uncertainty about future global political developments, geopolitical instability and trade disputes is weighing down the global economy. Exporting nations such as Germany and economic sectors like machine tool manufacturing are at the brunt of this. Additionally, our industry in Germany is facing structural shifts within the automotive sector, along with higher regulatory burdens and bureaucratic red tape. Against this backdrop, HERMLE performed relatively well in 2024: As expected, turnover and earnings dropped significantly across the Group compared to the historically high rate of the previous year - turnover was down 8.3% to €m 487.9 and the operating result fell by 26.3% to €m 85.3. With an equity ratio of 74.1% and liquid funds totalling €m 107.4, HERMLE remains very solid. As such, we can propose to our shareholders that they continue to receive an ordinary, albeit reduced, dividend of € 11.05 per preference share for the past business year. At the same time, we are currently strengthening our financial position amid an unusually volatile and unpredictable economic climate. This enables us to prepare for the future in a stable way regardless of the economic situation. Regardless of the current challenges facing the industry, the high demand is set to continue in the medium term for high-performance machine tools and automated systems. To ensure we are prepared for this, we embarked upon an extensive investment programme back in 2022 to secure our future. In 2024, the ongoing measures remained in place as planned, and our capacities at various locations were modernised and expanded: At the company headquarters in Gosheim, we have put a state-of-the-art spindle assembly facility into operation and started preparations for the construction of a new application centre to provide us with sufficient space to showcase our large machining centres and automation solutions. Construction of a new staff canteen is also planned at the location. At the production facilities built in 2023 in Zimmern ob Rottweil, our second location in the region, the assembly of automation components has begun, and work has started on expanding capacities for machining large parts. The second module of the installed photovoltaic system was also put into operation, enabling us to generate enough CO2-neutral electricity to meet the power requirements for the buildings' air conditioning applications on days with sufficient sunlight. Other main focuses of investment included the acquisition of Gebr. Grieswald GmbH & Co. KG - a specialist in high-precision ground parts that HERMLE requires for spindle assembly. Along with its assets, we also took on the roughly 20 employees at Grieswald and restructured the plant, which is located around 40 km from Gosheim, to meet our operational needs. This move has helped to strengthen our strategically important spindle sector. Our strong capital base not only allows us to invest in the future, it also gives us the flexibility and independence we need for operational aspects of the business. This is a key advantage in the current year, as the current situation is likely to get worse. Major risks to the global economy, particularly the unpredictable political and economic developments in the USA and related tariff disputes, are adding more uncertainty to the situation. In any case, we expect turnover and earnings to be down again in 2025, although currently we cannot predict to which extent. While there is very little we can do to change this environment, we can adapt, anticipate trends and maintain maximum flexibility to respond swiftly to any new developments. HERMLE is also well equipped for this. Our concept of the breathing company forms the foundation of our exceptional ability to adapt to shifts in demand. It features a comprehensive flexible working hours system that enables us to respond swiftly and appropriately should the need arise. And this is something we are currently doing, particularly in the indirect areas. In production areas, we introduced slow-down days in the fourth quarter of 2024 in line with current legal regulations and applied short-time work measures in specific departments. Short-time work was extended to most production areas throughout the first quarter of 2025. Our ability to respond to technological trends early on also has a positive impact. For instance, in the field of automation, which we have been steadily integrating into our product portfolio for more than 25 years. Very successfully, I might add: Today, a large percentage of the machines we sell are equipped with automation components. In 2024, these products helped to stabilise our turnover, not least because they are associated with a higher service volume. Our ability to adapt is also being tested at present by rapid technological advances in the electronics sector and structural shifts driven by the mobility and energy transition, for example. We are responding to these challenges by converting our machines to the next generation, GEN2. Our GEN2 machining centres are characterised by their new electrical design and state-of-the-art interfaces. This makes them future proof, service friendly, open and flexible. The initial GEN2 models were unveiled in April 2024, and new variants are set for release at the 2025 Open House event. The first next-generation products are also available for our automation components. For example, the RS 2 GEN2 robot system, which will also be on show at the 2025 Open House event. Further information on GEN2 is available on our website and in the voluntary section of this annual report. That is also where we report on the HERMLE technology component that was made in a single clamping setup using 13 different manufacturing processes. It highlights the versatility of our machining centres and their broad applicability across diverse industries. Combined with our expanding international presence, this level of versatility provides us with a high degree of flexibility. It strengthens our resilience to economic fluctuations in specific regions or industries, while enabling us to seize global opportunities in future technologies. Despite current regional shifts and structural changes, machine tools will remain essential as the foundation for implementing and manufacturing countless technological innovations. We see potential all around the world. For instance, through the planned development of competitive industries in Europe, such as in the digital sector or the aerospace industry, the expansion of the defence industry, e-mobility or the chip industry. Outside Europe, opportunities exist in multiple areas, such as the planned re-industrialisation of the USA or in India, where capacities are being expanded in a wide range of sectors - from metalworking to the automotive industry and mechanical engineering to renewable energy generation. HERMLE sees opportunities for growth in all of these countries and sectors. We want to make the most of this situation together with our a team of highly skilled and dedicated professionals, who we would like to thank for their unswerving commitment and amazing performance. Together, we are solidifying our technological leadership in 5-axis machining and further expanding our position in the global market as a full-range supplier of complete automation solutions from under one roof. Yours faithfully, Günther Beck Management Board Franz-Xaver Bernhard Management Board Benedikt Hermle Management Board REPORTS HERMLE C 42 U dynamic in 5-axis version | Machining of a structural part for the aerospace industry. REPORT OF THE SUPERVISORY BOARD LADIES AND GENTLEMEN, DEAR SHAREHOLDERS, Maschinenfabrik Berthold HERMLE AG fared well during the past business year despite a challenging economic climate. As expected, the weak economic conditions, especially in Germany and Europe, and growing investment hesitation throughout the industry resulted in a marked drop in turnover and earnings. That said, incoming orders did not fall as sharply as the industry average. This proves that the strategy of our Management Board to focus on automation, complete machining and internationalisation is actually paying off. The Supervisory Board would like to thank the Management Board and all the employees for their outstanding commitment and excellent performance. COOPERATION BETWEEN MANAGEMENT BOARD AND SUPERVISORY BOARD In the 2024 business year, the Supervisory Board diligently and conscientiously fulfilled all its responsibilities in accordance with legal requirements and the Articles of Association. We provided the Management Board with advice and support in managing the business and closely monitored its activities. Cooperation between the Management Board and the Supervisory Board always fostered an open, trusting and constructive environment. The Management Board provided us with comprehensive and frequent written and verbal updates on all critical company matters. The Management Board was also in regular contact with the Chair of the Supervisory Board, discussing current key issues in particular. We were therefore always aware of the ongoing situation within the company, including the risk and financial aspects, business performance, corporate planning, such as financial, investment and personnel planning, as well as the strategy and business policy. The Supervisory Board was actively involved in all key decisions from an early stage and engaged in thorough discussions with the Management Board. We thoroughly reviewed and discussed transactions requiring approval before they were approved. SUPERVISORY BOARD MEETINGS AND COMMITTEES All issues of significance to the company were discussed in detail during Supervisory Board meetings. As in the previous year, five scheduled meetings were held in 2024; on 20 March, 26 April, 3 July (two meetings) and 4 December. All the meetings were face to face and the Supervisory Board members were always in full attendance and therefore quorate. The Management Board also attended all the face-to-face meetings in full and was thus able to answer questions and provide explanations. As in previous years, the Supervisory Board formed a general committee. It came together once on 4 December 2024 to prepare the long-term succession plan for the Management Board. An Audit Committee was also formed in accordance with the legal requirements. In accordance with Section 107 (4) in conjunction with Section 100 (5) of the German Stock Corporation Act (AktG), at least one member of the Audit Committee must have expertise in the field of auditing (Dietmar Hermle) and at least one further member must have expertise in the field of accounting (Dr Wolfgang Kuhn). The Audit Committee met twice in 2024 and primarily dealt with matters relevant to the audit of the annual financial statement. On 20 March, it resolved to recommend to the full Supervisory Board the appointment of RSM Ebner Stolz GmbH & Co. KG as the auditor of the individual and consolidated financial statements for the 2024 business year and as the auditor of the Sustainability Report and declared that this recommendation was made free of undue influence by third parties. At the meeting on 26 April 2024, the Audit Committee reviewed the auditors' report on the audit of the 2023 annual financial statements, consolidated financial statements and summary management report. After thorough examination, the Audit Committee decided to recommend that the Supervisory Board approve these financial statements. THE MAIN SUPERVISORY BOARD ISSUES IN 2024 During all Supervisory Board meetings in 2024, the Supervisory Board focused on market trends, the development of the new machine and service business, as well as financial performance and personnel matters. We also remained regularly updated on the progress of planning and construction activities related to the expansion of our locations. In Zimmern ob Rottweil, new assembly and storage capacities were put into operation in the year under review and work commenced on the installation of a new large machining centre. Preparations were also made for the construction of a new application centre and a staff canteen at the company headquarters in Gosheim. Other recurring topics at the meetings included the efforts to liquidate the Russian subsidiaries, which ceased operating at the start of the Ukraine war, as well as key social and environmental concerns. The agenda of the Supervisory Board meeting held on 20 March 2024 also included a presentation of the preliminary figures from the 2023 annual financial statements of the Group and the AG, as well as the proposal on the appropriation of profits. The recommendation of the Management Board to pay out a dividend of € 15.00 per ordinary share and € 15.05 per preference share for 2023 and to allocate €m 40 to revenue reserves was discussed in detail and approved unanimously. The Supervisory Board was also provided with information on the takeover of Gebr. Grieswald GmbH & Co. KG on 1 April 2024, which further strengthens HERMLE's core expertise in spindle technology. The Management Board also presented the current development projects at HERMLE AG, the HERMLE subsidiary HLS, which specialises in automation solutions, and HMG, which is responsible for the company's own additive manufacturing process. In addition, the Supervisory Board discussed the agenda for the 2024 share-holders' meeting, approved the Corporate Governance Statement, in accordance with Sections 289f and 315d, reviewed drafts of the remuneration and sustainability reports and resolved to increase both the fixed remuneration of the Management Board and the remuneration of the Supervisory Board. Finally, we approved participation of HERMLE AG in the Heuberg Business Association's initiative to establish "Heuberg Energie GmbH". The main focus of the meeting on 26 April 2024 was the annual financial statements of Maschinenfabrik Berthold HERMLE AG and the Group. The auditing company RSM Ebner Stolz GmbH & Co. KG reported comprehensively on the financial statements and was available for further questions. Ebner Stolz also informed us about the latest status of the new sustainability reporting regulations. Following thorough examination of the annual financial statement documents, the Supervisory Board adopted the annual financial statements of HERMLE AG and approved the consolidated financial statements and the summary management report. Another focus of the meeting was the preparations for the 2024 shareholders' meeting, whose agenda was finalised. To this end, the Supervisory Board approved the dividend proposal and the Supervisory Board report for the 2023 business year and, in line with the recommendation of the Audit Committee, resolved to propose RSM Ebner Stolz GmbH & Co. KG to the shareholders' meeting as the auditor for the annual financial statements of the AG and the Group and for sustainability reporting in 2024. The Management Board also informed us about the design of the 2023 Annual Report, the inclusion of climate risks in the risk reporting practices, the new code of conduct for external business partners and HERMLE employees and the search for suitable rental properties as storage space during the reconstruction phase in Gosheim. Furthermore, we passed a supplementary resolution regarding the adjustment of Management Board remuneration and approved our schedule for 2025. On 3 July 2024, the Supervisory Board held one meeting before and one meeting after the shareholders' meeting. During the first meeting, we discussed the organisation of the upcoming event and received a brief report from the Management Board on current market trends and year-to-date sales performance. Following the shareholders' meeting, we conducted an in-depth review of development of the Gosheim location and the planned new application centre. We were informed about commencement of the necessary demolition work and gave our basic approval to rent interim storage space for the duration of the construction phase. Another topic of discussion was the expansion of the compliance management system at HERMLE, which was prompted by the ever increasing regulatory demands in Germany and Europe. The Management Board explained the basic structure of the new compliance management system (CMS) and presented the corresponding CMS manual. During the Supervisory Board meeting on 4 December 2024, we focused intensively on the budget for the 2025 business year, which is subject to high risks amidst ongoing economic and geopolitical uncertainties. The Management Board outlined the forecasts for the 2025 business year, including the new machine sales planning and the budgets for both the individual company and the Group. Further, the Management Board also reported on planned investments and possible factors influencing the development of earnings and provided us with a sensitivity analysis. We discussed the forecasts and the current challenges facing the industry in detail, before approving the budget and the planned investments. The Management Board also reported on the precautionary application for short-time work measures in some areas and the current regulations governing short-time work. The Supervisory Board also approved the presidential committee's proposals for a long-term succession plan for the Management Board. We resolved to grant Kai Bacher, who is to become the Management Board member responsible for Sales, R&D, Product Management and Foreign Trade & Customs as at 1 January 2026, general power of attorney for the Sales division starting 1 January 2025. Kai Bacher joined HERMLE in 2003 and has been working closely with Franz-Xaver Bernhard, who he will succeed, for several years. Franz-Xaver Bernhard has been a member of the Management Board since 2001 and is stepping down due to age reasons when his current contract expires on 31 December 2025. Proactive succession planning guarantees a smooth transition and continuity within the Management Board. The Supervisory Board was also provided with information on current product extensions and new developments. Finally, we passed the necessary resolutions on the declaration of compliance in accordance with Section 161 of the German Stock Corporation Act (AktG) and on the quota of women, both of which remain unchanged, and decided that the 2025 sharehold-ers' meeting will once again be held as a face-to-face event. AUDIT OF THE ANNUAL FINANCIAL STATEMENT 2024 On 3 July 2024, the shareholders' meeting elected RSM Ebner Stolz GmbH & Co. KG as the auditor for the 2024 business year. The auditors assured that in the year under review they did not render any significant services to Maschinenfabrik Berthold HERMLE AG going beyond this assignment and that no circumstances applied that could jeopardise their impartiality or give rise to doubts about their impartiality. The annual financial statements of Maschinenfabrik Berthold HERMLE AG, the consolidated financial statements and the summary management report of the AG and the Group for 2024 were audited by Ebner Stolz and issued an unqualified opinion. The auditors assured that the financial statements give a fair and appropriate presentation of the net assets, financial position and results of operations and that the management report accurately presents the opportunities and risks of future development of HERMLE AG and the Group. The annual financial statements of the individual company were prepared in accordance with the provisions of the German Commercial Code (HGB); while the consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS), as applicable in the European Union (EU), and in compliance with the commercial requirements pursuant to Section 315e (1) of the German Commercial Code (HGB). The Management Board provided the Supervisory Board with the financial statement documents and the audit reports in good time. We scrutinised the documents and discussed them in detail during the balance sheet meeting on 29 April 2025. The auditors also attended this meeting. They presented the key findings, main focal points and critical issues identified during their audit, and were available to address any questions. The Supervisory Board agreed with the auditor's findings and did not raise any objections. We approved the annual financial statements and the management report. The annual financial statements of Maschinenfabrik Berthold HERMLE AG are thus adopted. The Management Board and Supervisory Board will propose to the shareholders' meeting a dividend payment of € 0.80 per ordinary share and € 0.85 per preference share, along with a bonus of € 10.20 for the 2024 business year. The auditor also examined the remuneration report pursuant to Section 162 of the German Stock Corporation Act (AktG) and raised no objections. We also examined this report, formed an opinion on its correctness and expediency and approved it. Furthermore, the Supervisory Board also reviewed the mandatory non-financial statement pursuant to Section 289b and 315b of the German Commercial Code (HGB) and confirmed that they comply with the legal requirements. An audit of this declaration by the auditor was not required, as the relevant statutory provisions have been postponed. Given the volatile geopolitical and economic environment, the current business year is expected to pose even greater challenges for HERMLE than the already demanding previous year. A further decline in turnover and earnings is expected in 2025. However, HERMLE's very strong financial situation and its high level of flexibility thanks to the concept of the breathing company allow it to manage extended periods of weak demand relatively well. At the same time, the company is able to carry out planned future projects at its production facilities regardless of changes in the economic environment. As such, our company is well prepared to benefit from future upturns in the economic cycle. The Supervisory Board wishes the Management Board and the entire HERMLE team every success in overcoming the challenges ahead. Gosheim, April 2025 Dietmar Hermle Chair of the Supervisory Board MANAGEMENT REPORT OF THE AG AND CONSOLIDATED REPORT This report is a summary management report covering Maschinenfabrik Berthold HERMLE AG and the Group. It is in line with the requirements of the German Accounting Standard (DRS) 20. The 2024 consolidated financial statements were, as in the previous year, prepared in accordance with the IFRS Accounting Standards (IFRS) as adopted by the European Union. The annual financial statements of the individual company Maschinenfabrik Berthold HERMLE AG were prepared in accordance with the accounting principles of the German Commercial Code (HGB). Details that refer to the individual company are denoted with the addition "HERMLE AG" or "individual company". The separate mandatory non-financial statement pursuant to Sections 289b and 315b of the German Commercial Code (HGB) can be viewed on the HERMLE website at https://www.hermle.de (under: Company & Career / Investor Relations / Sustainability Report). It contains all key information on our sustainability activities as well as the legally required disclosures in accordance with the EU Taxonomy Regulation1. There are no disclosure requirements in accordance with Sections 289a and 315a of the German Commercial Code (HGB), as only the preference shares of Maschinenfabrik Berthold HERMLE AG's share capital, which is divided into 4 million ordinary shares and 1 million non-voting preference shares, are traded on the stock exchange. GROUP FUNDAMENTALS BUSINESS MODEL AND SALES MARKETS Maschinenfabrik Berthold HERMLE AG is one of the world's leading manufacturers of high-quality milling machines and machining centres and offers its customers complete automation solutions from under one roof. Our 5-axis machining centres and high quality standards set benchmarks in the industry. HERMLE's customers include domestic and international companies in various high-tech sectors. They encompass mechanical and plant engineering with applications for packing technology, mining or the special vehicles segment, the aerospace industry, medical technology, the electronics and chip industry, the optical industry, energy technology, toolmaking and mould construction as well as the automotive industry, including their subcontractors. Our customer base is being continuously broadened so that the importance of individual sales sectors, such as the automotive industry, is gradually decreasing. Moreover, we increasingly distribute our products worldwide and develop growth markets in a targeted manner in order to improve our international position. Germany is still the key market. Our product range has a modular structure that is being permanently enhanced in accordance with the requirements of the various market segments. The basis is formed by two machine series: High-quality entry-level machines of the Performance Line and extremely dynamic, precise and powerful machining centres of the High Performance Line. They are complemented by a growing number of automation and digital components. We utilise these modules to increasingly develop bespoke solutions for flexible automation and digitally networked production systems for our customers. To this end, our machining centres are enhanced with a range of functional modules as required, from tool handling and digital components to robot systems. Standardised interfaces are increasingly being used to integrate additional external functionalities into production facilities. In addition, we offer services for additive manufacturing. ORGANISATIONAL STRUCTURE The HERMLE Group consists of the parent company Maschinenfabrik Berthold HERMLE AG and several domestic and international subsidiaries. HERMLE AG assumes most of the development and production activities, central services and logistics services, as well as commercial, IT and administrative functions of the Group. Other domestic companies include the subsidiaries HPV HERMLE Vertriebs GmbH (HPV), HLS HERMLE Systemtechnik GmbH (HLS), which specialises in customised automation solutions, and the development company HERMLE Maschinenbau GmbH (HMG), which focuses on additive manufacturing. The 1 This sentence is an unverified statement. companies which have their headquarters in Germany make up the domestic company segment. The foreign sales segment comprises our companies and operating facilities outside Germany. They are essentially responsible for sales and service activities in various regions. Independent HERMLE subsidiaries are located in China, France, Italy, Mexico, the Netherlands, Romania, Switzerland, Thailand and the USA. In addition, there are HERMLE operating facilities in Denmark, Austria, Poland and the Czech Republic as well as representative offices in other sales regions, for example in Bulgaria, which organisationally belong to HERMLE AG. STRATEGY AND CORPORATE MANAGEMENT The strategy of Maschinenfabrik Berthold HERMLE AG is geared towards profitable organic growth. We aim to produce premium grade tool machines and top-class automation solutions in Germany relying on a strong equity base and a highly motivated and competent team of employees working for the company on a long-term basis, offer excellent service worldwide and in the process generate adequate income. With our high-precision, powerful machining centres, automation components and digital modules, which are continuously being further developed, we have become an established partner for integrated automation solutions. We want to continue to consolidate this position. Moreover, we are striving for a broad industry-related positioning and intend to further advance the internationalisation of our activities as well as the digitalisation of our product range and all corporate processes. In the year under review, we were able to successfully implement our strategy. We also continued our work on a systematic sustainability strategy in 2024. A key focus is on enhancing the energy efficiency of our production solutions, as the majority of emissions generated throughout the life cycle are linked to the operational phase of the machining centres. In 2024, we made significant progress with the market launch of our GEN2 machines and automation components, which provide our customers with substantial efficiency benefits and considerable energy-saving potential. This topic of sustainability has always been a high priority at HERMLE. For example, we are committed to conserving resources in our operations, sourcing raw materials from local suppliers, keeping routes short and providing attractive and secure jobs for our employees. In recent years, stricter statutory regulations have significantly raised the standards for sustainable corporate governance. To meet these requirements and further reduce CO2 emissions, for example, we are taking a pragmatic approach by maximising savings potential in material and energy consumption, as well as transportation, wherever feasible. Another crucial aspect is the contribution that our machines and systems can make to driving sustainable innovation for our customers, as they are essential in many industries for initiating technological advancements. As a precautionary measure, we actively monitor the risks associated with increasing sustainability requirements, which are currently minimal for HERMLE overall. The HERMLE Group is controlled centrally by HERMLE AG. We primarily use incoming orders, turnover and earnings before interest and taxes (EBIT), which correspond to the operating result, as a key indicator for this. The Management Board of HERMLE AG, which consists of three members, is responsible for managing the company. CORPORATE GOVERNANCE STATEMENT The working methods adopted by the Management Board and the Supervisory Board as well as relevant details of corporate governance practices are set out in the Corporate Governance Statement pursuant to Sections 289f and 315d HGB, which is permanently available on our website https://www.hermle.de (under: Company & Career / Investor Relations / Mandatory publications / Corporate Governance Statement). It also includes the legally required disclosures of female-to-male employee ratios pursuant to Sections 76 and 111 of the German Stock Corporation Act (AktG). Remuneration of the Management Board is presented in detail in the Remuneration Report which is available on our website at https://www.hermle.de (menu item: Company & Career / Investor Relations / Mandatory Publications / Remuneration System/ Remuneration Report. BUSINESS REPORT FRAMEWORK CONDITIONS: GLOBAL ECONOMY GREW BY 3.2% IN 2024 Based on preliminary figures from the International Monetary Fund (IMF), the global economy grew by 3.2% in 2024 (previous year: 3.3%), falling short of the 3.7% average recorded over the past two decades. According to a report by the German Council of Economic Experts, the moderate expansion of the global economy in the period under review was primarily supported by the services sector, although industrial production also increased. Conversely, trade restrictions and geopolitical risks along transport routes impaired the global movement of goods. According to the IMF, the economy in the industrialised nations grew by 1.7% in 2024, as in the previous year, while developing and emerging countries recorded an overall increase of 4.2% (previous year: 4.4%). That said, there were major differences between the major economies: The gross domestic product (GDP) in the USA rose by 2.8% buoyed by strong consumer spending (previous year: 2.9%). In China, where consumer confidence remained subdued and the real estate sector showed only tentative signs of stabilisation, gross domestic product increased by 4.8% (previous year: 5.2%) thanks to a high level of exports. The economy in India grew by 6.5% (previous year: 8.2%) and in the ASEAN states by 4.5% (previous year: 4.0%). In contrast, economic performance in the eurozone increased by just 0.8% (previous year: 0.4%), with the recession in Germany countered, for example, by notably stronger growth in France and Spain. According to preliminary calculations by the Federal Statistical Office (Destatis), German GDP contracted by 0.2% last year (previous year: 0.3%). Declines were recorded in the construction industry, in particular, but also in the manufacturing sector. The German Council of Economic Experts believes the economy is being held back by both cyclical and structural problems: Firstly, significant uncertainty regarding overall economic and political developments negatively affected both private consumption and investment within the industry. Secondly, higher production costs relative to other countries and sluggish productivity growth reduced competitiveness, an effect felt most noticeably by Germany's export-driven economy. INDUSTRY SITUATION: SUBDUED MECHANICAL ENGINEERING SECTOR Against the backdrop of ongoing geopolitical tensions and uncertainties, the demand for investment goods declined globally in 2024 according to the German Mechanical Engineering Industry Association (VDMA). In addition, the mechanical engineering sector was particularly affected by far-reaching structural changes and overcapacity in some customer sectors. According to estimates by economists of the German Mechanical Engineering Industry Association (VDMA), global machinery sales fell by 2% last year on a price-adjusted basis. While growth was visible in both China and India, machine sales in the USA and Europe were down, in some cases significantly. According to the German Mechanical Engineering Industry Association (VDMA), the weak global economic situation led to a 7.5% real-term decline in production by German machinery and plant manufacturers in 2024 compared to the previous year. Their incoming orders fell short of the 2023 level by 8% on a price-ad-justed basis. New orders decreased in Germany in particular: The decline even reached double figures, at 13%. At just -5%, there was also very little impetus from overseas. According to estimates by the German Mechanical Engineering Industry Association (VDW), the international machine tool industry also recorded losses in 2024. Global machine tool production is estimated to have fallen by 3.8%, with the most significant reductions in America and Europe, while output in Asia remained only slightly below the previous year's level. Among the three leading manufacturing nations, China achieved a notable increase in production, while the number of machines manufactured in Japan and Germany declined significantly compared to the previous year. According to estimates by Oxford Economics, VDW's forecasting partner, 2024 saw a 4% fall in the production of machine tools in Germany. According to VDW figures, turnover in the German machine tool industry fell by 7% in 2024, while incoming orders declined 19% overall, with new orders from Germany down 9% and orders from abroad down 24%. Major uncertainties in the macroeconomic environment, combined with rising cost pressures, growing regulatory requirements and increasing bureaucratic red tape, likely had a substantial dampening effect on the industry's willingness to invest. Structural shifts in the automotive industry had a noticeable impact on key customer sectors for machine tool manufacturers, leading to reduced demand not only from vehicle producers but also from suppliers like tool and mould makers. However, it should also be noted that this was partially offset by increasing demand from growth sectors such as telecommunications, the electronics industry and artificial intelligence. From a technological perspective, complete machining of a component and thus the integration of various technologies in one production system is playing an increasingly important role. Furthermore, Industry 4.0, which encompasses the automation and digitalisation of manufacturing processes, continues to play a pivotal role within the sector. Alongside the push for greater efficiency, a major driving force is the acute shortage of skilled labour in Germany and other industrialised countries. This has prompted companies to invest more heavily in automation, thereby speeding up the shift towards autonomous production. In addition to the increasing degree of automation, simple and convenient operation of the production systems is also becoming more and more important. AN OVERVIEW OF HERMLE'S BUSINESS PERFORMANCE As anticipated, weak industry-wide development in 2024 had a negative impact on the business performance of Maschinenfabrik Berthold HERMLE AG and the Group. In the first half of the year, we continued to benefit from the strong order backlog carried over from 2023 and a less-than-expected drop in demand, while the subdued economic climate in the machine tool industry became increasingly visible in the second half of 2024. Overall, incoming orders of the HERMLE Group decreased by 7.8% to €m 456.2 during the past business year. As such, the demand for HERMLE production solutions outperformed the industry average, something that we attribute to our strong position in automation and complete machining, our excellent service quality and the increasing internationalisation of our business activities. orders in Germany fell by around 9.3% to €m 165.1. Totalling €m 291.1, 6.9% fewer new orders were also received from customers overseas. The order backlog fell from €m 130.5 to €m 98.7 compared to the same reporting date. Orders received by the HERMLE Group in €m 534.1 494.8 456.2 439.1 242.5 Our strategy has once again paid off. HERMLE Group sales decreased by 8.3% to €m 487.9 in 2024. The decline in Germany was, however, significantly higher than overseas. In fact, the non-European markets had a particularly stabilising effect, while Europe, especially Germany, was largely influenced by weak economic performance and the structural crisis within the automotive industry. The gradual depletion of 143.4 99.1 2020 275.3 163.8 2021 333.9 200.2 2022 312.8 182.0 2023 291.1 165.1 2024 the order backlog ultimately led to reduced utilisation of our capacities over the year. As forecast, earnings before interest and taxes (EBIT) dropped 26.3% to €m 85.3, which was a significantly higher rate than turnover. Lower capacity utilisation in particular had a dampening effect on earnings, as did rising personnel costs driven by an expanding workforce, wage increases and a persistently high sickness absence rate. Increased competitive pressure also meant that we were unable to fully pass on higher purchase prices to our customers. Overall, Maschinenfabrik Berthold HERMLE AG and the Group developed in line with expectations in 2024. We were able to consolidate our market position as technology leader in 5-axis machining centres and expand in the field of automation and complete solutions. HERMLE INCOMING ORDERS DECREASE BY 8% TO €M 456 New orders amounting to €m 456.2 were received across the HERMLE Group in 2024, 7.8% less than in the previous year. Thanks to strong demand for automated complete solutions, development in the first half of the year was relatively resilient to the economic weakness of the industry. In the second half of the year, however, the industry's reluctance to invest also had a considerable impact on HERMLE. For the year as a whole, incoming Domestic International At the individual company HERMLE AG, incoming orders fell by 8.0% to €m 413.5 during the period under review (previous year: €m 449.4). Domestic sales accounted for €m 166.5 (previous year: €m 183.0) and international sales for €m 247.0 (previous year: €m 266.4). The order backlog of HERMLE AG totalled €m 93.5 on 31 December 2024 compared to €m 118.6 on the same date in the previous year. GROUP TURNOVER DECREASES BY 8% TO €M 488.0 Due to the cyclical slow-down in demand over the year, the HERMLE Group turnover fell by 8.3% to €m 487.9 during the period under review. While business in new machines declined as expected, service revenues, which increased due to the growing number of installed automation solutions at customer sites, had a stabilising effect. Domestically, the business volume decreased by 11.8% to €m 179.4. Thanks to our increased internationalisation activities, non-domestic turnover only fell by 6.2% to €m 308.5. Consequently, the export ratio improved from 61.8% to 63.2%. HERMLE Group turnover in €m 474.1 532.3 487.9 non-European subsidiaries were less affected by the economic downturn than the companies based in Germany and Europe. OPERATING RESULT OF €M 85 COMPARED TO €M 116 IN THE PREVIOUS YEAR 296.9 184.7 112.2 2020 376.0 236.8 139.2 2021 302.6 171.5 2022 329.0 203.3 2023 308.5 179.4 2024 As anticipated, the HERMLE Group's results in 2024 were significantly impacted by the drop in turnover and the resulting decline in capacity utilisation. Total operating performance decreased by 7.6% to €m 493.5. The lower business volume was partly balanced by an inventory increase of €m 3.9 (previous year: €m 1.0), which was driven by the deferral of certain machine deliveries to the following year and a modest rise in current inventories related to the ongoing transition to GEN2. The company-produced assets rose from €m 0.7 to €m 1.7. As in previous years, they mainly concerned self-produced machines and testing equipment for production and quality assurance. The cost of materials developed almost in line with total Domestic International In 2024, the individual company HERMLE AG generated turnover of €m 438.6 compared to €m 485.4 in the previous year, which represents a fall of 9.6%. €m 180.8 thereof were generated by domestic sales (previous year: €m 204.2) and €m 257.8 by foreign sales (previous year: €m 281.2). The export ratio increased from 57.9% to 58.8%. SEGMENT DEVELOPMENT Turnover in the domestic company segment of the HERMLE Group decreased by 13.1% to €m 262.1 in 2024. While HERMLE AG and the sales company HPV recorded declines, the business volume of the automation specialist HLS grew significantly in the period under review. HMG, which is responsible for development and the range of services in the area of additive manufacturing and contributes to HERMLE AG's turnover, was able to slightly increase its business volume. Turnover in the foreign sales segment decreased by just 2.0% to €m 225.8. This shows that our intensified overseas activities are paying off. Significant growth was achieved at the new subsidiary in France, but the companies in China, Mexico and the USA were also able to boost their business volume. The Swiss-based export business HERMLE WWE achieved business growth, especially in India and the Balkan states. Turnover at our subsidiaries in the Netherlands and Italy was down somewhat on the previous year's very good level. The business performance of HERMLE AG's other foreign subsidiaries, branches and representative offices ranged from stable to slightly declining. Generally speaking, HERMLE's output and accounted for 41.1% (previous year: 40.7%) of it. The further rise in certain purchase prices, especially for supplier parts, which we were unable to fully pass on to our customers due to heightened competition, was largely offset by positive effects from the growing share of our international business. Personnel costs, which rose significantly from 26.8% to 30.4% of total operating performance, were primarily driven by an expanding workforce, wage increases and a persistently high sickness absence rate. Moreover, higher costs were incurred due to an increasing amount of red tape imposed by new legal regulations, thus leading to an increase in unproductive overtime. Depreciation in the HERMLE Group rose to €m 14.5 (previous year: €m 11.6). This was mainly due to the expansion of the location in Zimmern ob Rottweil in recent years. The net balance of other operating expenses and income was €m -40.9 (previous year: €m -46.0). Reduced warranty expenses and income from the reversal of related provisions, along with income from asset sales, were offset by higher expenditures for trade fairs, travel and maintenance, primarily due to relocation and demolition activities at the location in Gosheim. In the past business year, the operating result (earnings before interest and taxes (EBIT)) of the HERMLE Group was €m 85.3 after the all-time high of €m 115.8 in the previous year. €m 75.6 thereof (previous year: €m 102.5) was attributable to the domestic companies segment, and €m 10.2 (previous year: €m 13.7) was generated by the foreign sales segment. Thanks to an improved financial result, rising from €m 2.5 to €m 3.7 in 2024 due to higher average market interest rates compared to 2023, the HERMLE Group achieved an EBIT of €m 89.0 in HERMLE Group operating result and net income in €m 115.8 99.6 71.8 87.6 85.3 In 2024, the HERMLE Group's cash flow before changes in working capital fell by 18.6% to €m 80.7 on the basis of the lower result. At the same time, funds tied up in working capital decreased significantly, mainly due to the business-related reduction in inventories and trade accounts receivables. Overall, the inflow of funds from operations amounted to €m 102.5 compared to €m 92.1 in the previous year. 54.2 74.6 65.9 HERMLE Group liquidity development 2024 in €m 54.9 40.1 +102.5 -31.3 -75.6 2020 2021 2022 2023 2024 Operating result Net income 2024 (previous year: €m 118.4). This resulted in a reduced but still very solid gross margin on turnover of 18.2% (previous year: 22.2%). The consolidated after-tax net income amounted to €m 65.9 compared to €m 87.6 in the previous year. This results in a distribution of € 13.17 per ordinary share (previous year: € 17.50) and € 13.22 per preference share (previous year: € 17.55). The operating result of the individual company HERMLE AG according to HGB regulations was €m 73.5 in the year under review (previous year: €m 100.6). The net income included 111.0 Inflow of funds from operations Outflow of funds from investment Outflow of funds from financing Other 0.8 107.4 €m 10.3 in dividends from subsidiaries (previous year: €m 8.3) and dropped from €m 82.9 to €m 66.1. changes FINANCIAL MANAGEMENT AND FINANCIAL POSITION: CASH FLOW AT €M 81 The approach of HERMLE AG and the Group is grounded in con- Financial funds as at 01.01.2024 Values rounded Financial funds as at 31.12.2024 servative financial management. The objective is to finance both the operational aspects of the business and investments primarily through internally generated cash flows and to secure liquidity. This enables us to respond to changes in the market quickly, flexibly and relatively independently of third-party interests and the unsettled capital markets. Our liquid funds are invested exclusively in low-risk and predominantly short-term investments to ensure that we can access them quickly in the event of an economic downturn. We use financing options such as leasing only in a few exceptional cases where this seems advisable. The cash flow for investments amounted to €m -31.3 (previous year: €m -39.1). The cash outflow for investments in property, plant and equipment and intangible assets increased to €m 50.8 (previous year: €m 32.2) due to the extensive development measures at the locations. This was offset in particular by cash inflow totalling €m 18.0 (previous year: cash outflow of €m 8.0) from the purchase and sale of outside marketable securities in connection with maturing time deposits and their reinvestment. The outflow of funds in finance operations totalled €m 75.6 (previous year: €m 55.5). The year-on-year increase resulted from the significantly higher dividend payout to shareholders. For the 2024 business year, the Management Board recommends that the Supervisory Board proposes a decreased distribution of € 10.00 per ordinary share and € 10.05 per preference share. In addition to the unchanged base dividend of € 0.80 per ordinary share and € 0.85 per preference share, this corresponds to a bonus of € 9.20 for each share (previous year: € 14.20). HERMLE Group cash flow and investments* in €m 10.4 87.8 66.3 50.5 33.2 99.1 51.3 80.7 On balance, the outflow of funds in the HERMLE Group totalled €m 3.7 during the past business year. As a result, liquidity decreased from €m 111.0 on 1 January 2024 to €m 107.4 on 31 December 2024. This continues to ensure a strong financial position for the planned investments and helps to cushion the anticipated further downturn in the industry. In 2024, the liquid assets of the individual company fell from 2020 7.6 21.6 2021 2022 2023 2024 €m 110.7 to €m 79.7, compared to the same reporting date. HERMLE INVESTS IN FUTURE PROJECTS Our strong financial position enables us to carry on with the future projects initiated in 2024, despite the current difficult economic situation. As part of a multi-year investment programme to expand the locations, substantial investments were made, primarily in new buildings and production facilities for large components, along with expanded assembly and storage areas, at the location in Zimmern ob Rottweil. Additional priorities included quality assurance, test benches, the new spindle assembly and repair services, demolition work for the planned application centre at the location in Gosheim as well as acquisition of the former supplier Gebr. Grieswald GmbH & Co. KG as part of an asset deal. Added to this are ongoing investments in cyber security. Overall, investments in property, plant and equipment and in intangible assets across the Group in 2024 totalled €m 51.3 (previous year: €m 33.2). At the individual company HERMLE AG, investments in property, plant and equipment and in intangible assets increased from €m 28.0 to €m 46.8. They also related primarily to the expansion and modernisation of the locations in Gosheim and Zimmern ob Rottweil as well as to the acquisition of the assets of Gebr. Grieswald GmbH & Co. KG. Investments Cash flow *Investments in property, plant and equipment and intangible assets NET ASSETS The HERMLE consolidated balance sheet decreased by 4.3% to €m 484.6 as at 31 December 2024 compared to the same date in the previous year. The main reason for this was the lower business volume, which led to a 14.4% decline in current assets to €m 331.1 on the assets side of the balance sheet. Inventories fell from €m 120.8 to €m 107.9, and trade accounts receivables dropped from €m 93.2 to €m 64.6. Moreover, the liquid funds decreased from €m 111.0 to €m 107.4. Securities and other assets, which exclusively include time deposits with maturities of between three months and one year, fell from €m 49.0 to €m 34.0. In contrast, other current receivables increased from €m 12.8 to €m 17.2 due to outstanding tax refunds. As a result of our extensive expansion and modernisation measures at the locations in Gosheim and Zimmern ob Rottweil and the acquisition of Gebr. Grieswald GmbH & Co. KG, non-current assets increased by 28.5% to €m 153.5. This increase affected almost all property, plant and equipment items, which rose by a total of 36.1% to €m 139.8: Land, leasehold rights and buildings increased from €m 52.9 to €m 81.7, technical plants and machinery from €m 13.8 to €m 19.1 and other plants, fixtures and fittings from €m 16.0 to €m 22.0. Only the advances paid and assets in construction decreased from €m 20.0 to €m 16.9. Intangible assets only changed insignificantly from €m 9.0 to €m 8.7, while financial assets fell from €m 3.0 to almost zero as a result of changed maturities for fixed-term deposit investments and repayments on maturity. The most important item on the liabilities side of the balance sheet at the end of 2024 continued to be equity, which decreased by 2.2% to €m 358.9 compared to the same date in the previous year due to payment of the previous year's dividend after the 2024 shareholders' meeting. As the balance sheet total also declined, the equity ratio rose to 74.1% (previous year: 72.5%). Non-current liabilities amounted to €m 4.1, nearly In the individual company HERMLE AG, the balance sheet total decreased by 4.4% to €m 387.5 in 2024 compared to the same reporting date (31 December). Equity fell by 3.0% to €m 291.9, resulting in an equity ratio of 75.4% (previous year: 74.2%). HERMLE Group equity ratio in % unchanged from the previous year's level (previous year: €m 4.2), and thus remain of minor significance. 79.1 73.5 71.6 72.5 74.1 Balance sheet structure of the HERMLE Group (31.12.2024) in €m ASSETS LIABILITIES 484.6 (100%) 484.6 (100%) 121.6 (25.0%) 331.1 (68.3%) 4.1 (0.9%) 2020 2021 2022 2023 2024 153.5 (31.7%) Current assets Assets including other non-current assets and deferred taxes Values rounded 358.9 (74.1%) Current liabilities and provisions Non-current liabilities and provisions Equity OVERALL ASSESSMENT OF THE ECONOMIC SITUATION AND COMPARISON WITH THE FORECAST The business performance at HERMLE developed in line with expectations in 2024. The decline in incoming orders and turnover was not as high as announced, as demand was better than expected, particularly in the first half of the year. We attribute this primarily to our strong market position in automation and complete machining solutions, along with the continued expansion of our international activities. For the year as a whole, incoming orders in the Group fell by 7.8% to €m 456.2. At the start of 2024, we predicted a drop in incoming orders of at least 10%, with a potential decline of up to 25% in the worst-case scenario. The drop in sales also had an impact on the current liabilities, which fell by 10.1% to €m 121.6. The trade accounts payable increased from €m 8.8 to €m 14.3 due to outstanding final settlements for the building in Zimmern ob Rottweil. Advance payments on orders received decreased significantly. As a result, other current liabilities decreased from €m 56.8 to €m 55.4, despite a significant increase in tax liabilities within this total due to upcoming payments to the tax authorities. Conversely, the tax provisions decreased from €m 13.3 to €m 1.0. The other current provisions totalled €m 50.9 and were slightly below the previous year's level of €m 56.4. For business-related reasons, they included fewer provisions for warranty obligations and outstanding services. In 2024, turnover decreased by 8.3% to €m 487.9 for the Group as a whole and by 9.6% to €m 438.6 for the individual company. At the start of the year, we expected that, even in the best-case scenario, neither the Group nor the AG would likely match the strong performance of the previous year, with a potential decline of up to 20% in an unfavourable scenario. In the period under review, the operating result fell by 26.3% to €m 85.3 for the Group and by 26.9% to €m 73.5 for the AG, which was largely in line with the original forecast. Despite the lower result, the financial and assets position of the HERMLE Group remained very strong: The operating cashflow in 2024 was €m 80.7 (previous year: €m 99.1). As at the reporting date, we reported liquid funds of €m 107.4 (previous year: €m 111.0) and an improved equity ratio of 74.1% (previous year: 72.5%). Overall, the Management Board of Maschinenfabrik Berthold HERMLE AG views the company's business performance and economic situation in 2024 as still satisfactory, particularly in light of the significant challenges currently impacting the industry. However, given the marked decline in demand during the second half of the year and the likely continued strain from the economic environment, a further downturn is expected in 2025. OTHER PERFORMANCE FEATURES R&D: MARKET LAUNCH OF GENERATION 2 Our intensive research and development (R&D) activities continued at an intense pace in 2024. They are a key success factor for HERMLE, designed to provide added value for our customers and help further strengthen our market position. The main focus is on technological advancements in our machine series as well as on enhancing the breadth and depth of our automation and complete machining expertise. In the past business year, the focus was firmly on the Generation 2 (GEN2) project, which aims to take our machining centres to the next technological level. The entire electrical architecture is being completely redesigned and all the interfaces updated to ensure compatibility with the latest technological standards. The basic elements of the machines will, however, remain unchanged. The goal is to keep our product range extremely service friendly, future proof, open and flexible in view of the rapid technological advances in the electronics sector. Another key factor is the greater energy efficiency of GEN2 machines, which enables our customers to be both more economical and more sustainable. The changeover will occur gradually and take roughly two years to complete. The first Generation 2 machines were unveiled in April 2024, along with various new automation components, such as the ZM 30 additional magazine. Further GEN2 machine models and automation components are set to follow at the HERMLE Open House in May 2025; for example the RS 2 GEN2 robot system, which sets new standards in terms of flexibility and storage capacity. Another focus of our development in the period under review was our spindle portfolio, which was expanded to include a 20,000 rpm spindle. This variant, which was specially developed for universal applications, is now available for almost all series. In the field of MPA technology (metal powder application process), our additive manufacturing process that is offered to customers as a service, the focus is on controlling the temperature of components using cooling channels and a combination of various metals. In 2024, we were able to implement further innovative solutions for customers in high-tech sectors, such as the telecommunications and aerospace industries. NEW PRODUCTION AREAS UP AND RUNNING IN ZIMMERN OB ROTTWEIL AND GOSHEIM In 2024, we were able to move into various new production areas at the locations in Zimmern ob Rottweil and Gosheim. After completing the interior work in 2024 of the new buildings in Zimmern ob Rottweil, which were constructed in 2023, an additional production facility for automation components and extra storage space were added there. It was thus also possible to relocate external storage areas back to the company's own premises. As part of the construction work, a new energy centre was also built, which now centrally and efficiently supplies heating and cooling energy to these buildings. A photovoltaic system, whose second module became operational in 2024, is also integrated. The development of additional production facilities for large components in Zimmern ob Rottweil was also advanced: Installation of the new large machining centre, which began in the middle of the year, should be completed in the coming months. In 2024, spindle assembly and repair services commenced at the refurbished premises of the former sheet metal production facility at the company headquarters in Gosheim. Additionally, we began preparations for a new application centre and staff canteen. This involved demolishing older buildings by the end of the year and making the necessary logistical changes. Steps were also taken to rent interim-storage space close to the location. In the period under review, we also further strengthened our core expertise in spindle assembly through the acquisition of Gebr. Grieswald GmbH & Co. KG in Burladingen. This former supplier, who was acquired as part of an asset deal effective from 1 April 2024, is a specialist for the high-precision ground parts required for our strategically important spindle assembly. Along with its buildings, machines and fittings, we also took on the roughly 20 employees of Gebr. Grieswald GmbH & Co. KG. The location in Burladingen, which is located close to our company headquarters, was restructured over the year to meet our operational needs and increases the proportion of in-house spindle parts. PROCUREMENT: FURTHER INCREASE IN PRICES FOR SUPPLIER PARTS Despite our high level of in-house production, purchased materials and components play a key role at HERMLE. The cost of our materials accounts for more than 40% of the Group turnover. To ensure a reliable supply of all critical parts, we maintain longterm and trusting relationships with our suppliers. In the period under review, contracts were also selectively concluded with new alternative suppliers. Whenever possible, we work with suppliers from the local region and avoid overseas deliveries. We contribute to financial stability in the supply chain as a reliable and solvent partner with an excellent payment record. The weak economic conditions in 2024 once again heightened the risk of insolvency across the supply chain. At the same time, the cost of certain supplier components continued to rise. Due to the increased competitive pressure, we were unable to fully pass on the higher purchase prices to our customers. SERVICE AND SALES: INTERNATIONALISATION REMAINS IMPORTANT The increasing importance of our international business primarily requires the expansion of our international sales and service activities. Our objective is to expand into new markets and customer bases as well as to enhance support for customers in existing regions by shortening response times, for example. We also aim to strengthen our resilience against potential customer production shifts driven by escalating energy costs, regulatory restrictions in Europe and geopolitical conflicts. Due the increasing share of automated production systems in our portfolio, the importance of our extremely reliable service is growing continuously. To ensure the high service quality of our portfolio, which is well recognised within the industry, we continued to expand and consolidate our domestic and international service networks in 2024 and increasingly digitalised the corresponding processes. In the period under review, we placed particular emphasis on strengthening our sales activities outside Europe. Our involvement in international trade fairs also increased in 2024. In total, we took part in roughly 40 trade fairs on all continents, almost a third more than in the previous year. The majority of events were held in Europe, America and Asia. The HERMLE Open House and the AMB trade fair in Germany, together with the International Manufacturing Technology Show in the USA, remained our most important trade fair events. We also organised numerous user days and workshops designed to boost customer loyalty. HERMLE TEAM GROWS TO 1,603 PEOPLE On 31 December 2024, the HERMLE Group employed 1,603 people, 92 more than on the same date in the previous year. The increase was partly due to the takeover of the roughly 20 employees of Gebr. Grieswald GmbH & Co. KG. Further, new employees were hired primarily for customer service roles in Germany and abroad and for areas associated with automation. As in previous years, junior staff were taken on after completing their apprentices or dual study programmes and the vacant positions were filled. At the end of 2024, 614 people were employed across the Group in production (previous year: 531), 114 in administration (previous year: 93) and 875 in the areas of customer and supplier service as well as R&D (previous year: 887). On average, 1,571 people worked for the HERMLE Group in 2024 (previous year: 1,472), of which 1,357 (previous year: 1,282) were employed in the domestic company segment and 214 (previous year: 190) at the foreign sales companies. At the end of the 2024 business year, HERMLE AG employed 1,255 people (previous year: 1,179). This included 126 apprentices and cooperative university students, compared to 111 on the same date in the previous year. This high number underlines the importance that HERMLE attaches to promoting junior staff. In doing so, we are addressing the shortage of skilled labour, while also meeting our corporate responsibility. TOTAL OPERATING PERFORMANCE PER EMPLOYEE AMOUNTS TO €K 307.9 The total operating performance per employee of the HERMLE Group in 2024 amounted to €k 307.9 (previous year: €k 353.5) due to reduced working hours and an increase in the number of employees. Due to decreased capacity utilisation and the expected prolonged decline in demand, we already took the precaution of introducing production-free days in the fourth quarter of 2024 and applying for short-time work measures in certain departments. Despite the drop in turnover, the demands on our employees remained high throughout the year under review, not least due to the commissioning of the new production areas in Gosheim and Zimmern ob Rottweil. To reward the outstanding commitment of the workforce, all employees in Germany will again receive an incentive payment, linked to the amount of the dividend, in the form of a fixed one-off amount following the distribution of dividends. (mathematics, information technology, natural sciences and technology). Women are still underrepresented in these areas. Nevertheless, our recruitment procedures for technical staff aim to consider at least a number of women proportionate to the total number of applicants. To this end, HERMLE has geared its recruitment campaigns, such as Girls' Days, specifically towards young women. They give interested female candidates the chance to find out about career opportunities in technical professions. Our EMMA (Electronics, Mechatronics, Mechanics and Automation) support project is also aimed at female apprentices and their specific needs. We further intensified these programmes in 2024. Nonetheless, we were only partially able to increasingly consider female candidates for new positions, as the number of women interested in technical professions is generally not yet large enough. The quota of women at HERMLE AG overall was 16% (previous year: 15%), while in the industrial-technical sector it rose from 8% to 9%. Total operating performance and number of employees of the HERMLE Group 1603 Disclosures relating to the quota of women in management positions are contained in the Corporate Governance Statement pursuant to Sections 289f and 315d of the German Commercial Code (HGB). 1511 1383 1304 1320 534.1 484.9 493.5 384.7 291.9 Thanks in part to the continued internationalisation of our activities, there are increasing opportunities for individuals of various nationalities to work at HERMLE. In particular, to strengthen our position in key foreign markets, open up new markets and intensify customer contacts, we specifically recruit native speakers from countries as required. Applications from persons with an international background are also very welcome when expanding the workforce at the company headquarters. In 2024, there were corresponding new contracts, primarily for sales and service roles in the USA and France. 2020 2021 2022 2023 2024 People with disabilities enrich our workforce and find attractive jobs at HERMLE. In 2024, the quota of severely disabled employees at HERMLE AG remained around the previous year's level of 2.4%. Employees Total operating performance in €m DIVERSITY IN THE HERMLE TEAM Factors such as tolerance and diversity of the workforce also contribute to HERMLE's success. Diversity, for example in terms of gender, nationality and age, is the basis for us being able to draw on a wide range of experience and prevent the shortage of skilled labour in Germany. Against this background, a key objective is to expand the quota of women in industrial-technical professions. Well over 80% of all jobs at HERMLE, including positions on the first two management levels, have a technical focus and require training in industrial professions or so-called MINT subjects HERMLE benefits considerably from the extensive experience of older employees. Therefore, we want to keep employees in the company for the long term. We do, however, also offer older employees the possibility to switch to part-time working models prior to retirement if they are interested in doing so. In 2024, the average age of employees at HERMLE AG remained unchanged at around 38 years and they had been active in the company for 12 years. Last year, 93 employees across the Group were recognised and celebrated for their years of service to the company (10, 25, 40 or 50 years) (previous year: 59). Over the past decade, 27 HERMLE employees, including six women, have celebrated 40 years with the company. SUPPLEMENTARY REPORT Following the conclusion of the 2024 business year and up until this report was signed off, there were no events that had significant effects on the earnings, financial and assets position of HERMLE AG or the Group. RISK AND OPPORTUNITIES REPORT RISK AND OPPORTUNITIES MANAGEMENT As an internationally active, medium-sized company, Maschinenfabrik Berthold HERMLE AG faces a wide range of opportunities and risks. Opportunities can, however, often only be exploited by accepting certain risks. The management of opportunities and risks represents a fundamental cornerstone of our corporate governance and is absolutely essential for our long-term positive development. In principle, we only want to take risks if the associated business is expected to make an appropriate contribution to the company's assets. The basis of our risk and opportunity management is our Group-wide planning and controlling system. It provides us with early information on important external or internal changes which might lead to opportunities or risks for HERMLE. We regularly evaluate and discuss the results across all departments within the company. As shown during this open discussion, we develop suitable strategies to deal with the respective opportunities and risks. ACCOUNTING-RELATED INTERNAL CONTROL SYSTEM HERMLE has installed an internal control system (ICS) to supplement risk and opportunity management and to ensure that the annual and consolidated financial statements comply with the regulations. The key components include the general separation of central functions and the application of the two-person rule as a matter of principle in the areas and business processes of key importance to the company's overall risk situation, which are additionally secured by access controls on IT systems. Additionally, random checks are carried out in selected fields. Preparation of the annual and consolidated financial statements is handled centrally by the accounting department at Maschinenfabrik Berthold HERMLE AG in Gosheim and is closely overseen by the Management Board. INTEGRATED MONITORING, CONTROL AND COMPLIANCE MANAGEMENT SYSTEM 2 The effectiveness of the risk management and internal control system is regularly reviewed in accordance with the legal requirements. We also undertake monthly analyses of orders received, turnover and key expenditure items, as well as monitor trends in individual cost categories in order to identify any discrepancies quickly. In addition, there are suitable control mechanisms in product and order costing, service, sales, personnel, warehousing and manufacturing that enable conspicuous changes in these areas to be recognised at an early stage. In response to the growing volume of regulations and new EU legislative initiatives, we expanded our compliance management in the year under review and installed a new compliance management system. Further information on this can be found in the Corporate Governance Statement. There is also a comprehensive whistleblower system in place for compliance violations. The Management Board is not aware of any findings from its review of the internal control and risk management system, or from reports on the ICS and compliance management system, that would suggest these systems are inadequate or ineffective. 2 The information in this section is not part of the management report and is not subject to audit. PRESENTATION OF KEY RISKS Below, we have set out the key risks for HERMLE in the order of their significance: Market and economic risks - The demand cycles typical of our industry can be intensified by a deterioration in the economic environment. Throughout the past business year, the risks stemming from the highly uncertain macroeconomic environment of previous years continued to increase. The war in Ukraine and other crises, such as the strained relations between China and the United States or the conflicts in the Middle East, weighed on the geopolitical situation and generally brought about growing sales and supply risks. These challenges are exacerbated by the unpredictable course of the new US administration, which may trigger additional political crises and escalate trade conflicts. In Germany, uncertainty was also intensified by structural shifts in the automotive industry, the collapse of the governing coalition and the announcement of early elections. Compounding this further are the high energy prices and the increasing density of regulation and red tape in Germany and Europe - factors that could weaken the competitive position and responsiveness of export-oriented companies based there. The economic downturn, coupled with significantly stricter financing conditions in certain customer industries, has slowed the pace of new investments. There is likely to be a growing need for support from our company in this area in the future. There is also a heightened risk of insolvencies among our customers. Furthermore, sales risks are rising as a result of the energy and mobility transition. Due to the increasing demand for electricity for heat pumps and electromobility, some of our customers are unable to secure adequate electricity from their utility providers to commission additional machine tools. Generally speaking, HERMLE can compensate for economic fluctuations very well through flexible structures and processes within the concept of the breathing company. In addition, our high liquidity and equity ratio, as well as the resulting extensive independence, enable us to withstand changes in demand on a larger scale. Procurement risks - HERMLE carefully selects suppliers to avoid procurement risks. We normally work with them in fair, usually long-term partnerships. This ensures we have sufficient access to high-quality purchased materials and components and can avoid procurement bottlenecks. We generally counter the risk of supply shortages with a second-source strategy, rolling demand planning and safety stock as far as is reasonable. The risk of supply chain disruptions has eased somewhat since the end of the COVID-19 pandemic but still persists due to ongoing geopolitical tensions. The weak economy and more challenging financing conditions have led to a renewed increase in the risk of insolvency among our suppliers, which we help minimise by making reliable and prompt payments. To address the ongoing increase in purchase prices in certain areas, we make moderate adjustments to our sales prices. However, this remains only partially possible given the current challenging economic conditions. By operating our own photovoltaic system, combined heat and power plant and short-term emergency power supply, we partly avoid increasing energy supply risks that result from the phasing out of conventional power plants and the energy transition and which have, in particular, increased in the area of gas supplies due to the war in Ukraine. Competitive risks - To combat the intense competitive pressure in the machine tool industry, HERMLE relies on particularly high-quality machines, individual production systems, a very competent and reliable service, high delivery reliability and the close customer loyalty that goes with it. Through our intelligently structured product range and the modular design of our machines as well as automation and digitalisation components, we are able to offer tailor-made solutions and at the same time maintain a sound cost structure. Moreover, the differentiation of our product range to meet diverse market requirements has a positive impact on our competitive position. As a result of the current economic downturn and structural shifts in the automo- tive industry, competition in the machine tool industry intensified further in 2024. We counter trends towards market consolidation on the demand side and the risk of associated dependencies through regional and industry-specific diversification and by striving to acquire new customer accounts and open up new markets, particularly abroad. We reduce the risk of companies defaulting on payment through insolvency through intensive scrutiny of orders and comprehensive receivables management. With the growing internationalisation of our industry, the probability of imitators is growing continuously. This is why we have consolidated our R&D activities at the location in Gosheim and strictly regulate access to them. Our high degree of vertical integration and the fundamentally highly complex nature of HERMLE machines and systems provide a certain degree of protection. IT risks - To counter information technology (IT) risks, HERMLE employs state-of-the-art technology and redundant systems in key areas. In Gosheim, there are two mirrored computer rooms as well as another room for data backup in different parts of the building. Furthermore, we secure our data on a partly redundant infrastructure. We also have consistent security mechanisms in place, which are reviewed annually by external specialists. We raise awareness among our employees about the high priority of data security through regular training sessions. Despite these extensive measures, IT failures cannot be completely ruled out. The risks from cyber crime are increasing worldwide, and HERMLE, like other companies, faces cyber attacks on an ongoing basis. To minimise the resulting risks, such as hacker attacks, we further expanded our IT security systems in the period under review, for example by segmenting our networks more strongly and installing a new radio link between the locations in Gosheim and Zimmern ob Rottweil. This helps to boost data security and ensures the connection to the Internet, especially during the extensive construction work at the company headquarters. Furthermore, cyber insurance is in place to ensure that we have access to sufficient support capacity from external specialists in the event of an emergency. Innovation and product risks - HERMLE regularly exchanges ideas with customers, system suppliers and other market participants. We use these discussions not only to continuously align our product range to user requirements but also to minimise the innovation risks. Moreover, our intensive R&D activities further strengthen our technological leadership. To minimise product liability risks, HERMLE relies on extensive testing prior to market launch, technical risk analyses as well as suitable contract designs, insurance and proactive service measures. Quality risks - The high quality of its machines and service is a key factor for HERMLE's competitiveness. This is guaranteed by way of systematic quality management, comprehensive testing procedures and training for our employees. We also minimise quality risks through the use of sophisticated machines and components as well as our extensive experience and expertise in the field of automation. We continuously enhance our service capacities to ensure a very good level of services and spare parts supply, even with an increasing share of the automation business. Production risks - HERMLE minimises the risk of production failures through careful, preventive and extensive maintenance and early investment measures. Our production facilities are always kept up to date with the latest technology. Furthermore, the use of efficient organisational structures ensures that production runs as smoothly as possible. The high technical expertise of our employees reduces the probability of operating errors. Our production facilities, some of which are redundant, also help to reduce the risk of production downtime. The risk of power supply disruptions remains high, especially during the winter months, due to the ongoing energy transition and the potential for an energy crisis as a result of the war in Ukraine. Although HERMLE operates emergency generators to power doors, gates, lighting and the IT infrastructure, we do not have our own power plants to maintain a constant supply for production in the event of an outage. Due to the current lower utilisation of production capacities, temporary outages could be compensated for more easily than in the past. The relative importance and ranking of this risk area have, therefore, decreased compared to the previous year. Compliance risks - HERMLE is subject to extensive statutory regulations, for example with regard to climate and environmental protection, product safety and export licences. In light of new legal obligations introduced in recent years and the accelerating pace of regulatory changes, we now view this area as a relevant risk. As a result, it has been included in our risk catalogue for the first time. In particular, the growing number of highly complex regulations related to sustainability reporting, emissions targets, protection of human rights in supply chains and export controls present significant challenges. Non-compliance in these areas can result in substantial penalties and serious reputational damage. To mitigate these risks, we keep a close eye on legal developments and pro-actively prepare for the implementation of new regulations. In 2024, we established a compliance management system to support our efforts. In principle, we still consider compliance risks to be manageable at present. Climate risks - The measures implemented by the EU and the German government to combat climate change pose the risk of cost increases stemming from higher energy and CO2 prices. This could result in increased costs for both our machining processes and for purchased materials and transportation. As a company in the machine tool industry, HERMLE is currently less affected by these negative factors compared to the average, since we do not have exceptionally high energy demands and our business model is not very CO2 intensive. However, the sharp rise in electricity demand driven by the growing electrification of transportation, building technology and industrial production increases the risk of power supply bottlenecks. This could also negatively influence future investment decisions, especially among our customers in Germany and Europe. Currently, we classify risks from climate change as low. Personnel-related risks - Our employees are highly competent in their field, have completed most of their training at our company and regularly gain further qualifications. To increase the already high level of motivation and reliability of our team, we offer the most varied and interesting tasks possible, long-term employment relationships and autonomous activities. HERMLE positions itself as an attractive employer, is strongly committed to education and training as well as the recruitment of women to the workforce, particularly in technical areas, in response to the increasing shortage of skilled labour in Germany resulting from current demographic trends. The challenges for HERMLE as an employer have increased due to greater demands from employees, such as flexible working hours or regulations governing working from home. Overall though, we continue to categorise personnel-related risks as low. Financial risks - HERMLE finances both major investment projects and ongoing business activities largely internally. We have a conservative balance sheet and a high equity ratio. We therefore categorise financial and liquidity risks as low. Currency risks are prevented through suitable hedge transactions, which are, just like the other financial risks, shown in detail in the notes to the consolidated financial statements under item (29). However, tax risks can arise from the high complexity of national and international tax regulations. Overall risk situation - The continued rise in geopolitical and economic uncertainties in our environment once again substantially heightened economic risks during the period under review. At the same time, they increased the risk of insolvency among our customers and suppliers, which already exists due to structural shifts in the automotive industry and more challenging financing conditions. Risks in the IT and compliance area also increased slightly. In general, the predictability of external developments in 2024 and the first quarter of 2025 once again decreased significantly. In the view of the Management Board, the currently discernible risks are manageable for HERMLE. They still do not pose a threat to the company's existence, either individually or in combination. PRESENTATION OF THE OPPORTUNITIES For HERMLE, various opportunities for future development arise both from the corporate environment and from its own strengths. They are presented below divided into varying categories, but also partly overlap. Opportunities from the environment Innovative companies like HERMLE can utilise technological changes to expand. The current trends towards networking and automation in machining processes (Industry 4.0) as well as complete machining and energy efficiency offer great potential for HERMLE. As a recognised and experienced full-range supplier, we can design and implement a wide range of production systems for our customers, right up to complete automation solutions for large workshops, into which additional functionalities can be integrated. To do so, we utilise our high-quality and extremely reliable machines, a comprehensive range of corresponding automation and digitalisation modules, which we are continuously expanding, as well as our extensive experience in the areas of production and automation. In view of this, HERMLE is tapping into new markets and opening up new areas of demand for existing customers. The transition of our machines to Generation 2 has further strengthened our starting position in this regard. Social and political trends offer further opportunities. For example, the demographic change in many industrialised countries thus strengthens the sales potential of our automation solutions, as they give the users the opportunity to actively counter the shortage of skilled labour. Another example is climate protection, as the transition to new technologies, i.e. for alternative energy generation or advancements in automotive technology, often requires the use of machine tools. From a regional perspective, there are growth opportunities, especially abroad. HERMLE is therefore continuously expanding its position in key markets and is reviewing additional interesting sales regions on an ongoing basis. Opportunities also stem from the increasing maturity of various foreign markets where HERMLE is already active, as demand for higher-quality machining centres continues to rise there. HERMLE can also benefit from a macroeconomic and industry environment that is developing more positively than expected. Our proprietary concept of the breathing company creates flexible capacity reserves and processes, ensuring a high ability to deliver and respond. This enables us to respond swiftly to positive economic developments. Moreover, during a general economic upturn, sales potential for HERMLE products rises, as customers increasingly demand high-performance, reliable machines in phases of upturn due to anticipated renewed business activity. Opportunities from the strengths of the company As outlined in the chapter on external opportunities, the above-average quality and flexibility of our products and internal processes present strong growth potential. This competitive advantage is reinforced by the high level of expertise and motivation of our workforce. Thanks to their commitment, experience and know-how, we can better cope with fluctuations in demand and capacity utilisation and enhance customer loyalty based on strong service. Our employees thus play a vital role in strengthening our technologically leading market position. Positive effects can also arise from our long-term HR policy. As we keep the workforce as stable as possible during crises, such as the recent COVID-19 pandemic and the current challenging economic situation, we have an intact, competent and motivated team in place for subsequent phases of upturn. This enables us to respond quickly to a recovery in demand. The...

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