Strong strategic position

• Pharmaceutical and biotech companies

• Manufacturers and contract fillers of injectable drugs

• Manufacturers of diagnostic and medical products

• Manufacturers of parenteral drug delivery systems

By making the strategically important acquisition of Yantai Xinhui Packing, Datwyler gained direct access to the fast-growing Chinese healthcare market in the first half of the year. The integration work is going to plan despite the pandemic. With the help of Xinhui’s customer contacts and sales organization, Datwyler was already able to substantially increase revenue in China in the year under review.

In the short term, uncertainty will also persist in the healthcare industry in 2023. From today's perspective, revenues with Covid components will continue to decline in 2023. However, success in acquiring new customers and projects should be able to compensate for these effects. At the new Xinhui plant in China, Datwyler is working on continuously upgrading the product portfolio towards higher-value components. The next step is to manufacture Datwyler's standard compound and components locally.

• Automotive system suppliers

• Electrical connector manufacturers

• Oil and gas service companies

• Aerospace and heavy machinery

• Manufacturers of power tools

• Process and water treatment industries

• Manufacturers of portioned food products

Through the strategic acquisition of QSR, Datwyler became a leading global supplier of system-critical seals for electrical connector for a wide range of industries in the first half of 2022. The integration work is going to plan, which is already evident among other things from several acquired and additional specific cross-selling projects with the Mobility business unit. Measures to increase efficiency in accordance with Datwyler production standards and the outsourcing of additional product lines from the US locations to the Mexican site will generate one-off costs in the short term, but will further reinforce the leading market position of QSR and thus of the new Connectors business unit.

In the short term, the uncertainties predominate in 2023. A possible recession in Europe or worldwide would have a negative impact on demand, especially in the Mobility and General Industry business units.

In recent years, corporate sustainability has gained significantly in importance, especially for listed companies. The primary driver has been the increasing global risk of climate change, which has been playing a major role in politics and society.

In 2021, Datwyler established an ESG landscape with twelve focus topics that embody the company’s commitment to reducing its environmental footprint and delivering more value for all stakeholders. The focus topics are structured according to Environmental, Social, and Governance (ESG) priorities and are intended to close gaps and build on existing strengths.

A strong governance framework is key to ensuring that the sustainability (ESG) strategy Datwyler has committed to is incorporated into the corporate agenda.

The governance of sustainability (ESG) is integrated into the corporate governance structure throughout the Group – from Board level to management level, Group functions, Business Units and all associates.

Critical concerns include concerns about the organization’s potential and actual negative impacts on stakeholders raised through grievance mechanisms and other processes. They also include concerns identified through other mechanisms about the organization’s business conduct in its operations and its business relationships.¹

Energy management at the production sites is part of the integrated Environmental Management System (EMS) and is part of the Datwyler Production System. A global Sustainability Manager coordinates the energy management across all plants and is supported by a dedicated EHS officer at each individual plant.

Datwyler commits to a far-reaching climate target for its operations: climate-neutral operations by 2030. The SBTi offers a 1.5°C reduction pathway to calculate Datwyler’s «fair share» in reducing carbon emissions in order to help achieve the 1.5°C level. The overall reduction pathway offers guidance for Datwyler on the reductions needed to reach this goal by 2030 and beyond.

The main goal is to reduce greenhouse gas emissions as much as possible by 2030. The so-called non-avoidable emissions will be offset after 2030 in order to achieve climate neutrality for the company’s operations. Datwyler is aware that the greenhouse gas emissions outside its operations—so-called Scope 3 emissions—exceed the greenhouse gas emissions of its own operations.

Datwyler has been recording the energy consumption and greenhouse gas emissions caused by its own operations for many years. The results of the last five years are shown in the accompanying table.

The five-year track record reveals an increase in energy consumption mainly resulting from business growth, new plants and acquisitions.

In 2022, Datwyler’s operations were responsible for emissions of about 90'478 tons CO₂eq (scope 1 and 2)— the increase of 15.8 % compared to 2021 is due to the acquisitions of QSR and Xinhui. Thanks to the measures implemented to improve energy efficiency and the switch to renewable electricity, relative CO₂ emissions have decreased by 4.7% compared to 2021.

Datwyler’s corporate processes are based on its production system and internationally recognized quality management standards. For example, plants making products for the automotive industry are certified in accordance with IATF 16949:2016, while healthcare plants (with the exception of the US plant in Pennsauken) have ISO 15378:2017 certification.

Almost all Datwyler Group products are subject to statutory information obligations in the countries of use, in addition to a variety of chemical law requirements and additional industry and customer-specific rules at its production locations. Chemical legislation and EU REACH regulations regarding the physical composition of products are particularly relevant. REACH (EU Regulation 1907/2006) governs the registration, assessment, and approval of chemical substances within the European Union.

Eco-design principles offer a critical perspective when developing products that reduce the environmental impact across all its life cycle stages. Datwyler’s successful approach to eco-design optimizes the environmental performance of its products while also maintaining their functional qualities. This includes developing environmentally friendly elastomer compounds, optimizing design to save on materials, reducing process-related waste, and using reusable or recyclable packaging and boxes. But eco-design is more than simply reducing the environmental footprint of a product: this holistic approach helps developers think through social benefits and reconsider economic factors at the same time.

Recently, Datwyler launched an action plan that will guide the company through the next few years of integrating eco-design systematically across product development and across all life cycle stages of a product. Datwyler successfully implemented the «Idea Box» tool where ideas and initiatives from employees have been selected from a development team to initiate concrete projects aimed at minimizing the ecological impact in different areas.

Material deveopment is an area in which Datwyler has the most control over new materials. Researching new materials not only involves assessing the cost, manufacture, and performance of the final product, but also its environmental impact, from the sustainability of the raw materials to the compostability and overall recyclability of the component.

Datwyler is currently working on a number of projects that could reduce the requirement for fossil fuels in the elastomer manufacturing process. These projects include replacing an oil-based polymer with a polymer made from sugar cane, using a plasticizer based on vegetables rather than petroleum oil, replacing plastic-based fibers with modified cellulose, and many more.

The Datwyler Production System, which is based on the company values and lean principles that guide Datwyler employees, is a long-term improvement program to foster a lean and agile culture and achieve operational excellence. As a shared program for continuous improvement, this system supports uniform production processes across all plants on all continents. For Datwyler, the quest for operational excellence means not only a safe workplace, high-quality products, on-time deliveries, and satisfied and empowered employees, but waste-free processes and environmental protection as well. This makes reducing the consumption of resources and protecting the environment an integral dimension in the pursuit of operational excellence.

Within the Datwyler Production System, a certified and integrated Environmental Management System (EMS) provides the basis for optimizing resource use. This EMS aims to minimize the impact of the company’s operations and products on the environment by designing and manufacturing products and processes that use natural resources sustainably and reduce the company’s carbon footprint. A global sustainability manager coordinates the environmental management across all sites and is supported by site EHS officers.

Most of Datwyler's total water consumption is attributable to the specific requirements of its production processes. Both the cooling systems used in the Food & Beverage division's production and the washing of components in the healthcare sector require significant amounts of water. Specifically, approximately 35% of Group-wide water consumption occurs at the Swiss plant.

The long-term target (2015 to 2025) to reduce relative water consumption per revenue unit by 3% each year is based on this general condition. Over the last seven years, this target has been exceeded on average. In 2022, the absolute water consumption was 8.8% higher than in the previous year. This is due to the acquisition of new sites. Nevertheless, Datwyler is in line with its long-term water reduction targets. Absolute water consumption was reduced by nearly a fourth between 2016 and 2022—from 2.1 million m³ to 1.7 million m³.

With more than 100 years of experience and a global production footprint, Datwyler’s material, engineering, and production expertise helps make it a market leader for system-critical elastomer components. Efforts to constantly improve allow the company to continually expand its innovative portfolio of products and services.

Datwyler is increasingly marketing its ambitious sustainability strategy and how it can add value to customers. All global customer-facing teams are trained on Datwyler’s sustainability program and encouraged to always include sustainability in the value proposition presented to customers. It doesn’t matter if it is during a 30-minute call or three-day workshop, one of Datwyler’s main customers or a new lead, a multinational or a small start-up company. It is Datwyler’s explicit goal to encourage sustainability-related collaborations with customers to maximize impact.

Datwyler uses the results of customer surveys and complaints management to identify and implement measures for improvement. These are part of the systematic management process and thereby help ensure the service customers receive keeps on getting better. For example, Datwyler uses Tech Days on site with existing and potential customers from the Mobility business unit to strengthen relationships and raise awareness of its competencies and offerings. Doing business with Datwyler must be simple for existing and potential customers.

Datwyler supports its local communities not only through wages and tax payments, but also through donations, volunteering and engagement, education, and improvement of local infrastructures.

As a large regional employer, Datwyler’s bigger sites generate considerable direct and indirect economic benefits for the local area. Municipalities benefit not only from the tax paid by Datwyler companies and its employees. Also the community projects that every site runs locally make a positive difference. As a guideline for community projects, Datwyler explicitly focuses on activities in the area of education, critical human needs, and inclusion of minority groups.

Where appropriate, reference is made to issues that are discussed in detail in the notes to the financial statements and in the Remuneration Report. Where information required under a section of the SIX Directive has been omitted, it is either not applicable to Datwyler or the corresponding situation does not exist at Datwyler or does not apply to Datwyler.

Datwyler is focusing on high-quality, system-critical elastomer components and has leading positions in attractive global markets such as healthcare, mobility, connectivity, general industry and food & beverage.

Pema Holding AG may be compared to a family of entrepreneurs who hold the majority of the capital and voting rights in a listed company. The restriction relating to Dätwyler Holding Inc., as set out in the shareholders’ agreement, allows Pema Holding AG a management mandate with an obligation to create long-term value. The representatives of public shareholders on the Board of Directors of Dätwyler Holding Inc. are not member of the Boards of Directors of Pema Holding AG or of Dätwyler Führungs AG. Concluded in 1990, these Dätwyler family succession arrangements entailed a waiver of claims to substantial assets and are unique.

Datwyler has combined its market and production activities in the two business areas Healthcare Solutions and Industrial Solutions Solutions. These two market units are supported by the three service units Technology & Innovation, Sustainability & Operational Excellence and Finance & Shared Services. This organisational structure strengthens Datwyler's market focus, core competencies and agility.

The Board of Directors is the ultimate decision-making, management and governing body of Datwyler. The Board consists of no fewer than five and no more than eleven members. At 31 December 2021, the Board comprised eight Directors. The roles of the Chairman and Chief Executive Officer (CEO) are separate. The Directors or companies and organisations which they influence have no executive functions in the Group and do not have any business relationship with the Datwyler Group. The current Chairman, Paul Hälg, was the CEO of the Datwyler Group from 2004 to 2016.

The other members of the Board never served in executive functions for the Datwyler Group. No Director holds cross-directorships with other Directors through involvement in other listed companies. When members are appointed to the Board of Directors, care is taken to ensure that the kinds of competencies important to Datwyler with regard to the various industries, technologies and markets are suitably represented.

The Committees have written terms of reference specifying their responsibilities. In addition to these written terms, the Audit Committee has defined its tasks and responsibilities in a detailed checklist. The Committees generally prepare the groundwork for decision-making by the full Board. They meet at the call of their chairmen as often as necessary to discharge their duties, but at least once a year. Their meetings usually last half a day. All Directors, Executive Management members and the external auditors may request a meeting of the Committees. Depending on the nature of the business to be transacted, meetings are attended by the CEO, CFO or, if required, a representative of the external auditors or a specialist in an advisory capacity.

The Audit Committee consists of at least three Directors, each of whom has experience in finance and accounting, who are appointed by the Board from among its members for a period of one year. The Audit Committee appoints its chairman. Members of the Audit Committee are: Jürg Fedier (Chairman), Gabi Huber and Martin Hirzel. In 2022, the Audit Committee held four meetings with all members present, each of which was attended by the CEO and CFO.

The Board has an internal control system in place to monitor and control the Executive Management. This is based on an institutionalised, annual management process cycle, of which the key elements available to the full Board of Directors are as follows:

• Monthly report with a business area and Group consolidation: actual and forecast figures, including variance analyses and a written commentary by the business area managers on current developments and potential risks.

• Interim and annual report.

• Quarterly review and approval of the rolling forecast for 18 months and annual review and approval of the three-year medium-term plan.

• Annual review and approval of the updated Group and business area strategies.

• Uniform Group-wide management system with integrated risk evaluation for strategic projects.

• Special reports on major items of capital expenditures, acquisitions and alliances.

• Inclusion of Executive Management members at Board and Committee meetings.

Risks are assessed on the basis of the probability of occurrence and the potential loss amount. Once the individual risks have been identified and assessed, it is the responsibility of the business area management to develop a series of measures to reduce the risk of occurrence and the loss potential for each risk. The implementation of these measures is monitored as part of the continuous risk management process and taken into account in the next risk evaluation.

Global sustainability risks such as climate change and other environmental, social and governance risks are assigned to the appropriate risk category based on their strategic, operational, financial or compliance impact, at Group level as well as at business areas and production site level.

The Directors of Dätwyler Holding Inc. are – with the exception of the representative of the public shareholders – also Directors of Pema Holding AG and Dätwyler Führungs AG. Pema Holding AG is the majority owner of Dätwyler Holding Inc. See substantial shareholders and shareholder structure.

There are no restrictions on registration or voting. Under the Articles of Association of Dätwyler Holding Inc., each share carries one vote at general meetings regardless of its par value. Persons representing shareholders must present a written proxy. Legal representatives of shareholders do not need a proxy appointment. Shareholders who are unable to attend a general meeting may also appoint and instruct an independent proxy to represent them. To do so, an electronic solution has been provided since 2014. The independent proxy is elected annually by the Annual General Meeting for the next ordinary Annual General Meeting.

Representatives of the statutory auditors attend all meetings of the Audit Committee for the discussion of certain items. Four meetings were held in 2021. At each meeting, the statutory auditors present a written report on the progress of their work. The core element of the auditors' reporting is the annual audit report with recommendations to the Audit Committee.

Datwyler maintains an open dialogue with all stakeholders. In the interests of shareholders, Datwyler especially fosters relationships with investors, banks and media representatives. Communication takes place through the Annual Report, Interim Report, Annual General Meeting and at least one press and analyst conference every year. Through press releases and on its website datwyler.com, Datwyler provides up-to-the-minute information on all important projects as required by the ad hoc publicity rules of SIX Swiss Exchange.

The Remuneration Report is written in accordance with the Ordinance Against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), the Directive on Information Relating to Corporate Governance of the SIX Swiss Exchange and the Swiss Code of Best Practice for Corporate Governance of economiesuisse.

The Nomination and Compensation Committee has written terms of reference setting out its responsibilities. The Committee generally prepares the groundwork for proposals and decision-making by the full Board. It has executive authority only within the remuneration framework already approved in principle by the Annual General Meeting or Board of Directors and where expressly provided in the Articles of Association or a policy. It meets upon invitation of its Chairman as often as necessary, but at least once a year. The Chairman and the CEO attend the meetings by invitation and in an advisory capacity, and the HR officer of the Group takes the minutes.

The framework for implementing these remuneration principles is set forth in the Articles of Association.

The remuneration of members of the Board of Directors is determined based on the responsibility and time requirements of their function and includes a base fee for Board membership and additional fees for special functions such as committee chairmanship and membership. The additional fees are cumulative in the case of multiple functions.

The elements and levels of remuneration for the Board of Directors is based on benchmarking analysis with a group of comparable international industrial companies listed on the SIX Swiss Exchange with similar geographic scope, revenue, complexity, capitalisation and employee headcount. They include: ALSO, Belimo, Bucher Industries, DKSH, Dormakaba, Emmi, Forbo, Galenica, Georg Fischer, Idorsia, Landis+Gyr, OC Oerlikon, SFS Group, Sigfried, Sulzer, Tecan and VAT Group.

The performance indicators net revenue growth and EBIT improvement together determine 80% of the variable incentive. To achieve the target amount of a 100% payout for these two performance indicators, the median performance of the peer group must be reached for both indicators. The maximum payout of 200% can only be achieved if Datwyler achieves the best ranking among all peer companies on both net revenue growth and EBIT improvement. Should Datwyler perform below all peer companies on both indicators, there is no payout for these two performance indicators. The payout percentage for any point between the lowest ranking (0% payout), the median (100%) and the best ranking (200%) is determined by linear interpolation.

The Board of Directors may decide to adjust both performance indicators to reflect currency effects, extraordinary effects such as one-time costs or sale of real estate and structural changes such as acquisitions or divestments affecting net sales by more than 10% of the previous year figure. In case of a negative net result, the Board of Directors reserves the right to deviate from the above-mentioned calculation approach.

The model for calculating the variable incentive with three collective performance indicators including sustainability measurement parameters and a uniform peer group applies to all employees of the company who are entitled to a variable incentive. In this way, Datwyler promotes agile collaboration across hierarchical levels and departments and accelerates the implementation of customer requests and development projects. By simultaneously introducing the concept of Objectives and Key Results (OKRs), Datwyler focuses the activities of all employees on a clearly defined number of over- arching company objectives.

With the 2018 financial year, Datwyler replaced the previous share participation for the Executive Management with a long-term incentive plan. This measures performance relative to comparable peer companies. This is intended to neutralise the effect of market cycles and external factors that impact the company's performance but are outside of the control of management. The external market cycles being neutralised, the true performance of the company can be better assessed.

Share-based remuneration will be awarded under a long- term incentive plan in future in the form of performance share units (PSUs). A PSU is a conditional right to receive shares of the company subject to the fulfilment of certain conditions during a three-year vesting period. The vesting conditions will include both the achievement of predetermined performance objectives (performance conditions) and continuous employment at the end of the vesting period (service condition).

The peer group is confirmed by the Board prior to the annual grant of PSUs and may be adjusted if required.

The peer group consists of the following companies:

With the long-term incentive plan, a significant portion of Executive Management compensation is linked to the company's long-term performance. This strengthens the alignment to shareholders' interests. Datwyler's relative performance will be expressed as a percentile rank, which determines a payout factor between 0% and 200%:

• Ranking < 25% of the peer group (threshold): 0% payout

• Ranking at the median of the peer group: 100% payout

• Ranking > 75% of the peer group (cap): 200% payout

• Linear interpolation between those points

The combined payout factor is a weighted average of the payout factors for relative sales growth (one-third weight), relative ROCE growth (one-third weight) and relative TSR (one-third weight) over the three-year vesting period. An independent external specialist will calculate the level of relative performance achievement and the combined payout factor.

Employment contracts with members of the Executive Management stipulate a notice period of 6 to 12 months and of 12 months for the CEO. They contain neither a severance provision in the event of termination of employment, nor any change of control clauses.