Fundamental information about dormakaba

dormakaba Group (dormakaba) is one of the world’s top three companies providing smart, secure and sustainable access solutions. Its comprehensive portfolio of strong brands offers customers a broad range of products, solutions, and services for access to premises, buildings, and rooms. The portfolio includes locking systems – from cylinders, keys, and locks to fully networked electronic and cloud-based access solutions – along with physical access and automatic door systems, as well as a comprehensive range of door hinges, fittings, and door closers. The access solution business is complemented by products for time and enterprise data recording and high-security locks. The company is also a market leader for key blanks, key cutting machines, and automotive solutions such as transponder keys and programmers, as well as acoustic movable partitions and horizontal and vertical partitioning systems.

dormakaba has a long tradition of innovation and engineering expertise. Its innovation leadership anticipates and fulfills customer needs through continuous technological advancement, creating state-of-the-art solutions that add value for customers and end users alike.

dormakaba is active in over 130 countries and is present in all relevant markets through production sites, distribution and service offices, and collaboration with local partners.

As a publicly listed company, dormakaba’s fundamental goal is to increase its long-term enterprise value across industry cycles and economic fluctuations. It is assisted in this by a strong Pool Shareholder Group that ensures the long-term orientation of its strategy. Beyond creating shareholder value, the company’s strategy sustains the interests of other stakeholders, most importantly its customers, partners as well as employees and associates. A customer-centric approach – backed by the strong positioning of dormakaba’s products, solutions, and services through production facilities coordinated by the Group and distribution channels in all key industry markets – provides a firm foundation for global growth.

In November 2021, the new corporate growth strategy, Shape4Growth, was presented to the public and its implementation was started at the beginning of January 2022. Shape4Growth will accelerate profitable growth through a focus on core businesses, core markets, and customer-centricity, enabled by enhancements in operational excellence and scale, capital deployment, and culture.

This growth strategy creates clear portfolio segmentation concentrated on dormakaba’s global core businesses: Access Automation Solutions (AAS; formerly Entrance Systems), Access Control Solutions (ACS; formerly Electronic Access & Data, Lodging Systems), Access Hardware Solutions (AHS)¹⁾ and Services. These businesses are less exposed to economic and market fluctuations and offer the highest growth and margin potential. Shape4Growth also emphasizes the markets where dormakaba has established the strongest position and where its global core businesses can expand the most.

1. Within this product cluster, only Door Closers are identified as global core products

A clear focus on operational excellence, notably in procurement, pricing, and IT, provides a secure basis for profitable growth, which will be further supported by effective capital deployment through improved R&D return, continued active portfolio management, and targeted partnerships. The company has established a range of internal initiatives to foster a strong culture that focuses on the customer, emphasizing teamwork, implementation, transparency, and accountability.

The broad business goals of the Shape4Growth strategy include enhancing growth potential by driving innovation and quality, expanding services businesses, and maintaining or achieving a top-three leadership position in all core countries.

dormakaba is committed to fostering a sustainable development along its entire value chain. The Shape4Growth strategy therefore also lays out an industry-leading sustainability framework with ambitious ESG targets across three strategic areas: Planet, People, and Partnerships.

For more information on the key strategy enablers, please see: Key performance indicators. For the strategic ESG targets, please see the Sustainability report.

The implementation of Shape4Growth includes changes to dormakaba’s operating model, which took effect on 1 January 2022. There are now three customer-centric regions and sales organizations for Access Solutions – Americas, Asia Pacific, and Europe & Africa – supported by global functions that secure efficiencies of scale and business synergies, such as Marketing & Products, Product Development, and Operations. Key & Wall Solutions (KWS) remains unchanged as a self-contained global business. The Group is making additional IT investments to secure the growth potential of this organizational rearrangement by, harmonizing and optimizing its IT infrastructure, reducing internal complexity, and enabling growth.

dormakaba is led strategically by the Board of Directors (BoD) of dormakaba Holding AG. The duties and responsibilities of the BoD are defined by the Swiss Code of Obligations and the company’s Articles of Incorporation and Organizational Regulations. The BoD has delegated management of ongoing business to the Chief Executive Officer (CEO), supported by the Executive Committee (EC). Therefore, the CEO is responsible for overall management of dormakaba. The powers and functions of the EC are set out in the Organizational Regulations. Further details on the internal management system can be found in the Corporate Governance Report 2021/22.

The principles for compensating the BoD and EC are set out in the Articles of Incorporation. The following regulations are particularly important:

• Basic principles of compensation for the BoD (Article 23);
• Basic principles of compensation for the EC (Article 24);
• Binding vote on compensation at the General Meeting of Shareholders (Article 22);
• Maximum additional amount of compensation for new EC members (Article 25);
• Agreements with members of the Board of Directors and the Executive Committee, notice periods for the members of the Executive Committee (Article 26);
• Credits & Loans (Article 28).

The Compensation Report, which provides further details on the compensation system and on compensation paid out in the financial year 2021/22, can be found here.

To respond to the needs and expectations of society, customers, and employees, dormakaba put sustainability at the core of the company’s vision, which underlines a long-term commitment to shaping a more sustainable industry and future.

As part of its new corporate strategy, dormakaba reassessed its material topics for sustainability. By monitoring global trends and engaging with key stakeholders in constructive dialogues, ten topics were identified, that are the most relevant for stakeholders and for those where the company has the highest impact on sustainable development. The new sustainability framework is in line with the most material issues, that are aligned to three Pillars: People, Planet and Partnerships. The company is committed to fostering sustainable development along the entire value chain in line with its economic, environmental, and social responsibilities toward current and future generations.

Detailed information on the sustainability framework, measures, and progress can be found in the dormakaba Sustainability Report 2021/2022, published in accordance with the Global Reporting Initiative Standards. dormakaba also publicly reports on sustainability-related matters on an annual basis in the dormakaba Modern Slavery Statement, the Communication on Progress to the UN Global Compact, and in its submission to the Carbon Disclosure Project.

The innovative strength of dormakaba, resulting in the development of new products, solutions, and services, are key to the company's sustainable profitable growth, as exemplified by a continuous investment of around 4% of sales in R&D over the past years.

With the Shape4Growth strategy, the company has also restructured its R&D activities. Under the former operating model, Research and (Product) Development were coordinated across all regions until the end of the first half of the financial year 2021/22. With the change in the operating model, all R&D and product development efforts are now bundled in one global function. This will lead to a product portfolio that relies on common platforms for both hardware and software in order to decrease time-to-market while increasing efficiency. The company will continue to drive digital transformation by providing best-in-class services to cover the full life cycle of the offerings. i.e. from planning to installation and service. Further, dormakaba has established a cyber-security governance model to cope with the threats to its digital product offering.

With the new strategy cycle, dormakaba is embedding sustainability at the core of its product development, actively streamling the product portfolio, and pursuing the elimination of technical inefficiencies. To foster collaboration across teams and to manage the challenge to provide simplicity and ease-of-use to our customers, dormakaba continues to apply agile frameworks, namely SAFe for enterprises, along with fostering an agile mindset across the Group.

In recent years, the product portfolio of dormakaba has increasingly embraced electronics, connectivity, and digital solutions. The continued investment in product innovation and digitization has positioned the company well to offer its customers attractive solutions for their emerging demands in this new environment. The pandemic has accelerated the adoption of seamless and touchless access solutions overall and specifically in attractive verticals such as healthcare and multi-housing.

In the financial year 2021/22, digitization continued to be an important driver in research and development and comprised processes, products, solutions, and services alike. It creates opportunities for new business models, market positioning, and value streams for dormakaba and delivers sustainable solutions through leading innovation.

In the past two financial years, dormakaba has submitted 136 technical patent families and eight design patents to the respective authorities. dormakaba believes in the growing importance of data driven ecosystems and solutions that satisfy the future needs of customers and markets. Therefore, the company engages in many partnerships to grow the potential of verticals such as airports, healthcare, lodging, and multi-housing. Currently, over 700 employees at 16 locations worldwide contribute to innovation and product development within the Group.

Being at the forefront of the digital transformation of the access and building technology industry results in new product launches year-over-year. In the financial year 2021/22 these included:

Digital Services

• EntriWorX Planning 360: The collaboration tool designed especially to support architects in the early planning phase of buildings to easily manage door schedules (door lists), was launched in Germany in the second half of the financial year. The introduction to further markets is planned for the upcoming financial year 2022/23.
• EntriWorX Planner: The planning tool for all partners involved in the execution planning of buildings was launched in Germany and Switzerland this year. The template-based approach to increase transparency in the planning and construction phase of buildings creates digital twins of doors for concrete projects to use this information in the whole process of the building, from planning to construction and for the handover to the operation phase.
• resivo: A cloud platform for facility management, designed for tenants and property owners in multi-housing. It is developed as a complete access management system that facilitates processes for tenant changes, handover process, and access permissions for the digital or physical key in the dormakaba resivo home app. Keys or RFID media can be issued as needed.
• B-COMM for Workday (New Release): Integration to Workdays Time & Labor module to provide an effective and efficient solution to manage the attendance of employees and project costs. The integration is certified by Workday, and dormakaba is recognized as a “Workday Selected Partner.”
• Ambiance Platform enhancements: Multi-language support was added to enhance the global attractiveness, a matrix interface enables dormakaba to leverage the Matrix Access Control Solution system for enhanced back of house access control requirements in a hotel environment. The receiver link allows the use of third-party infrastructure for the deployment of connected locking devices.

Access Automation Solutions

• Argus Air: The sensor barriers for airport applications convince with their design and their sophisticated functionality, especially in the area of sensor technology. They fit all requirements of the different areas. With these eGates, all topics such as security control, secure access to the lounge, and, above all, the topic of a comfortable boarding process can be covered - simple, contactless, and, if desired, also with biometric features.
• ST PRO Green RC3: A new, energy-saving automatic sliding door with a thermally separated profile system that is not only visually outstanding, but also particularly sustainable, because it reduces energy loss in the building. The version of the door with class RC3 burglary protection is new and thus offers energy savings and increased burglary protection in one. This product is aligned to EU Taxonomy climate change mitigation objectives and was launched in Austria and Switzerland; further launches are planned during financial year 2022/23.
• KTV ATRIUM FLEX: An all-glass revolving door that convinces with its transparency, design, and technology. The ceiling-mounted direct drive KT FLEX Direct enables different operating models (from manual to fully automatic) and allows installation without extensive floor work. The LED light ring provides uniform illumination of the door interior and is also another design highlight.

Access Hardware Solutions

• Rosé biometric: A digital door lock that is a smart and innovative door handle solution available in one of the company’s top markets in Australia. The solution provides access control to internal doors. It is a perfect fit for storerooms, student accommodation rooms, the door between the garage and the house, and others. The solution includes a highly reliable biometric reader complemented with an electronic keypad that features digital keypad, and fingerprint reader (up to 200 users fingerprint/codes and two master codes). It also includes a voice guidance menu.
• M200 :  A lock solution with a face recognition module that uses 3D face structured light technology. The product works well regardless of strong or weak light interference; furthermore, it can effectively prevent photo and video cracking.
• ITS 932 (EN 4 spring strength):  Concealed door closer solution with an easy open cam action technology and slide channel, suitable for a door leaf thickness of 40mm. The product was developed to address the market needs of the retail distribution channel in India and other markets in Region Asia Pacific. ITS 932 comes with a hold open accessory unit and is suitable for timber and metal doors, for left- and right-hinged doors.
• KES900 Series (KES900S, KES900Z): Electromechanical locking solutions with a pre-load electric strike feature, capable of opening electrically with up to 35kgs of pressure being applied. The KES900S  belongs to this series which provides a stainless-steel housing making it suitable for use on fire/smoke doors and provides an impressive static holding force of up to 1000kg. Meanwhile, the KES900Z is a solution suited for non-fire-rated applications such as residential & aluminum fabricated solutions due to its Zinc Alloy construction.

Key Systems

• FUTURA EDGE PLUS: A machine that decodes and cuts biaxial keys for the most popular lock brands, featuring a unique tilting cutter unit that allows the machine to perform all needed operations with maximum precision and customer efficiency.
• REKORD PRO: A compact mechanical key machine for cutting flat cylinder, flat vehicle, and cruciform keys. It is a highly sophisticated solution for businesses cutting 2 to 4 thousand keys per year or around 10 keys per day.

dormakaba will continue to invest substantially in the development of new and existing products, platforms, solutions, and services, as well as in modernizing and optimizing its production facilities and systems, its processes, and its information technology systems. dormakaba will also allocate additional funds to digital transformation and to becoming the partner of choice when it comes to sustainability in the coming years. The company is convinced that these investments are vital to further shape the competitive position of the company and to develop new products and solutions to address market opportunities and trends.

dormakaba operated in a challenging business environment in the financial year 2021/22. On the positive side, there was good demand in all regions and the company closed the year with a good order intake and backlog. This was also reflected in the strong organic growth of 7.7% for the financial year 2021/22.

Nevertheless, the macroeconomic environment was affected by various factors. There were still pandemic-related lockdowns in several countries, which had an impact particularly in China due to its zero-Covid strategy. Further, there were supply chain issues, affecting in particular high-margin electronic products where orders could not be processed due to the component shortage. On top of that, the completion of construction projects was affected by shortages in labor and building materials in general, which caused delays especially in the Project and Services business.

Supply chain disruptions and inflationary trends in particular were unexpectedly exacerbated from March onwards by the war in Ukraine. dormakaba reacted swiftly and announced additional sales price increases to offset inflation. However, since there is always a gap between a sharp increase in input costs and sales price realization, the gross and EBITDA margins in the second half of 2021/22 were below the level of the first half and the overall adjusted EBITDA margin was below last year's level.

The impacts of the war in Ukraine and the accelerated inflation were also reflected in GDP development. In the first and second quarters of the financial year 2021/22, GDP in the G20 countries recorded quarter-on-quarter growth of 1.9% and 1.3%, respectively (OECD, 2022). In the third quarter of the financial year 2021/22, the impact of geopolitical tensions became evident as GDP growth in major developed and emerging economies contracted to 0.7% (OECD, 2022).

Detailed information on the business performance and the average number of full-time equivalent employees in the financial year 2021/22 can be found in the Financial Performance section of this Group Management Report and in the Consolidated Financial Statements for the financial year 2021/22.

For the new strategy cycle, a new set of non-financial performance indicators have been defined and were introduced during dormakaba’s Capital Markets Day in November 2021. These indicators have a strategic focus  and will continuously be tracked by dormakaba, but dormakaba is not being operated by them. The main non-financial performance indicators are the following:

Customers and products

The dormakaba brand stands for its high-quality products. Product quality and customer satisfaction are therefore crucial and must remain a focus at all stages along the entire value chain. Customer satisfaction is addressed through customer dialog as well as through local surveys. Customers usually consider the expanded offering from a single source as a benefit.

Net Promoter Score

Customers are at the core of every place that matters at dormakaba. The NPS (Net Promoter Score) is a well-known metric that measures customer loyalty and satisfaction through one simple KPI. It measures the likelihood of a customer recommending dormakaba and it serves as an important signal of overall customer satisfaction for the company. The NPS will be collected regularly on an international scale by customer surveys and monitored by the management going forward.

Innovation Power:Market Success of New Products

This is a key metric that allows dormakaba to understand the innovation activity in relation to overall sales. This metric provides the company with transparency of how successful innovations are in the relevant markets and therefore, how R&D efforts are driving the overall success of the Group. Going forward, the implementation of further alternative KPIs will help to better understand satisfaction on a more granular and specific interaction level. The objective will be to ensure that processes are well aligned to customer needs, and it will provide dormakaba with data that reveals where changes to those processes may be needed.

Human resources

Employees are crucial to the success of dormakaba. Therefore, the company strives to shape a work environment that enables professional growth and engagement. By fostering the right environment and developing the employees of dormakaba, the company will be able to become more customer centric and achieve a high-performance culture. To support this, the focus is on the measurement of the two enablers Employee Engagement Index and Diversity & Inclusion, as they help to identify the success of the transformation towards a customer-centric and performance-orientated work culture that includes accountability and ownership.

To measure dormakaba’s Employee Engagement Index, dormakaba conducts periodic global engagement surveys. The results of these surveys are used to not only measure, but also to develop action plans to improve employee engagement. To support the change coming with the new strategy Shape4Growth, dormakaba conducted a Pulse Check engagement survey to understand how employees are perceiving the change and if the engagement levels have changed from previous engagement surveys. The first Pulse Check was conducted in March 2022 for 10% of the employee population and the overall engagement results were favorable. For those engagement elements where the engagement could be improved, management teams are putting plans in place to make improvements.

dormakaba also focuses on fostering an inclusive culture and diverse workforce, and in providing equal opportunities for all employees. The company is committed to gender diversity and to supporting minorities within the organization. dormakaba has communicated several targets to increase the gender balance within the management teams. The two main targets to be achieved by 2027 are: (1) One in three managers are women; (2) 25% women in succession planning for senior management positions. To confirm the commitment, CEO Jim-Heng Lee signed the WEP (UN Women´s Empowerment Principles). More information on the targets and initiatives can be found in the Sustainability Report.

dormakaba provides a variety of learning and development programs to employees, including leadership programs and technical training. During the Covid-19 pandemic, many of the training programs were hosted virtually to ensure that training could still be provided to employees.

dormakaba also provided employees with information material on how to work effectively from home, how to adapt to the change in working environment and manage stress. For managers, information was provided on how to manage a virtual team. This material was translated into 15 languages.

Compliance and Human Rights

When conducting its business, it is a matter of course for dormakaba to comply not only with applicable law and legal regulations at the local, national, and international level but also with internal company directives at all its locations. This applies to internal processes as well as to relations with external partners, including customers, authorities, and suppliers. To live up to its responsibilities in these areas, dormakaba has developed measures and processes to ensure its responsibilities are met and to prevent abuse. These measures and processes are continuously improved and developed further. The company sets binding rules in its Group-wide Code of Conduct that is available to employees on the Group Intranet in various languages and to external stakeholders on the dormakaba website. Furthermore, the segments ensure that all dormakaba employees participate in the mandatory Code of Conduct trainings. The Code and additional directives form an important foundation for the sustained economic success of dormakaba all over the world.

dormakaba acknowledges its responsibility to respect human rights as outlined in the Code of Conduct and the Supplier Code of Conduct (see paragraph on the supply chain below).

dormakaba published its Statement of Commitment on Human Rights in line with international standards including the UN Guiding Principles on Business and Human Rights. The commitment clarifies:

1. The relevant international human rights frameworks to which the company subscribes,
2. Salient human rights issues of dormakaba, and
3. The company’s Human Rights Due Diligence (HRDD) framework describing the appropriate policies and processes to implement its Human Rights commitment.

Based on the Human Rights-related risks and impacts identified, dormakaba will continue to develop prevention and mitigation measures integrated into company operations, training programs, policies, and management systems. Human rights-related risks identification and mitigation are a central part of supplier due diligence as well. This will be achieved through the implementation of a human rights roadmap approved by the Executive Committee (EC) in the context of the HRDD process development.

In the financial year 2021/22, a key focus has been to further assess the salient issues of child labor through the continuation of a supply chain traceability project in collaboration with suppliers. In addition, Responsible Labor and Zero Recruitment Fees policies have been rolled out. Further information on human rights can be found in the Sustainability Report 2021/22.

Environment

dormakaba uses resources in the manufacture of its products and generates waste and emissions. Environmental issues are therefore a key aspect of sustainability and are relevant along the entire value chain. An advanced policy laying out business requirements as regards environmental management was published in the financial year 2021/22. A detailed overview of the company’s sustainability work and the most important benchmarks, including greenhouse gas emissions, energy consumption, water consumption, and waste management, can be found in the Sustainability Report 2021/22.

Supply chain

dormakaba pursues a comprehensive and consistent procurement policy. Based on a detailed analysis of all expenditures, goods and services are grouped into material categories according to their characteristics. By means of this analysis, all products and quantities as well as the complete supplier portfolio are identified and then classified into either global, regional, or local categories.

The process to approve a supplier is in accordance with DIN and ISO requirements, as are the supplier evaluation and assessment processes.

dormakaba carries out on-site quality audits via a standard audit questionnaire to examine suppliers’ quality management. Suppliers are selected for audits based on a risk assessment process that takes into account the potential risk from specific locations, products, and performance. This risk assessment results in a score ranking, indicating the frequency of auditing required for the relevant supplier.

In addition, the dormakaba Supplier Code of Conduct outlines minimum requirements with regards to human rights, fair working conditions, environmental responsibility, and business ethics, among others. To ensure that dormakaba’s suppliers contribute to social and environmental well-being, dormakaba focuses on three areas: identifying supply chain risks; supplier off-site sustainability assessments; and setting improvement plans. The risk assessment is based on risk indicators for materials compliance and geography for: (1) Energy and Emissions; (2) Effluents and Waste; (3) Occupational Health and Safety; (4) Materials; (5) Training and Education; (6) Freedom of Association; and (7) Human Rights. Around 2100 suppliers are included in the risk group. Thus far, the company has assessed the sustainability performance of approximately 18.7% of these suppliers in collaboration with the third-party assessment firm EcoVadis. Since the launch of this collaboration, improvement plans for 234 suppliers were requested because of the assessment results. Furthermore, 6 business relationships were terminated, and 2 suppliers were blocked from new business as a result of lack of participation and/or low sustainability performance. In order to continuously improve the assessment rate of the entire risk group, allocations for inviting 500 suppliers per year to participate have been made through to the financial year 2026/27.

Further information can be found in the Supplier Sustainable Development chapter of the Sustainability Report 2021/22.

Opportunities

Opportunities from market trends

The market for security and access solutions is in transformation. Megatrends such as the rising need for security, urbanization, demographic change,  and increasing prosperity in emerging economies as well as new technological opportunities are driving demand but also require new approaches. Increasing digitalization of services, often cloud-based, is transforming our relationship with our physical surroundings. Patterns of work and travel have adapted to a “new normal” that is very unlike pre-pandemic life, and the need to reduce carbon emissions is becoming a global imperative. dormakaba intends to continue to invest significantly in innovation, product development, and sustainability to exploit the growth opportunities brought by these megatrends, and to achieve innovation leadership (see also the statements on Research and Development above).

Opportunities from industry consolidation

Opportunities also arise from the ongoing and anticipated consolidation of the industry in which dormakaba operates. Despite the consolidation that has already occurred, the market for security and access solutions remains highly fragmented: the three biggest companies in the industry together account for only about one third of market share. dormakaba plans to further strengthen its market position and will therefore continue to play an active role in industry consolidation.

Opportunities from market position

dormakaba is already a global leader in security and access solutions; its commitment to innovation and sustainability will help it maintain and improve that position as the industry consolidates. Its business is characterized by high resilience and barriers-to-entry: digitalization, country-specific regulation, complex system integration, and continuing after-sales service all contribute to customers’ need for a close and continuing partnership with their chosen supplier. As a trusted innovator, with a comprehensive solutions portfolio, broad and deep global market presence, and strong pricing power, dormakaba is well-positioned to anticipate, influence, and participate in all significant developments in the building industry.

Opportunities from the “dormakaba” brand

The company’s brands are key assets in its business development as they play a significant role in creating customer loyalty and differentiation. The company’s main brand “dormakaba” is well-known and appreciated in the market for seamless flow and integrated access. It emerged from the combination of the renowned  brands Dorma and Kaba following the merger in 2015. In addition, segmentation through strong regional, local, and independent brands help the company to improve channel penetration and market reach. This is why the company’s brand portfolio, beside the main brand dormakaba includes constituent brands such as Best, Alvarado, Kilargo, Groom, Dorma Hüppe, Modernfold, Skyfold, Silca, and Ilco that are just as well-established in the market and inspire long-term customer loyalty. The streamlining of the company’s operational model introduced by the Shape4Growth strategy will enable the Group as a whole to gain optimal benefit from market segmentation while maintaining strategic focus and operational efficiency.

Risk policy, risk management, and risks at dormakaba

Risk policy

dormakaba manages a globally active business. All its business activities are conducted with the aim of securing economic success. However, these activities can also bring about risks. The overriding goal of the risk policy of dormakaba is to secure the future development of the Group, to achieve sustainable profitable growth, and thus to increase enterprise value. In the course of its business activities, dormakaba is exposed to the general risks inherent in any entrepreneurial operation, and these may impede or prevent the achievement of its goals. In this context, opportunities to be utilized to meet or exceed planned targets are analyzed to identify and assess the risks they bring about. In the course of business, these risks are monitored and managed carefully, and their mitigation plans are continuously adapted to changes.

dormakaba always takes strategic and operational decisions on the basis of a systematic analysis and evaluation of the opportunities and risks relating to its assets, financial position, and earnings. It avoids risks that are assessed to be incalculable, unreasonably high, or existential.

Opportunities, as understood in the Group’s opportunity and risk policy, are chances to use events, developments, or active operations to achieve or exceed planned quantitative and qualitative objectives. Risks, as understood in the risk policy of dormakaba, are all those internal and external events and developments that could have a negative effect on the Group’s planned economic success. In addition to direct, quantitatively measurable risks, qualitative risks, such as reputational risks, are also taken into account.

Risk management

The overriding aim of dormakaba is to sustainably increase its enterprise value (see also, chapter Goals and Strategies above). Active risk management supports the company’s management in achieving this goal.

Opportunities and risks should be identified at an early stage and actively controlled. To do this, dormakaba has implemented a comprehensive risk management system.

a) Internal Control System based on Group accounting

In line with the Swiss Code of Obligations, dormakaba has implemented an Internal Control System (ICS) based on the consolidated (Group) accounting (in the following section “accounting”). The ICS ensures that business activities are correctly recorded, analyzed, evaluated, and transmitted to the external accounts.

The essential characteristics of the ICS with respect to accounting are:

• A clear organizational, business, controlling, and monitoring structure;
• Computer systems used for accounting are protected against unauthorized access;
• Internal regulations about the specific requirements are developed, implemented, and communicated;
• The departments and persons involved in accounting meet the requirements in terms of quantity and expertise;
• The ICS, as it relates to accounting, and the internal reporting systems ensure and continuously check the correctness and completeness of data in the accounting system; the Internal Audit department regularly conducts spot checks of the implemented processes and controls;
• The four-eyes principle has to be applied to all processes relevant to accounting, and the separation of functions has to be respected, both to the extent organizationally possible, which is subject to special audits;
• The BoD regularly deals with the main topics relevant to accounting, risk management, Internal Audit, the external audit mandate, and external audit priorities.

In addition, statutory and specific internal corporate guidelines and directives are used to ensure that accounting is consistent and proper. The application of clear and consistent accounting rules and a uniform consolidation software tool ensures consistent accounting throughout the Group in line with legal and statutory requirements as well as the chosen accounting framework Swiss GAAP FER.

Further information can be found in the Corporate Governance Report 2021/22.

b) Risk management system

Risk management is integrated into the regular business and decision-making processes, codified in internal rules and regulations, and made binding to all Group companies. It includes an impact-focused assessment of risks, implementation of appropriate risk mitigation measures, regular review of identified risks and measures, and transparent reporting of the risk situation. Responsibility for the definition and monitoring of risk management (“risk governance”) lies with the BoD, while the Audit Committee monitors implementation. Responsibility for implementing and applying the risk management system rests with the EC and with line managers throughout the internal hierarchy.

The company’s risk management system distinguishes between operational and strategic risks:

• Operational risks are future events that could hurt the efficiency or effectiveness of business processes, or that could compromise compliance with regulations or reporting requirements in day-to-day business. Responsibility for identifying and controlling these risks lies with the heads of Regions and Global Functions.
• Strategic risks are future events that may compromise the long-term development of dormakaba and prevent it from reaching its strategic objectives. Reports about strategic risks from the Regions and Global Functions are consolidated at Group level into risk maps that show likelihood of occurrence and potential amount of damage, with both dimensions divided into four evaluation categories. Strategic risks are discussed within the medium-term planning process and consolidated by the EC into a “Group Risk Assessment” that is presented for approval to the BoD through its Audit Committee. The EC reviews the risk situation every half year. Additionally, the risk situation is scheduled for discussion and review during Monthly Performance Review meetings every quarter.

The Group Internal Audit function is responsible for internal audits at dormakaba. Internal Audit reports directly to the Audit Committee, although in functional terms it reports to the CFO. All audits performed in the financial year 2021/22 were in line with the (yearly) audit plan and approved by the Audit Committee.

Risks faced by dormakaba

a) Risks arising from business transactions

Our new strategy includes active portfolio management, acquisition, and divestments. This creates risks in the evaluation, transaction, and integration of the corresponding entities and assets. To minimize these risks, dormakaba manages the acquisition projects rigorously through standardized due diligence and PMI processes, using well-trained specialist employees and professional support from outside the Group.

b) Opportunities and risks arising from the business model

In recent years, dormakaba has continued to extend its product portfolio on electronic and cloud-based solutions. Its products are very frequently used in security-relevant applications such as access control systems which are increasingly often connected. dormakaba is therefore more exposed to cyber security risks, e.g. hackers gaining unauthorized access to sites and premises protected by dormakaba products, causing damage to the Group’s reputation and possibly exposing dormakaba to liability claims. dormakaba counters the increasing significance of such cyber security threats during the product development process by using the latest methods to identify points that could be attacked, and then closing these known vulnerabilities in the hardware and software with upgrades before new products are launched on the market. Equally important, existing products (mechanical, electronic, and cloud-based) are subject to continuous testing to keep them robust against new threats. dormakaba has taken out product liability insurance to be protected against these cyber threats to an extent that is economically reasonable.

Digital transformation is progressing rapidly, and it is essential to the success of dormakaba that it keeps pace with this development. This applies to the Group’s products and their connectivity as well as services, but also to operational processes. Sudden, disruptive developments are not rare these days, and there is a risk that existing competitors or new entrants to the markets of dormakaba could use such disruptive leaps to create significant advantages for themselves. The company’s innovation management team systematically monitors and analyzes the relevant technologies. As part of medium-term planning, targeted analysis of information relating to the state of the market and the competition is conducted to ensure that local peculiarities are also taken into consideration. For dormakaba, as a manufacturer and supplier of high-quality access products and solutions in the premium market segment, the growing pressure on prices in relevant markets and specific product areas also represents a risk. It counters this risk through the targeted development of new products that offer customers a broader range of solutions, services, business models, and continuous improvement in operational excellence (efficiency), thus helping to secure the Group’s market position. This strategy is complemented by elaborate strategic pricing efforts.

A significant risk in product manufacturing is the possibility of a lengthy interruption to operations at one or several of the Group’s worldwide production sites, for example because of fire or cyberattacks. Supplier failure and poor-quality raw materials and components also constitute a risk. Alongside the essential insurance protection, a central goal of the loss prevention programs in place at all manufacturing sites is to minimize these risks. Through these programs, the measures in place to prevent fire are regularly updated, formulated, and implemented. This is a recurring process that includes regular site visits and systematic risk grading analyses, conducted by the company’s global insurance provider who also organizes feedback loops and support in improvement projects. To counter the increasing risk of cyberattacks, dormakaba established an information security organization that assesses cyber threats and orchestrates adequate mitigation projects to protect vital assets.

Manufacturing processes create the risk of air and water pollution. To minimize this risk, dormakaba invests continuously in environmental protection measures.  Please see the Sustainability Report for specific information about measures and relevant certifications.

As a globally active company, dormakaba is exposed to risks created by the political situation in individual countries and regions, and also to risks resulting from pandemics as well as war and trade conflicts between countries or country groups. Such risk drivers can rarely be influenced. dormakaba carefully monitors such situations and tries to implement prompt and appropriate risk control measures. Its top priority is always to protect its own employees.

The Covid-19 pandemic and the regulatory consequences implemented by most governments worldwide resulted in an unprecedented slump in business activity in many countries in which dormakaba operates. Transnational activities continue to suffer from supply chain disruptions and increasing transportation prices. Shortages of certain commodities and components as well as energy have a negative impact on prices and availability. The war in Ukraine has started to exacerbate these tendencies. Currently, the economic situation is further burdened by a turnaround in monetary policies. First, the US Federal Reserve executed interest rate hikes and quantitative tightening. In the meantime, further central banks, in particular the European Central Bank, have taken similar measures.

To adequately react to changes that might occur from a macroeconomic downturn, dormakaba implemented state-of-the-art contingency planning to minimize the impact on business operations and supply chains, and thus on customers and employees, while at the same time placing a strong focus on its financial stability. Additionally, scenario planning methods are used to identify organizational and geographic units that provide opportunities for cost reduction measures. The scenarios are also used to find opportunities to introduce new products or fine-tune the business approach to specific markets. Monitoring and re-evaluation of the current situation is institutionalized and repeated at a quick pace to keep up with geopolitical and economic developments. The target is to be and remain capable of reacting quickly and adequately to changes that might occur.

Many industries face serious skill shortages, which also affect a technology-driven company like dormakaba. To mitigate possible talent shortages, dormakaba is increasing its efforts to find suitable candidates supported by its global employer branding initiative that is regularly adapted and tailored to the needs of the organization. This also includes career path models for certain functions such as product development and IT, as well as remote working models. Through employee engagement surveys, HR monitors employee engagement and management puts plans in place at several levels to work on elements where engagement should be improved.

c) Personnel risks

Committed employees and managers are pivotal to the sustainable business success of dormakaba and to the implementation of its strategy. The most common personnel risks evaluated by the Group are those relating to succession planning, fluctuation, and competences. There is a risk that vacant positions cannot be filled properly, and that competent employees could be lost. In recent months, there has been a large number of employee resignations in many industry sectors and to a large extent in the US, reaching a 20 year high in November 2021. This trend could spread to more countries. At dormakaba, numerous personnel initiatives are implemented, with the aim of retaining employees and fostering long-term employee retention. These risks are addressed throughout the Group with the help of an extensive employer branding initiative, expanded talent acquisition practices, an improved benefits landscape and succession management, and through individual, targeted employee development programs.

Since the beginning of the Covid-19 pandemic, a large focus was put on defining guidelines and specific measures such as strengthened safety precautions in the production environment as well as for sales staff and service technicians. Further guidelines include working from home for a longer period of time for office workers or travel restrictions. Another integral part was and still is providing employees with informational material on safety precautions and safe behavior to avoid the spread of the virus, as well as continuously communicating updates to related measures, stay-at-home policies, or lockdowns set by local governments. As restrictions are being eased in many countries, the dormakaba offices are still employing minimum safety precautions to safeguard all employees.

d) IT risks

The main business processes and customer solutions of dormakaba are supported by IT systems. The failure of these systems and the permanent loss of data through operating or program error, or as a result of increasingly prevalent external influences (e.g. cybercrime), represent a risk. To limit the risk of critical systems and infrastructure failing, including operational technology (OT) in manufacturing, the company’s IT strategy is to use state-of-the-art protection standards. These are, for example, email address validation, client security protection and monitoring, identity and access control management, network security management, network and infrastructure management (e.g. 24x7 monitoring, high-level firewall protection tools, redundant network connections), special OT cybersecurity measures, and IT continuity operating plans as provision of redundant data and systems. dormakaba is using advanced threat protection solutions and operates a security operations center to further mitigate cyber security risks. A global information security management system (ISMS) according to ISO 27001 is in place. Cybersecurity risk awareness trainings (e-Learnings, behavior trainings concerning phishing malware) are globally mandatory for each employee with access to corporate IT systems. Additionally, dormakaba has taken out insurance to be protected against cyber threats to an extent that is economically reasonable.

Successful and timely execution of the global IT strategy (standardization of applications and infrastructure) is vital for the company’s future success. Failure could result in the delay of integration projects and underperformance of important business or Group-wide processes, including financial damage. dormakaba manages such risks by an IT governance model, which involves all relevant stakeholders including operational business.

e) Legal and tax risks

As a globally active group of companies, dormakaba is exposed to the risk of legal disputes. These legal disputes can concern e.g. product liability claims as well as potential competition and antitrust law and trademark or patent rights infringements. Risks are managed with the aid of Group-wide standards, trainings, and controls. The internal Legal Department and/or external lawyers are brought in for legal matters associated with specific risks.

International business activities can also give rise to tax risks. As tax law is in the responsibility of each jurisdiction, external tax assessments might not be aligned and might lead to double taxation. To identify and manage such tax risks, dormakaba sets directives and manuals based on a defined tax policy. The responsibility for the tax policy rests with the BoD. For intra-Group transactions, dormakaba follows the dealing at arm’s length principle of the OECD (Organization for Economic Cooperation and Development). This leads to tax payments where the economic value is created. dormakaba files the amount of taxes paid in a yearly CbCR (Country-by-Country Report). Transactions may further be subject to export control regulations. Compliance is managed through Group-wide standards, including directives and employee trainings. The internal Tax department works closely together with the local internal finance and legal organization and consults external advisors in case of need.

f) Compliance risks

Compliance risks arise as a result of a business model involving worldwide production and sales units, a growth strategy, and increasingly internationalized procurement. Risks also result from the wide variety of distribution channels, from participation in tendering processes, from the use of products in public spaces and private buildings, from the wide and international supplier base, and from active work within trade associations. Significant compliance risks include bribery and corruption, infringements of antitrust and competition law, fraud, preferential treatment of business partners from personal motives, violation of intellectual property protection rights, and shortages or improper installation of products. These risks can result in financial, liability, and reputational damage.

It is Group Compliance’s mission to support the dormakaba organization and every dormakaba employee to take appropriate decisions consistent with applicable laws and corporate regulations and to act with integrity.

This mission is based on the following strategic goals:

• Enable employees to work in accordance with legal requirements as well as dormakaba´s company values, its Code of Conduct, and other internal rules and regulations.
• Support the BoD and EC to ensure that all provisions of the law and dormakaba’s rules and regulations are complied with. The objective is to achieve compliance by all Group entities.
• Reduce undue risks for dormakaba, its employees, and management.
• Implement and operate a Compliance Management System (CMS) which meets the most stringent certification demands according to best practice standards.

That is why prevention is the priority: the implemented system is intended to avoid infringements, and employees are properly trained and advised.

The mandatory Code of Conduct trainings need to be completed by all dormakaba employees.  Procedures are in place to ensure that new employees commit to the dormakaba Code of Conduct and are trained. In addition, dormakaba placed emphasis on antitrust and anticorruption trainings for a defined target group of employees who are particularly exposed (Senior Management, Sales, etc.). A full set of internal rules and regulations on Group Directive level covering the main activities of dormakaba is available and regularly updated. The implemented compliance mechanisms are adjusted to changing circumstances where necessary.

g) Financial risks

dormakaba is exposed to various financial risks on account of its international activities. As well as the risk of default on claims, e.g. trade receivables, liquidity and credit risks, these include market price risks in particular (interest rate, currency, and other price risks).

Further details on dormakaba’s financial risk exposure and its risk avoidance and mitigation measures can be found in the Consolidated Financial Statements for the financial year 2021/22.

The “European Market Infrastructure Regulation” (EMIR), the EU initiative to regulate OTC trade in derivatives, imposes an audit duty. During the annual audit under § 20 para. 1 of the German Securities Trading Act for the audit period from 1 July 2020 to 30 June 2021, it was confirmed that dormakaba has an overall and in all respects appropriate and effective system for ensuring compliance with the statutory requirements.

Switzerland regulates the OTC trade in derivatives with the Finanzmarktinfrastrukturgesetz (FinfraG). All Swiss-based Group companies classify as “NFC“ (small non-financial counterparties) and have signed agreements with their banks regarding the delegation of reporting duties.

The funding for dormakaba Group companies is managed centrally. A five-year syndicated sustainability-linked credit facility, agreed for dormakaba during financial year 2020/21 with a consortium of banks, amounts to CHF 525 million with options to extend by another two years and to increase the facility by CHF 200 million. There are also agreements in place with various regional banks for bilateral credit facilities. dormakaba thus has sufficient liquidity reserves to ensure that even unexpected events do not have a significant effect on its liquidity position.

CHF 360 million bond maturity in October 2021 was refinanced by drawings under the syndicated credit facility due to the unfinished strategy project Shape4Growth. The planned capital market take out in Spring 2022 was cancelled due to the war in Ukraine. To ensure the usual financial flexibility under the syndicated credit facility, dormakaba signed in June 2022 a 12 month CHF 300 million credit facility with a major Swiss bank to „bridge to bond“.

h) Other risks

The company’s business model could also give rise to other risks not mentioned so far. These could be, for instance, sustainability compliance risks including compliance to materials restrictions laws or human rights due diligence laws, climate change risks, and liability risks resulting from local laws that are not known at Group level. dormakaba counters these risks by diverse measures, including its sustainability framework and organization, the consistently high quality of its products and services, the engagement of legal experts when the risk of a legal dispute is identified, or by taking out appropriate insurance cover. A full disclosure of climate change related risks is made available in dormakaba’s annual submission to the CDP.

In conclusion, the company’s opportunity and risk situation can be rated as moderate.

Existing risks are identified and continuously monitored through the risk management system. When necessary, they are hedged using appropriate countermeasures.

With  strong brands, the broad existing portfolio, the wide market presence, and with the existing innovation structure and approach, the prospects of further profitable growth for dormakaba remain promising. The new Shape4Growth strategy places its focus on customer centricity and accelerating profitable growth, giving dormakaba even more leverage to make use of these strengths.

There is no sign of any risks that would endanger the continued existence of dormakaba. Currently no specific risk has been identified that could significantly affect the assets, financial position, or earnings of dormakaba, neither is there evidence of any material liquidity risk. A material deterioration in the future assets, financial position and earnings is not expected given the current risk situation. This assessment is based on the assumption that no global economic recession hits the markets in the near future

The 2022/23 financial year has opened on an unsettled note, with continuing concerns about the geopolitical and macroeconomic outlook. Year-on-year, global GDP growth is projected to decline from 6.1% in 2021 to 3.2% in 2022 (IMF World Economic Outlook, July 2022). The war in Ukraine has brought with it widespread disruption in fuel and overall energy markets, yielding inflation of costs and the potential for a food crisis on a broader scale with the related risk of widespread unrest. Rising energy and commodity prices, coupled with increased post-pandemic consumer and business purchasing, have driven a sharp price inflation in most developed economies. Central banks in Europe and the Americas have reacted with increased interest rates and quantitative tightening, reversing the loose money policies in place for more than a decade.

Meanwhile, the continuing circulation of Covid variants worldwide, and the severe lockdown measures that persist in some countries, have extended the challenges to labor availability and supply chain efficiency, such as the supply of semiconductors and further electronic components, that followed the pandemic.

Forecasts are to a large extent influenced by further developments of the war in Ukraine and the progression of the pandemic.  Inflationary pressure and the central banks’ intervention resulting in higher interest rates, could potentially distort economic growth and bear the risk of a recession. That said, the severity of these multiple sources of concern varies considerably according to geographical area, industry, and time scale – and much of the negative market reaction stems from lack of certainty and visibility about the persistence and the depth of their impact.

Employment remains high in developed economies, and GDP, with only a few exceptions, is at or above pre-pandemic levels. Asian economies outside China are seeing healthy economic activity and are outperforming global growth trends (IMF World Economic Outlook, July 2022). Housing and office space prices have been rebalancing to reflect new working practices, but the need for yet more building is still clear in countries around the world.

As a globally operating company, dormakaba will continue to be exposed to a wide range of risks in the individual regions. For this reason, the company publishes details on the development of the individual Regions in addition to the information about the business performance of the Group. dormakaba believes, however, that its business and regional profile puts it  in a good position long-term to respond flexibly to regional changes. Since the merger to form dormakaba in September 2015, the company’s risk profile has improved; dormakaba has gained scale while remaining financially more flexible and noticeably diversifying its product portfolio and global presence. Shape4Growth, dormakaba’s new strategy launched in November 2021, will provide the flexibility and portfolio depth necessary to capture increased market share and profitable growth in the industries and territories that are most attractive. Shape4Growth’s emphasis on customer-centricity gives dormakaba the power to address increasing differentiation in its industry, fulfilling the demand for smart, seamless, and secure access solutions that also meet increasingly rigorous sustainability criteria.

The turbulent geopolitical conditions of the moment should not obscure the fundamental trends of the industry, which remain unchanged from before the Covid-19 pandemic, and will continue to drive dormakaba’s technical and commercial development:

• The world as a whole is becoming more prosperous; the needs for security and protection that characterize the middle classes in developed countries will become the norm in ever more places (growth driver: increasing prosperity);
• At the same time, the average life expectancy is rising steadily, which means that institutions and private homes increasingly need barrier-free solutions that allow senior citizens to move easily from room to room (growth driver: demographic change);
• The world is becoming more urban, cities larger, and infrastructure more complex, requiring sophisticated solutions to support the seamless flow of people to where they want to go (growth driver: urbanization);
• Buildings and land should be both easily accessible and secure from a wide spectrum of threats. Meeting these combined needs efficiently and conveniently demands a comprehensive access solution (growth driver: need for security);
• Finally, technology influences practically every aspect of the access and security market, from digitization and distribution channels to the networking of products in the “Internet of Things”. Customers expect that their experience of access solutions should integrate seamlessly with their personal digital environments (growth driver: technology).

These five trends influence everything that dormakaba does, from strategy through product development to marketing and sales. In addition to these five megatrends, dormakaba expects access and credentialing policies across all vertical end markets to be strengthened, with emphasis on adaptability, versatility, and health. As such, dormakaba believes it is well equipped with key products and interoperable solutions to realize the growth potential, for example in the area of seamless and touchless access solutions. dormakaba is also willing to consider investments in the ongoing consolidation of the industry, which is likely to accelerate.

The current business environment is characterized by uncertainties and lack of visibility. Geopolitical risks have further increased in the last months particularly in Asia and Europe. Spillover effects of the war in Ukraine could lead to a sudden stop of European gas imports from Russia and result in an energy crisis. Further, higher interest rates of the central banks to fight rising inflation might impact general economic growth including new construction activities. And finally, renewed Covid-19 outbreaks and lockdowns might suppress growth and further deteriorate global supply chains going forward.

Due to the aforementioned lack of visibility and as geopolitical and macroeconomic risks increase, dormakaba’s outlook applies to the first half of 2022/23. The company will continue to carefully assess the economic situation in the next months and will update its guidance for the financial year 2022/23 with its half year results.

Based on a healthy order intake and backlog at the end of 2021/22, dormakaba expects a good start in the financial year 2022/23. For the first half-year of 2022/23, the company expects organic growth slightly above the mid-term target range of annually 3% - 5%. Expecting a sequential improvement on the 2021/22 second half-year performance excluding the dilutive effect of the divested Mesker business, the company expects an adjusted EBITDA margin of around 13% in the first half of financial year 2022/23.

Independent from macroeconomic conditions dormakaba will continue to focus on the execution of its Shape4Growth initiatives which includes both growth and cost management measures such as pricing and expense management.

Detailed information on dormakaba Holding AG’s capital structure can be found in the Corporate Governance Report 2021/22.