Annual Report 2018 Shareholders’ letter 4 Company information 7 Supervisory Board report 9 Supervisory Board and Board of Directors 17 Annual review 2018 20 Corporate Governance report and 22 statement on Corporate Governance The LEONI share 36 Group Management Report 41 Principles of the Group 43 Business and underlying conditions 49 Business report 53 Reports by division / Segment report 66 Other indicators 74 (incl. non-financial information statement) Risk and opportunity report 94 Supplementary report 108 Forecast 109 Compensation report 114 Disclosures pursuant to Sections 289a (1) and 315a (1) 123 of the German Commercial Code as well as explanatory report for fiscal 2018 Consolidated financial statements 131 Consolidated income statement 133 Consolidated statement of comprehensive income 134 Consolidated statement of cash flows 135 Consolidated statement of financial position 136 Consolidated statement of changes in equity 137 Notes 138 Scope of consolidation 226 Independent auditor’s report 228 Responsibility statement 236 Additional information 237 Extract from the financial statement of LEONI AG 239 Appropriation of profits 241 Ten-year overview 242 Glossary 244 This Annual Report is published in German and English. In case of doubt or conflict, the German language version will prevail. LEONI is a global provider of products, solutions and services for energy and data management in the automotive sector and other industries. The value chain encompasses wires, optical fibers, standardised cables, special cables and assembled systems as well as intelligent products and smart services. As an innovation partner and solutions provider, LEONI supports its customers with pronounced development and systems expertise. 4 | www.leoni.com Shareholders’ letter Dear shareholders, 2018 was a year of two halves for LEONI: With the tailwind of a buoyant market, our business per- formed well and partly somewhat better than expected in the first six months. In the second half, the setting for the automotive and component supply industry became considerably gloomier. Interna- tional trade disputes, the uncertainty about Brexit, a weaker economy in China and the effects of the WLTP testing procedure curbed the car markets and therefore also the demand for LEONI product. The ramp-up of production for a high-volume vehicle model for which LEONI will be supplying prod- uct and internal factors, such as advance spending on new customer projects, increased raw material prices and a less favourable product mix in the Wire & Cable Solutions Division, additionally exerted greater-than-expected pressure on our result. The situation aggravated substantially in the fourth quarter, especially so in the Wiring Systems Division. Extensive problems arose with a large-scale production start at our new facility in Mexico, meaning that we could ensure supply to our customer only at major, additional cost. Furthermore, the performance of some other wiring systems plants deteriorated, and savings targets were not met to the expected extent. Overall, the LEONI Group generated a slight sales increase and income of € 5.1 billion, but earnings before interest and taxes were down significantly to a very disappointing figure of € 144 million. It was therefore substantially short of the previous year’s corresponding figure of € 227 million, which included non-recurring income of € 30 million, and also significantly below the forecast that was adjusted as recently as the autumn. This weaker earnings situation and the ongoing, heavy capital expenditure also weighed on our free cash flow, which declined from a positive figure of € 11 million to a negative one of € 147 million. Considering the cash flow situation and the debt ratio, the Board of Directors and the Supervisory Board intend to deviate from their previous dividend policy and will propose to shareholders at the 2019 Annual General Meeting that the dividend for fiscal 2018 be suspended. We shall be concentrating fully on stabilising the Company’s performance so that we can return to a normal dividend level as quickly as possible. Fundamentally, LEONI has all the building blocks in place: our most important market, the automotive sector, is characterised by such areas of innovation as electromobility, autonomous driving and digitalization, which provide LEONI with great opportunity. And our own foundations are strong: first and foremost, our more than 92,000 staff worldwide, whose tremendous know-how and enthusiasm for our products and solutions cannot be overestimated. On behalf of the entire Board of Directors, I would like to sincerely thank them for their commitment. Another mainstay is close and trusting, in some cases decades-long collaboration with our customers. Thanks to our global footprint, we have a very much regionally-moulded understanding of custom- ers and simultaneously an efficient development and production network. There is also our growing systems expertise, which enables us to develop and launch innovative, customised solutions. | Shareholders’ letter | 5 LEONI does not expect the market to provide any tailwind this year. Macroeconomic conditions will probably remain challenging. Above all, however, we still face major challenges in ensuring the execution of our large order backlog in the Wiring Systems Division. In 2019, too, this will require ongoing, heavy pre-production spending and investment as well as underpinning of growth based on the orders already booked. In addition, there will be completion of the Wire & Cable Solutions Division's Factory of the Future in Roth, Germany, mean- ing that our capital expenditure ratio will again be at a level of around 5 percent. At our new wiring systems facility in Mexico, for which we have already applied initial and immediate stabilisation measures, we must again anticipate extensive, exceptional charges at least in the first half of the year. To resolve our problems with transparency and timely provision of information in our internal reporting system, we are stepping up installa- tion of an SAP system, especially in the area of finance, that will incur additional costs. Against this backdrop, we project consolidated sales of € 5.2 billion and another decrease in earnings to between € 100 and 130 million for 2019. This does not yet include spending on our VALUE 21 programme. We announced this performance and strategy-enhancement programme in the autumn of 2018 to stabilise our business, improve the basis for healthy growth, profitability and cash generation as well as to sharpen our focus on the future markets of electromobility, autonomous driving and digitalization. Our surprisingly poor performance in the fourth quarter underscores the need for comprehensive measures to improve and for the actions already launched. It is a matter of raising the potential for optimisation in both divisions – from the pro- ›› Aldo Kamper CEO and President duction processes to their procurement, distribution and administrative structures as well as the IT landscape and through to working capital management. The key is that these actions are comprehensive and structured; are stringently followed up and have lasting effect. We have targeted a timeframe of three years. Building on stabilisation of our business and improved performance, we will then work on fleshing out our strategy to develop LEONI into a leading provider of intelligent energy and data management solutions. Enhancement of systems expertise will provide both our Wiring Systems Division and Wire & Cable Solutions Division with great prospects. In our Wiring Systems Division, whose business growth has recently signifi- cantly outpaced the market, we shall in future be more selective in accepting new projects with respect to their profitability. Initially, we intend thereby to raise the quality of earnings and cash flow as well as to limit expansion-related risks. With these measures, we will firstly direct LEONI onto a calmer, more reliable track and then a clearly profit- oriented course towards being a provider of intelligent energy and data management solutions. Even though we expect our business to bottom out in 2019, we are convinced that our market and our inherent strengths provide excellent foundations for lastingly successful performance. LEONI’s entire team will be working with focus and great determination on making sure that the commitment you, our esteemed shareholders, have shown LEONI is also rewarded again. Nuremberg, 26 February 2019 Aldo Kamper CEO and President 6 | www.leoni.com | 7 Company information 8 | www.leoni.com Company information Supervisory Board report 9 Supervisory Board and Board of Directors 17 Annual review 2018 20 Corporate Governance report and 22 statement on Corporate Governance The LEONI share 36 | Company information | 9 Supervisory Board report Supervisory Board report Dear Sir or Madam, The Supervisory Board of LEONI AG dealt in depth with the situation and performance of the group of companies in fiscal 2018. We diligently and dutifully fulfilled our tasks in accordance with statutory requirements, the provisions of the Company’s Articles of Association, the German Corporate Governance Code and our rules of procedure, continuously advising the Board of Directors on its management of the Company and overseeing its work. The collaboration between the Supervisory Board and the Board of Directors was at all times constructive, open and defined by mutual trust. The Board of Directors informed us regularly, immediately and compre- hensively, both in