Management Report Significant ongoing investments Investments in innovation, market reach and infrastructure once again increased in 2018. Expenditures in research and development rose by 14 percent to CHF 355 million. The worldwide sales team grew by approximately 1000 people in 2018 and the total number of Group employees at the end of 2018 was 29,004 (+8%). Altogether this further solidified the foundation for profitable long-term growth. Expanding the company’s offering in terms of software and digitalization was also a focus in 2018, and resulted in the creation of two additional business units, which expanded the product portfolio to include further digital solutions and services. In Paris, Hilti began setting up a worldwide center for digital marketing. Hilti is also investing in its Group-wide IT infrastructure, for example by introducing the new ERP system SAP S/4HANA at the end of November. Operating result and net income The operating result was CHF 728 million (2017: CHF 681 million), an increase of 7 percent. Net increase once again income rose to CHF 546 million (2017: 521 million). Development of both return on sales (ROS), at 12.9 percent (2017: 13.3%), and return on capital employed (ROCE), at 20.6 percent (2017: 21.1%), were slightly lower than their previous-year levels due to the increased investment amount. Both of these results, however, remained above the target corridor established in the Champion 2020 corporate strategy of 10–12 percent for ROS and 15–20 percent for ROCE. Free cash flow (before acquisition and disposal of subsidiaries) declined to CHF 245 million. The difference to the 2017 amount (CHF 325 million), is the result of disproportionate growth in fleet management and a Group-wide increase in warehouse capacities. The slight appreciation of the Euro had next to no influence on the operating result due to the very positive natural hedging established by the company. Various devaluations, primarily to the Russian ruble and Turkish lira, were more noticeable. These could only be partly compensated for by local price increases. Overall, currency effects negatively influenced the operating result by CHF 20 million. Balance sheet and liquidity remain The equity ratio increased in 2018 to 55 percent (2017: 53%). Cash and cash equivalents were strong at CHF 1031 million (2017: CHF 1140 million) while financial debt was at CHF 515 million (2017: CHF 595 million). The Board of Directors has proposed an ordinary dividend payout of CHF 272 million for the 2018 financial year (2017: CHF 264 million). Outlook After several very positive years, the market and currency environments look to become more challenging, particularly considering the ongoing political and trade tensions. Taking this into consideration, Hilti anticipates 2019 market growth in the low single digits and a market that will be characterized by increasing volatility. The Group maintains its strategic direction while continuing to invest in sales, products, services and digital solutions based on its solid financial situation. In light of this, Hilti expects an increase in sales in the mid-to-upper single digits and a growth level similar to that seen in 2018 for most key financial figures. The change to IFRS accounting principles, which will be applied for the first time in 2019, is forecast to have a negative influence on ROCE and equity ratio due to an increase in leasing liabilities. 2018 Financial Report | 7