2. Invested capital

Conzzeta uses the net operating assets and operating cash flow as defined below for the management of operating performance:

Net operating assets

Return on net operating assets (RONOA) after tax is calculated from the operating profit (EBIT) after deduction of the chargeable tax expense in relation to the average net operating assets as of January 1 and the relevant balance sheet date. The chargeable tax expense is calculated by multiplying the operating profit by the effective tax rate. Results are annualized for key figures for periods of less than a year.

Operating cash flow

Operating free cash flow is calculated on the basis of free cash flow, excluding changes in securities and money market instruments with a term of more than 90 days, and acquisition and divestment of business activities and investments.

2.1 Net working capital

Trade receivables

For doubtful accounts, individual and overall value adjustments have been deducted. The overall provision is based on the experience of the respective company.

Other receivables

Other receivables largely consist of recoverable value-added tax, other tax credits and the positive market values of outstanding derivative financial instruments as at the balance sheet date.

Inventories

The inventory of merchandise for resale primarily concerns the Outdoor segment. Overall, the value adjustments on inventories amount to CHF 58.5 million (2017: CHF 55.1 million).

Advance payments from customers

Customer payments on account originate from the companies in the machinery businesses.

Other short-term liabilities

Other short-term liabilities include taxes owed, social security contributions and negative market values of derivative financial instruments outstanding at the balance sheet date.

Deferred income

Accrued expenses and deferred income show all expenses and income determined on an accrual basis. Other accruals and deferrals contains commissions, volume discounts, assembly and maintenance services, and goods and services obtained from third parties but not yet invoiced.

Significant estimates made by management

In assessing the value of inventories, estimates are based on expected consumption, price trend (lowest value principle) and valuation at lower of cost or net realizable value. The estimates used to determine inventory value adjustments are reviewed on an annual basis and changed as needed. Changes in sales figures or other circumstances (e.g. seasonality) may therefore lead to an adjustment of the book value.

Accounting principles

Trade receivables and other receivables are stated at nominal value, less appropriate provisions for debtors’ risks.

Inventories are stated at the lower of acquisition or production cost and fair value less cost to sell. Production cost is calculated without imputed interest. Provisions are made for inventories that are difficult to realize or slow-moving.

Liabilities are recognized in the balance sheet at par value.

2.2 Changes in property, plant and equipment

The figures for factory buildings and fixtures, fittings and vehicles include larger expenditures in the Outdoor segment for the renovation of the showroom in Seon, Switzerland, and for monobrand stores, factory outlets and shop-in-shop facilities. Additions under Plant and machinery, Fixtures, fittings and vehicles and Property, plant and equipment under construction include the assembly plant in Elgin, USA, the two experience centers in Elgin, USA, and Incheon, South Korea, the complete renovation of the factory hall at the production site in Niederönz, Switzerland, all in the Sheet Metal Processing segment, and the expansion of the production facilities in Changzhou, China and Rochester Hills, USA, in the Chemical Specialties segment.

Significant estimates made by management

The value of property, plant and equipment is assessed whether there are any indicators that assets may be impaired. Where there are indicators of a loss of value, the realizable value is calculated. If the book value of an asset or the asset’s cash-generating unit exceeds the realizable value, an additional depreciation adjustment is made. The calculation of the realizable value includes an estimate of future cash flows, the calculation of the discount rate and the growth rate based on forecast expectations. The actual cash flows may vary from the discounted future cash flows based on these estimates. In addition, useful lives may be shorter or a loss of value may occur due to a change of use if sites are relocated or closed, or if medium-term revenues are lower than expected.

Accounting principles

Land has been valued at acquisition cost less impairment adjustments. Other tangible fixed assets are valued at acquisition or production cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Estimated useful lives are as follows:

2.3 Changes in intangible assets

The intangible assets mainly comprise software and licenses. Additions include larger software investments to digitalize the business processes of the Sheet Metal Processing segment as well as the Outdoor segment.

Goodwill

Theoretical activation of goodwill would have the following effects on the consolidated financial statements:

Theoretical asset register – goodwill

Impact on income statement

Impact on balance sheet

The change in the scope of consolidation under goodwill is a result of the acquisition of a company in the Schmid Rhyner business unit and the purchase of three Italian companies in the Bystronic business unit. In addition, the determination of the final purchase price arising from a previous year acquisition of FoamPartner resulted in an additional Goodwill of CHF 4.1 million.

Significant estimates made by management

The value of intangible assets (including goodwill) is assessed whether there are any indicators that intangible assets may be impaired. Where there are indicators of a loss of value, the realizable value is calculated. If the book value of an asset or the asset’s cash-generating unit exceeds the realizable value, an additional depreciation adjustment is made. The calculation of the realizable value includes an estimate of future cash flows, the calculation of the discount rate and the growth rate based on forecast expectations. The actual cash flows may vary from the discounted future cash flows based on these estimates.

Accounting principles

Intangible assets are amortized using the straight-line method over their economically useful life; normally, this is between three and five years for software and licenses.

Research and development costs are fully charged to the income statement.

The goodwill resulting from acquisitions is offset against retained earnings at the time of acquisition. On divestment of a business activity, the goodwill offset against equity at an earlier date is transferred to the income statement. For the shadow accounting, the goodwill is amortized in principle on a straight-line basis over its estimated useful life, normally five years.

2.4 Other financial assets

The statement of the change in the employer contribution reserves held as assets can be found in note 5.1. The long-term receivables and loans comprise long-term hire-purchase business with customers and deposits for rents. A loan to a third party was included in the previous year; this was repaid in full in 2018 so a provision of CHF 1.0 million (2017: CHF 1.5 million) was reversed. A value adjustment amounting to CHF 3.1 million (2017: CHF 4.2 million) was made to financial assets. Depreciation of CHF 0.4 million was charged in the previous year.

Accounting principles

Financial assets are valued at acquisition cost, less appropriate provisions for value adjustments. Also recognized in the financial assets are employer contribution reserves not subject to renounced use.

2.5 Provisions and contingent liabilities

The guarantee provisions are mainly attributable to the Sheet Metal Processing and Glass Processing segments. They relate to product sales and are based on past experience. Experience shows the corresponding outflow of funds is evenly spread over the warranty period of one to five years.

The provisions for litigation are essentially cases concerning intellectual property rights, where the timing of the outflow of funds is uncertain since it depends on the outcome of negotiations or legal proceedings.

The use and reversal of restructuring provisions concern restructuring measures communicated in the previous year for the Sheet Metal Processing segment in China, the Outdoor segment in Switzerland and the Glass Processing segment in Germany.

Other liabilities includes provisions for onerous contracts on purchase commitments from framework purchasing contracts, provisions for seniority and anniversary premiums, and provisions for old age that do not qualify as pension obligations. Further other liabilities contain conditional purchase-price obligations from acquisitions and provisions for environmental liabilities. There are land holdings that are contaminated due to previous operating activities and landfilling. These are shown in the register of polluted sites.

Contingent liabilities

In connection with customer financing, repurchase obligations against leasing companies for machinery amount to CHF 22.7 million (2017: CHF 20.2 million).

Significant estimates made by management

The amount of provisions is largely based on an estimate of future costs. The calculation for guarantee claims is based on product sales, contractual agreements and past experience. In addition to the flat-rate calculation, individual provisions for incurred or reported claims are taken into account based on an assessment by management.

Accounting principles

Provisions are recognized when an event likely to give rise to an obligation occurs prior to the balance sheet date, and the amount involved and/or the settlement date are uncertain, but can be estimated. This obligation can have legal or factual grounds.