3. Financing and risk management

3.1 Cash, cash equivalents and securities

Cash and cash equivalents include cash on hand, postal checking and bank account balances as well as fixed-term deposits with a maximum residual term of 90 days. Securities consists of money market instruments denominated in Swiss francs with a residual term of more than 90 days.

3.2 Shareholders’ equity

Share capital

The share capital of CHF 4.1 million is divided into 1,827,000 class A registered shares with a nominal value of CHF 2.00 each and 1,215,000 class B registered shares with a nominal value of CHF 0.40 each.

Treasury shares/share-based compensation

The holding as of December 31, 2020, was 1,929 class A registered shares acquired at an average purchase price of CHF 1,089 each. At the end of 2019, 4,187 class A registered shares acquired at an average purchase price of CHF 941 each were held. In the reporting year, 116 class A registered shares (2019: 2,484 class A registered shares) were acquired at an average transaction price of CHF 1,162 (2019: CHF 1,025) each for the share-based compensation program. The Board of Directors and members of the Executive Committee received 2,374 class A registered shares (2019: 2,083 class A registered shares) at an average transaction price of CHF 905 (2019: CHF 907) each. The monetary value was CHF 2.1 million (2019: CHF 2.5 million). In each case, the transaction price corresponded to the market value.

The base compensation for members of the Board of Directors is paid in cash and shares (approx. 50% each) that are subject to a four-year vesting period. Neither discounts nor performance components are taken into consideration when calculating the share allocation of the Board of Directors. The calculation is based on the average share price for the three months from November 1 to January 31.

For members of the Executive Committee, there is a deferred share-based performance component (LTI). Of the variable performance-related target compensation, the LTI represents 15% (or 20% in the case of the CEO). Of this, the only performance parameter is the earnings per share (EPS) for the financial year. Depending on the actual value, the monetary value of the share allocation can vary between 0% and 150% (cap) according to EPS target achievement. The number of shares allocated is the product of the LTI monetary value divided by the average share price from November 1 in the current year to January 31 in the following period, with a reduction of 10% allowed. To qualify for the share allocation, the recipient must be in employment on the date of the allocation, with no period of notice served by either side. The shares allocated for the LTI remain restricted for four years. In the event of invalidity, death or termination of the employment relationship following a change of control this vesting period is canceled.

Members of business unit management and persons in selected Group roles are eligible to participate in a share-based LTI scheme representing no more than 10% of annual base salary. The first allocation of restricted stock units (RSUs) was made at the end of March 2018. The value of the LTI allocation for the aforementioned level of management depends on earnings per share (EPS) and may vary between 100% and 150% of the target amount. The number of allocated restricted stock units is determined by dividing the monetary value of the LTI (EPS rate of target achievement × LTI target amount) by the average share price from November 1 of the current period to January 31 of the following period. The restricted stock units are subject to a three-year vesting period and will thereafter be converted into Conzzeta AG shares based on a ratio of 1:1. This is conditional upon the employees concerned being in employment at the time of the conversion and allocation of shares, with no period of notice served by either side. Employees who terminate their employment forfeit their restricted stock units.

The value of the share-based, performance-related component and the corresponding number of shares (LTI) are determined by the Board of Directors in the year following completion of the respective financial statement.

Personnel expenses contain deferred expenses for the reporting year amounting to CHF 2.0 million (2019: CHF 2.4 million) for the share-based component of compensation.

Compensation and shareholdings

The compensation to members of the Board of Directors and Executive Committee is shown in the Compensation Report, which forms an integral part of this Annual Report. Their holdings in Conzzeta AG are disclosed in the notes to the financial statements of Conzzeta AG.

Accounting principles

Treasury shares are recognized at cost at the time of acquisition. The holding of treasury shares is disclosed as a negative item in equity. Upon resale, the profit or loss is allocated directly to the capital reserves.

Share-based compensation for members of the Board of Directors and Executive Committee is measured at cost at the grant date and charged to personnel expenses in the period in which the service is rendered.

3.3 Financial result

Financial income includes interest income of CHF 0.8 million (2019: CHF 1.6 million) and a positive performance on the assets of the employer contribution reserves of CHF 1.9 million (2019: CHF 4.9 million).

Financial expenses contain interest of CHF 4.9 million (2019: CHF 4.5 million) and currency losses of CHF 0.8 million (2019: CHF 2.1 million). Interest is primarily due to the cost of currency hedging (interest differences) to finance foreign locations, as well as interest expenses. Currency losses include currency effects from the valuation of liquid assets, short-term loans between Group companies and other financial assets.

3.4 Operational leasing

3.5 Other commitments and pledged assets

Long-term purchase commitments in the amount of CHF 9.2 million (2019: CHF 7.4 million) secured exclusive supplies at the balance sheet date.

Assets to the value of CHF 4.5 million (2019: CHF 3.7 million) are held with retention of title as security for bank loans. Sureties for rental obligations of franchise stores amounted to CHF 0.3 million (2019: CHF 0.6 million).

3.6 Financial risk management

Due to its business activities, the Conzzeta Group is exposed to various financial risks, including currency, credit, liquidity and interest rate risks. The Group’s comprehensive risk management policy focuses on the unpredictability of financial markets and aims to minimize any negative impact on the Group’s financial position. Risk management is carried out by the Conzzeta Group’s finance department in accordance with guidelines approved by the Board of Directors. These guidelines regulate the use of derivatives, as well as the handling of foreign currency risk, interest-rate risk and credit risk. The guidelines are binding upon all Conzzeta Group companies.

Currency translation rates

Derivative financial instruments

The contracts were entered into as a hedge against exchange risks in various currencies arising from business operations.

Accounting principles

All outstanding derivatives are recognized at market value as at the balance sheet date and shown at gross values under other receivables or other liabilities. Value changes on derivatives for hedges of recognized underlying transactions are shown like the underlying transaction. Value changes on derivatives for hedges of future cash flows will be shown directly in equity until completion of the underlying transaction. At the time of recognition of the underlying transaction the gain or loss recorded in equity will be transferred to the income statement.