2. Invested Capital

Consolidated Financial Statements 2. Invested Capital

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

Net operating assets

CHF million	2020	2019

Inventories	284.5	304.2
Trade receivables	191.4	226.1
Prepayments to suppliers	5.6	4.5
Other receivables, prepaid expenses and accrued income	53.0	47.6
Property, plant and equipment	255.0	276.1
Financial assets (long-term receivables and loans)	21.4	19.0
Intangible assets	25.4	28.0
Trade payables	–118.6	–129.2
Advance payments from customers	–49.5	–54.6
Other liabilities, accrued expenses and deferred income	–116.9	–112.6
Provisions	–43.5	–58.5
Net operating assets (NOA)	507.8	550.7
Net operating assets (NOA), average	529.3	535.4

Operating result	79.7	167.2
Chargeable taxes	–10.2	–30.3
Operating result after taxes	69.5	136.9

Return on net operating assets (RONOA) after tax	13.1%	25.6%

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.

Operating cash flow

CHF million	2020	2019

Cash flow from operating activities	78.7	100.1
Investment in property, plant and equipment	–30.5	–54.9
Divestment of property, plant and equipment	8.7	4.3
Investment in intangible assets	–8.9	–14.9
Investment in financial assets without securities	–3.7	–1.5
Divestment of financial assets without securities	7.2	7.6
Operational free cash flow	51.5	40.6
as a % of total revenue	4.0%	2.6%

Sale of securities		50.0
Acquisition of business activities	–1.7	–0.2
Sale of business activities	73.4	74.3
Free cash flow	123.2	164.7

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

CHF million	2020	2019

Trade receivables (nominal)	203.7	238.3
Value adjustment	–12.4	–12.2
Total	191.4	226.1

For doubtful accounts, individual and overall value adjustments have been deducted. The overall value adjustment 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

CHF million	2020	2019

Raw materials and supplies	102.9	95.1
Merchandise for resale	77.4	86.1
Semifinished products and work in progress	22.2	31.9
Finished products	82.0	91.2
Total	284.5	304.2

The inventory of merchandise for resale primarily concerns the Outdoor segment. Overall, the value adjustments on inventories amount to CHF 56.5 million (2019: CHF 49.3 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.

Accrued expenses and deferred income

CHF million	2020	2019

Accruals and deferrals for current taxes	8.5	8.8
Accruals and deferrals for personnel expenses	35.4	37.7
Other accruals and deferrals	43.3	38.0
Total	87.2	84.5

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 value adjustments 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. Value adjustments are made for inventories that are difficult to realize or slow-moving.

Liabilities are recognized in the balance sheet at par value.

2.2 Property, plant and equipment

CHF million	Factory buildings	Plant and machinery	Fixtures and fittings, vehicles	Assets under construction	Undeveloped real estate	Total property, plant and equipment

Cost at 12/31/2018	291.6	239.2	67.0	31.2	9.9	638.9

Additions	0.6	10.4	10.2	33.4	0.4	54.9
Disposals	–10.0	–6.7	–6.1	–0.4		–23.2
Changes in scope of consolidation	–20.7	–6.8	–6.9			–34.4
Reclassifications	4.4	3.8	0.7	–5.4	–3.5
Currency translation effects	–4.0	–4.1	–1.1	–1.4	–0.1	–10.7
Cost at 12/31/2019	261.9	235.8	63.8	57.3	6.7	625.4

Additions	2.2	7.9	4.7	15.7		30.5
Disposals	–7.9	–5.3	–5.5	–0.1		–18.7
Changes in scope of consolidation	–26.4	–19.0	–1.8	–0.3		–47.5
Reclassifications	42.7	6.2	0.8	–55.2	5.6
Currency translation effects	–2.8	–2.1	–1.2	–1.1	–0.4	–7.7
Cost at 12/31/2020	269.6	223.5	60.8	16.3	11.9	582.1


Accumulated depreciation at 12/31/2018	154.5	169.8	45.9			370.2

Ordinary depreciation	7.6	14.8	7.5			29.9
Impairments		0.2				0.2
Disposals	–7.6	–6.3	–5.9			–19.8
Changes in scope of consolidation	–15.0	–6.1	–5.3			–26.4
Currency translation effects	–1.3	–2.8	–0.7			–4.8
Accumulated depreciation at 12/31/2019	138.2	169.7	41.4			349.3

Ordinary depreciation	7.3	13.6	8.1			29.0
Impairments		0.8	0.6			1.4
Disposals	–3.0	–5.2	–5.5			–13.7
Changes in scope of consolidation	–19.0	–15.5	–1.6			–36.0
Currency translation effects	–0.5	–1.5	–0.9			–2.9
Accumulated depreciation at 12/31/2020	123.0	161.9	42.2			327.1

Net book value of property, plant and equipment at 12/31/2019	123.7	66.0	22.4	57.3	6.7	276.1

Net book value of property, plant and equipment at 12/31/2020	146.6	61.6	18.6	16.3	11.9	255.0

The additions to property, plant and equipment in 2020 arose mainly from investments in operating facilities at the production site in Niederönz (Switzerland), the construction of a new production facility in Shenzhen (China) and the construction of two experience centers in Elgin (USA) and Incheon (Korea) in the Sheet Metal Processing segment, the expansion of the production facilities in Changzhou (China) and the construction of a new processing center for industrial specialty foams in Duderstadt (Germany) in the Chemical Specialties segment, and investments at the headquarters of the Outdoor segment in Seon (Switzerland).

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:



Factory buildings	30 to 40 years
Plant and machinery	5 to 12 years
Tools, fixtures and fittings, vehicles	2 to 8 years
IT hardware and office machinery	3 to 5 years

2.3 Intangible assets

CHF million	2020	2019

Cost at 1/1	79.2	72.3
Additions	8.9	14.9
Disposals	–1.0	–1.1
Changes in scope of consolidation	–2.5	–6.5
Currency translation effects	–0.2	–0.4
Cost at 12/31	84.4	79.2


Accumulated depreciation at 1/1	51.2	50.2
Ordinary depreciation	9.1	8.5
Impairments	1.7
Disposals	–1.0	–1.1
Changes in scope of consolidation	–1.9	–6.1
Currency translation effects	–0.1	–0.3
Accumulated depreciation at 12/31	59.0	51.2

Net book value of intangible assets at 1/1	28.0	22.1

Net book value of intangible assets at 12/31	25.4	28.0

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

Goodwill

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

Theoretical asset register – goodwill

CHF million	2020	2019

Cost at 1/1	248.0	252.2
Increase from acquisitions	0.8
Decrease from divestments and liquidations	–6.1
Currency translation effects	–2.2	–4.2
Cost at 12/31	240.5	248.0


Accumulated depreciation at 1/1	130.8	86.4
Ordinary depreciation	45.0	46.7
Decrease from divestments and liquidations	–3.9
Currency translation effects	–1.6	–2.4
Accumulated depreciation at 12/31	170.3	130.8

Net book value of goodwill at 1/1	117.2	165.8

Net book value of goodwill at 12/31	70.1	117.2

The increase from acquisitions arose from the takeover of the business of Weber Laserservice BV, Heteren (Netherlands). The decrease from divestments and liquidations arose from the sale of the Schmid Rhyner business unit and the liquidation of Mammut Korea Inc, Seoul (Korea) (see note 4.1).

Impact on income statement

CHF million	2020	2019

Operating result (EBIT)	79.7	167.2
EBIT margin in %	6.3%	10.6%
Amortization of goodwill	–45.0	–46.7
Reversal of recycling of goodwill in consolidated financial statements	3.9
Theoretical operating result (EBIT), incl. amortization of goodwill	38.5	120.5
Theoretical EBIT margin in %	3.0%	7.6%

Group result	66.9	136.8
Amortization of goodwill	–45.0	–46.7
Reversal of recycling of goodwill in consolidated financial statements	3.9
Theoretical Group result, incl. amortization of goodwill	25.7	90.1

Impact on balance sheet

CHF million	2020	2019

Equity as per balance sheet	796.1	880.1
Theoretical activation of net book value of goodwill	70.1	117.2
Theoretical equity, incl. net book value of goodwill	866.2	997.3

Shareholders’ equity in % of total assets	69.2%	69.5%
Theoretical equity, incl. net book value of goodwill in % of total assets	71.0%	72.1%

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

CHF million	2020	2019

Employer contribution reserves held as assets	20.9	37.6
Long-term receivables and loans	21.4	19.0
Equity holdings in associated companies	0.3	0.3
Securities held as non-current assets	3.2	2.3
Total	45.7	59.2

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 value adjustment amounting to CHF 2.4 million (2019: CHF 2.0 million) was made to financial assets.

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

CHF million	Guarantee	Litigation	Restructuring	Other	Total provisions

Provisions at 12/31/2018	43.7	8.2		19.2	71.1
Additions	27.1	2.8	1.7	3.0	34.5
Use	–24.5			–4.3	–28.8
Release	–7.3	–3.6		–2.4	–13.3
Changes in scope of consolidation	–3.9			–0.1	–4.1
Currency translation effects	–0.6			–0.3	–1.0
Provisions at 12/31/2019	34.5	7.4	1.6	15.0	58.5

Additions	14.6	0.5		3.2	18.3
Use	–17.6	–2.2	–1.5	–1.7	–23.0
Release	–5.0	–1.5		–2.0	–8.6
Changes in scope of consolidation	–0.3			–0.4	–0.6
Currency translation effects	–0.9			–0.1	–1.1
Provisions at 12/31/2020	25.3	4.1		14.0	43.5

of which short-term 2019	28.3	0.9	1.6	0.4	31.2

of which short-term 2020	20.8	0.1		0.4	21.3

The guarantee provisions are mainly attributable to the Sheet Metal Processing segment. 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 restructuring provisions recognized in 2019 related to restructuring measures in Germany in the FoamPartner business unit and were used in 2020.

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 amounted to CHF 29.3 million (2019: CHF 22.8 million). Conzzeta companies have provided a guarantee to acquire machinery in the above-mentioned amount from the beneficiary leasing companies if their lessees fail to pay the agreed installments.

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.