5. Other disclosures

This section provides a general understanding of the preparation and consolidation principles as well as an overview of the use of accounting estimates. In addition, it details any events occurring between the balance sheet date and the date at which the financial statements are approved by the BoD.

5.1 About this report

Parent company of the Group

The parent company of the Group is dormakaba Holding AG, a company limited by shares that is incorporated and domiciled in Rümlang (Switzerland). The address of its registered office is Hofwisenstrasse 24, 8153 Rümlang, Switzerland. The company is listed on the SIX Swiss Exchange.

Basis for preparation

These consolidated financial statements were approved for issue by the BoD on 27 August 2020 and will be presented for approval by the AGM on 20 October 2020.

The consolidated financial statements of dormakaba Group comply with Swiss law and have been prepared using the historical cost principle, except where disclosed in the accounting policies below, and in accordance with Swiss GAAP FER as a whole (GAAP = Generally Accepted Accounting Principles, FER = Fachempfehlung zur Rechnungslegung or “accounting and reporting recommendations”). Furthermore, the accounting complies with the provisions of the Listing Rules of SIX and Swiss company law. The accounting policies have been applied consistently by Group companies. No changes to the Swiss GAAP FER requirements were announced or released in the year under review.

Currency conversion

The consolidated financial statements are presented in Swiss francs (CHF), which is dormakaba Group’s presentation currency. Items included in the financial statements of each dormakaba Group company are measured using the currency of the primary economic environment in which that company operates (the “functional currency”).

Foreign currency transactions are converted into the functional currency of the appropriate entity using the exchange rates prevailing as at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the income statement.

The assets and liabilities of subsidiaries reporting in currencies other than Swiss francs are translated at the exchange rates prevailing as at the balance sheet date. Income, expenses, cash flows, and other movement items are translated at average exchange rates for the period. All resulting exchange differences are recognized in equity. Upon consolidation, exchange differences arising from the translation of the net investment in foreign companies and from borrowings and other currency instruments designated as hedges of such investments are taken to equity. When a foreign operation is sold, exchange differences that were recorded in equity are recycled to the income statement as part of the gain or loss on the sale.

Basis of consolidation

The consolidated financial statements of dormakaba Group include the operations of dormakaba Holding AG and all direct and indirect subsidiaries. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and it has the ability to affect those returns through its power over the entity. The consolidated accounts are based on the annual financial statements of the individual subsidiaries. All companies follow the uniform measurement and reporting practices prescribed by the Group. In applying the full consolidation method, the assets, liabilities, income, and expenses of all subsidiaries are included in their entirety. Minority interests in equity and profit are disclosed separately. Subsidiaries are consolidated from the date when control is acquired. The identifiable assets and liabilities are revalued and included according to the acquisition method. Any difference between the cost of acquisition and the fair value of the Group’s share of net assets acquired constitutes goodwill. Subsidiaries sold are excluded from consolidation as of the date when control ceases. All intercompany balances, transactions, and intercompany profits are eliminated upon consolidation. Investments in associates and joint ventures where dormakaba Group exercises significant influence but does not exercise control (i.e. usually an interest between 20% and 50%) are accounted for using the equity method of accounting. Under the equity method, investments in associated companies and joint ventures are initially recognized at cost, and the carrying amount is increased or decreased to recognize dormakaba Group’s share of the profit or loss of the associate/joint venture after the date of acquisition. Profit and loss are attributed to the owners of the parent and to the minority interests, even if this results in a negative balance. Investments in which dormakaba Group does not have significant influence (i.e. dormakaba Group’s interest is usually less than 20%) are recorded at cost.

Companies established or acquired or those in which the Group increases its interest and thereby obtains control during the year are consolidated as of the date of establishment or the date when control commences. Companies are deconsolidated as of the date that control effectively ceases upon disposal or a reduction in ownership interest. This rule is applied similarly to investments in associates.

In the event that shares of a Group company or associated company are sold, the difference between the proceeds from the sale and the proportional book value of the net assets, including historical goodwill, is recognized as a gain or loss in the income statement.

The Group treats transactions with minority interests that do not result in a loss of control as transactions with the equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling interests and minority interests to reflect their relative interests in the subsidiary.

Use of estimates

The preparation of financial statements in accordance with Swiss GAAP FER requires the use of estimates and assumptions, which have an effect on the reported value of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported value of revenues and expenses during the reporting period. Although these estimates are based on Management’s best knowledge of current events as well as actions that dormakaba Group may undertake in the future, the actual results may differ from the estimates.

The Covid-19 pandemic has a significant impact on the global economic environment. In light of these changes, dormakaba has reviewed all areas involving significant accounting estimates and assumptions. In this process also net book value of goodwill disclosed in note theoretical equity and goodwill movement (3.4) was assessed for impairments. Other areas, such as valuation of trade receivables (2.1) and inventories (2.2) were also in the focus of review. There was no impairment loss as a result of the review. In addition, the Covid-19 pandemic had no material impact on the remaining significant accounting estimates and assumptions.

The most important accounting estimates are described in a blue box at the end of the note to which they relate as per the following table:

Use of accounting estimates

 

Note

Deferred income taxes

 

1.5

Provisions

 

2.4

Testing goodwill and assets for impairment

 

2.3, 5.1

Accrued pension costs and benefits

 

2.5

In accordance with Swiss GAAP FER, assets are subject to an impairment test based on indicators reflecting a possible impairment of the individual assets. Therefore, the following accounting estimates apply to all assets in general.

Use of accounting estimates

For the purpose of testing impairment, goodwill and assets are grouped in cash generating units for which cash flows are separately identifiable. The Group estimates the recoverable amount of those cash-generating units, which generally represent their value in use. Value in use is assessed using the discounted cash flow method. The estimates used in these calculations are based on updated budgets and medium-term plans covering a period of three years. Cash flows beyond the projection period are extrapolated in perpetuity.

When the carrying amount exceeds its recoverable amount, an impairment loss is recognized separately in the income statement. The recoverable amount is the higher of fair value less cost of disposal and value in use.

Alternative performance measures (APM)

Some of the key figures used by dormakaba to measure the financial performance are not defined by Swiss GAAP FER. The comparability of these figures with those of other companies might be limited. Explanations and reconciliations of these APMs are disclosed below. 

Capital expenditure

Capital expenditure (Capex) consists of the additions in property, plant, and equipment and the additions of intangible assets.

CHF million

 

Financial year ended 30.06.2020

 

Financial year ended 30.06.2019

Capital expenditure

 

94.9

 

111.4

Additions of property, plant, and equipment

 

59.6

 

84.4

Additions of intangible assets

 

35.3

 

27.0

Free cash flow and free cash flow before acquisition/divestments

Free cash flow consists of cash flow from operating activities together with cash flow from investing activities. Free cash flow before acquisition/divestments excludes the cash effective movements arising from acquisitions/divestments. 

CHF million

 

Financial year ended 30.06.2020

 

Financial year ended 30.06.2019

Free cash flow before acquisitions/divestments

 

242.9

 

179.7

Acquisition of subsidiaries, net of cash acquired

 

–147.2

 

–6.2

Acquisition of associates and joint ventures

 

0.0

 

–1.5

Sale of investment in associates and joint ventures

 

0.0

 

40.9

Free cash flow

 

95.7

 

212.9

Net cash from operating activities

 

328.1

 

280.7

Net cash used in investing activities

 

–232.4

 

–67.8

Net working capital

Net working capital is used by the Group to measure the efficiency of the segment in managing financial resources and complements the Group’s performance management. dormakaba defines net working capital as trade receivables plus inventories, minus the sum of trade payables, advances from customers and deferred income.

CHF million

Note

 

Financial year ended 30.06.2020

 

Financial year ended 30.06.2019

Net working capital

 

 

631.9

 

753.2

Trade receivables

2.1

 

388.1

 

499.5

Inventories

2.2

 

445.0

 

454.7

Trade payables

 

 

–129.0

 

–134.3

Advances from customers

 

 

–38.8

 

–32.6

Deferred income

 

 

–33.4

 

–34.1

Operating cash flow margin

Operating cash flow margin is calculated as the ratio of net cash from operating activities to net sales.

CHF million

Note

 

Financial year ended 30.06.2020

 

Financial year ended 30.06.2019

Operating cash flow margin

 

 

12.9%

 

10.0%

Net sales

1.2

 

2,539.8

 

2,818.3

Net cash from operating activities

 

 

328.1

 

280.7

Operating profit before depreciation and amortization (EBITDA)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) corresponds to the operating result (EBIT) before depreciation on tangible fixed assets and amortization on intangible assets.

CHF million

 

Financial year ended 30.06.2020

 

Financial year ended 30.06.2019

Operating profit (EBIT)

 

253.2

 

375.0

Depreciation and amortization

 

71.8

 

73.0

Operating profit before depreciation and amortization (EBITDA)

 

325.0

 

448.0

Depreciation and amortization

 

–71.8

 

–73.0

Result from associates

 

–0.2

 

2.9

Financial expenses

 

–43.2

 

–47.4

Financial income

 

1.4

 

2.2

Profit before taxes

 

211.2

 

332.7

Organic sales growth

Organic growth in sales refers to the growth compared to the same period of previous year adjusted for the impacts from currency translation as well as impacts from acquisition and divestment.

5.2 Events occurring after the balance sheet date

There were no events between 30 June 2020 and 27 August 2020 which would necessitate adjustments to the book value of the Group’s assets or liabilities, or which require additional disclosure in the consolidated financial statements.

 
 

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