3. Capital and financial risk management

3.1 Capital management

Capital management has the following objectives:

• securing sufficient liquidity to meet the Group’s needs to fulfil its financial obligations;
• securing sufficient funding capacity for future investments and acquisitions;
• ensuring creditworthiness;
• achieving an appropriate risk-adjusted return for investors.

The comprehensive crisis management measures implemented by the Group management in the last financial year due to the Covid-19 pandemic as well as due to the war in Ukraine are ongoing. Measures aimed at focusing on the receivable collection to limit the days sales outstanding increase following the sales growth. The earlier introduced daily monitoring of the liquidity and financial debt status on Group level, including financial covenants and undrawn credit facilities, was continued. Further increased attention was on the net working capital management, which also includes a strict credit management and collection discipline on the trade receivables as well as restrictions on capital expenditures. The inflationary pressure of raw materials, the transportation cost increase as well as increased safety stock due to ongoing supply chain issues as well as the accelerating business focusing towards profitability and sales growth resulted in an increase in accounts receivables and inventory that was accepted to reduce backlog and ensure delivery capability. The inventory increase is seen as a temporary measure and actions to reduce to prior crisis level are ongoing.

Borrowings and other financial liabilities

Credit facility

As of 30 June 2022, the short-term bank loans and overdrafts amount to CHF 473.4 million (2020/21: CHF 9.9  million).

In November 2020, dormakaba secured a five-year syndicated loan in the amount of CHF 525 million that includes options for a prolongation of two additional years and for an increase of up to CHF 200 million. For the first time, incentives for the achievement of ambitious sustainability performance objectives in the form of three important ESG (Environmental, Social, and Governance) criteria were included in the contract. The syndicated credit facility contains a single financial covenant that is the leverage factor (calculated as the ratio of net debt to EBITDA). As of 30 June 2022 and throughout the 2021/22 financial year, dormakaba complied with the financial covenant. As per 30 June 2022, this credit line was 30% drawn.

The CHF 360 million bond maturity in October 2021 was refinanced by drawings under the syndicated credit facility due to the unfinished strategy project Shape4Growth. The planned capital market take out in Spring 2022 was cancelled due to the war in Ukraine. To ensure the usual financial flexibility under the syndicated credit facility, dormakaba signed a 12-month CHF 300 million credit facility with one major Swiss bank in June 2022 to „bridge to bond“. This credit facility is fully drawn.

The interest expenses on short-term bank loans and overdrafts are recorded within other interest expenses. Interest expenses are disclosed in detail in the note on the financial result (1.4).

Net debt

Disclosed below are the corresponding key figures as at 30 June 2022 and 30 June 2021, respectively, including the maturities.

The interest expenses for drawdowns from the syndicated credit facility and other credit facilities are recorded within other interest expenses. Interest expenses are disclosed in detail in the note on the financial result (1.4).

Bonds

Two bonds were placed in September 2017 in the Swiss capital market by dormakaba Finance AG, a Group company of dormakaba Holding AG, as a dual tranche transaction worth a total of CHF 680 million (ISIN CH0384629884 due in 2021 and ISIN CH0384629892 due in 2025). The first tranche of CHF 360 million was  matured as of 13 October 2021 and was refinanced by drawings of CHF 340 million in the syndicated credit facility since dormakaba held CHF 20.0 million financed from own cash.

The interest expenses for the two bonds amount to CHF 3.5 million in 2021/22 (2020/21: CHF 4.4 million). This is disclosed in the note on the financial result (1.4).

3.2 Share capital and treasury shares

Share capital

As of 30 June 2022, the share capital comprised 4,200,026 registered shares with a par value of CHF 0.10 each. The shares are listed on the SIX Swiss Exchange (DOKA/ISIN CH0011795959).

Conditional capital as of 30 June 2022 amounted to CHF 42,438.40.

In accordance with the resolution of the Annual General Meeting (AGM) of 12 October 2021, the BoD is authorized to increase the share capital, no later than 12 October 2023, by a maximum amount of CHF 42,000 through the issue of a maximum of 420,000 fully paid-in registered shares at a nominal value of CHF 0.10 each. The increase may be made in partial amounts. No shares were issued out of authorized capital in the 2021/22 financial year.

Treasury shares

Treasury shares are recorded as a negative balance within equity and disclosed in the consolidated statement of changes in equity. These registered shares are predominantly intended for share-based compensation. Further information about the long-term incentive stock award plans are disclosed in the note on personnel expense (1.3) and within the Compensation Report.

In the 2021/22 financial year, a total of 9,639 shares (2020/21: 11,551 shares) were allocated. 7,552 shares (4,307 restricted and 3,245 performance shares) were vested as part of the long-term incentive stock award plans (2020/21: 9,805 shares made up of 7,605 restricted and 2,200 performance shares). In addition, 2,087 restricted shares (2020/21: 1,746 restricted shares) were allocated to the BoD members. Further information on the long-term incentive stock award plans is included in the Compensation Report.

3.3 Earnings per share and dividends

Earnings per share

The earnings per share is calculated based on the profit attributable to the owners of the parent only. Net profit attributable to minority interests is not taken into account. The minorities represent mainly the shareholders who hold 47.5% of the shares of dormakaba Holding GmbH + Co. KGaA, a direct subsidiary of the Group parent, dormakaba Holding AG, which holds the remaining 52.5%. The legal subsidiaries are disclosed in the note on the legal structure of the dormakaba Group (5.3).

Dividends

dormakaba Group envisages a dividend policy whereby the minimum payout ratio should be 50% of the consolidated net profit after minority interests.

The dividend distribution is proposed to the AGM in the form of an equal distribution from the reserves from capital contributions and statutory retained earnings of the parent entity, dormakaba Holding AG. After approval of this proposal by the AGM, the distribution from the reserves from capital contributions as well as dividend distribution from statutory retained earnings will be paid out on 17 October 2022 according to the instructions received: CHF 11.50 (2020/21: CHF 12.50) gross per listed registered share at CHF 0.10 par value, whereof only the distribution from reserves from capital contributions will be paid free of Swiss withholding tax in accordance with Art. 5 para. 1bis of the Federal Law on Withholding Tax.

3.4 Theoretical equity and goodwill movement

The goodwill additions of CHF 118.0 million (2020/21: CHF 17.8 million) and the disposal of CHF 50.9 million (2020/21: CHF 0.0 million) resulting from business acquisitions and divestments are offset as disclosed in the consolidated statement of changes in equity. See also the note on business combinations and divestments (4.3). The following tables show the impact on equity and net profit based on the assumption that the goodwill was capitalized and amortized over a period of five years.

The disclosed disposal of CHF 50.9 million relates to the divestments of the Mesker and interior glass systems business. This disposal of goodwill affects consolidated income, but, does not impact the Group’s cash flow.

3.5 Financial risk management

The tasks of the BoD include identifying risks, determining suitable measures, and implementing these measures or having them implemented. The BoD of dormakaba Holding AG conducted a regular Group-wide risk assessment in the year under review and determined the risks to be managed at particular management levels.

The ongoing Covid-19 pandemic and the war in Ukraine continue to have a significant impact on the global economic environment. The ongoing comprehensive crisis management with taskforces implemented by the Group management ensured supportive actions to all Group companies as well as relevant reporting to the EC and BoD. The aim of the Covid-19 measures is to ensure the health and safety of all employees, to minimize the impact on business operations and supply chains, and thus on customers, and to focus on cash flow by following a “cash is king” principle. dormakaba adjusted its financial management as well as its forecast structures to retain its entrepreneurial flexibility and financial stability at all times. This includes the daily monitoring of cash flows, liquidity, and the status of financial debt at Group level, also regarding available undrawn credit facilities. The Ukraine Taskforce implemented rigid sanctions-control as well as business adjustment for Russia. This ensures that operating risks are given due attention, reported accordingly, and the BoD has a comprehensive overview of the key risks and measures taken.

Liquidity risk

Liquidity risk arises due to the possibility that dormakaba Group might experience difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities.

Liquidity risk is managed centrally by Group Treasury. The Group’s objective is to maintain a balance between the continuity of funding and flexibility by using varied financing instruments across a range of maturities. The Group aims to maintain a spread of maturities to avoid excessive refinancing in any one period. The Group endeavors to maintain funding flexibility by keeping available committed credit lines with a variety of counterparties.

Credit risk

Credit risk is the risk of loss if a counterparty fails to fulfil its obligations to dormakaba Group. Hence, dormakaba Group is exposed to credit risk arising from financing activities, including deposits with banks and financial institutions, foreign exchange transactions, and other financial instruments such as trade receivables, other current assets, and non-current financial assets.

Cash and cash equivalents are mainly held in the form of current accounts and current fixed-term deposits. Counterparty risks with financial institutions are monitored continuously and are minimized by the Group limiting its relationships to high-ranking banks only.

Trade receivables are monitored on an ongoing basis locally and via Group management reporting procedures. The danger of cluster risks on trade receivables is limited due to the large number and wide geographical spread of customers. The extent of the credit risk is determined mainly by the individual characteristics of each customer. The assessment of this risk involves a review of the customer’s creditworthiness based on its financial situation and experience. The maturity analysis of trade receivables is disclosed in the note on trade receivables (2.1).

Interest rate risk

Interest rate risk is the risk that the Group’s financial situation is impacted by changes in interest rates.

The dormakaba Group’s interest rate risk arises from its short-term and long-term borrowings. The interest rate risk is hedged only in a few cases. Management strives for a well-balanced mix of long- and short-term interest rate exposure, taking into consideration the planned funding requirements. Funding and related interest are managed centrally by Group Treasury.

Foreign currency exposure

Translation risk

dormakaba Group does not actively manage the translation risk.

In the 2021/22 financial year, the Group’s equity was negatively impacted in the amount of CHF 34.6 million by foreign currency translation (2020/21: CHF 23.5 million positive impact).

The key exchange rates based on net sales in foreign currencies are disclosed in the table below:

In the 2021/22 financial year, dormakaba Group’s sales growth was negatively impacted by foreign currency translations in the amount of CHF 3.0 million (2020/21: CHF 76.6 million negative impact) and EBITDA positively  by CHF 3.0 million (2020/21: CHF 11.1 million negative impact).

Transaction risk

Management monitors foreign exchange risks on a regular basis. When management deems it appropriate to do so, dormakaba uses derivative financial instruments to manage its transaction risk exposure to fluctuations in exchange rates.

Foreign exchange risks relating to intercompany loans are covered to a large extent by forward exchange contracts with third parties. The external counterparties involved are high-ranking financial institutions. dormakaba enters into financial transactions only to hedge against a related off-balance-sheet risk or a highly probable future business transaction. No uncovered short transactions are entered into.

Intercompany invoicing is structured in a way that foreign exchange risks are concentrated in dormakaba's manufacturing companies. The use of a group netting system with intercompany payment terms of up to 60 days reduces the intercompany exposure and foreign exchange risk. The third party and intercompany cross-currency exposures are reduced through natural hedges or they are hedged using financial instruments.

dormakaba Group actively manages the transaction risk arising from net investment in foreign currencies.

The following currency forward contracts for hedging purposes existed as at the balance sheet date:

In the 2021/22 financial year, the net foreign exchange loss amounts to CHF 8.8 million (2020/21: loss amounts to CHF 3.4 million). While the hedges mitigate the foreign currency effect arising from intercompany loans, the interest expenses for forward contracts amounts to CHF 5.4 million (2020/21: CHF 6.6 million). The foreign exchange gains and losses as well as the interest expenses and income are disclosed in the note on the financial result (1.4).