Notes to the consolidated financial statements

The consolidated financial statements of dormakaba Group (“dormakaba”) include the operations of dormakaba Holding AG and all direct and indirect subsidiaries in which dormakaba controls more than 50% of votes or otherwise has the power to govern the financial and operating policies. Investments in associates where dormakaba exercises significant influence, but does not have control (normally with an interest between 20% and 50%), and in joint ventures are considered for using the equity method of accounting.

The unaudited consolidated half-year financial statements cover the period from 1 July 2022 until 31 December 2022 and are prepared in accordance with the rules of the Swiss GAAP FER 31 (“Complementary Recommendation for Listed Public Companies”) relating to interim financial reporting (Generally Accepted Accounting Principles/ FER = Fachempfehlungen zur Rechnungslegung).

The consolidated half-year report should be read in conjunc­tion with the consolidated financial statements compiled for the financial year ended 30 June 2022, as it represents an update of the last complete financial statements and therefore does not contain all information and disclosures required in year-end consolidated financial statements. The consolidated financial statements are prepared in accordance with Swiss GAAP FER and comply with the provisions of the listing rules of the SIX Swiss Stock Exchange as well as the Swiss company law.

The operational performance and the market development are described in the chapter business performance and should be read in conjunction with this consolidated half-year report.

Income tax expense is recognized based upon the best estimate of the weighted average annual income tax rate expected for the full financial year. The preparation of the consolidated half-year financial statements requires manage­ment to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, and disclosure of contingent liabilities at the date of the consolidated half-year financial statements. If in future such estimates and assumptions, which are based on management’s best judgment at the date of the consolidated half-year financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the reporting period in which the circumstances change.

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

Changes to the operating model and Group internal IT cost recharge concept

As part of its new corporate strategy Shape4Growth, dormakaba changed its operating model as per 1 January 2022 to enable a stronger focus on its customers, to increase operational efficiency, to gain scale and to increase transparency and accountability.

The transition into the new operating model contains the following major elements:

• Global Operations and Marketing & Products organizations are separated in the new operating model and established as Global Functions. Their financial contribution to the Group’s financial performance is allocated to the respective sales Region; either directly attributable or allocated on a reasonable basis.
• Other Organizational Changes reflect the geographical and other structural shifts of responsibility. The change in Region Americas stems mainly from the centralization of the Safe Locks business (share of former AS EMEA segment) while the performance of the Region Asia Pacific is impacted by the assignment of the Market Middle East (former AS EMEA segment). The impact of the above changes on Region Europe & Africa are partly offset by the additional responsibility for Legic SmartCard and Connect technologies (previously reported in segment “other”).
• Global Research and Development costs contain the development costs for global products, and are organized as a Global Function (Product Development) and disclosed separately in the new operating model.

Further details on the structural changes, financial performance measurements and steering concept are disclosed within the segment reporting in the consolidated financial statements compiled for the financial year ended 30 June 2022.

In alignment with the corporate strategy Shape4Growth the principles for internal IT cost allocation were simplified as per 1 July 2022. While in the past the charges to the segments were based on consumed services within a catalogue, the new concept reflects IT cost by user as a share of the total costs. The changed concept therefore increases the transparency of the segment performance and the functional costs, taking the full IT costs per employee into consideration. To reflect this change in the internal accounting policy, the functional costs in the consolidated income statement as well as the financial performance of the individual segments in the segment reporting were restated.

A bridge of the previous year published former segment reporting and the consolidated income statement to the restated information in this report are disclosed in the chapter restatement of prior year financial information.

Reconciliation of operational figures to the consolidated financial statement

Business combinations

The following table summarizes all considerations paid for businesses, as well as the assets and liabilities acquired and recognized at fair value as at the acquisition date in the first half-year 2022/23 and for the full financial year 2021/22 in comparison.

Alldoorco 

On 1 August 2022, dormakaba acquired Alldoorco based in Nijkerk (NL). Alldoorco is a well-known company specializing in the maintenance, repair, and new installation of industrial door systems. With its high level of technical expertise in door solution services, the company is an ideal complement to dormakaba’s existing offering in the Dutch market. 

Divestments

The following table summarizes the considerations received as well as the net assets divested. The resulting net goodwill was recycled affecting net income.

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.

EBITDA and EBIT adjusted by items affecting comparability (IAC)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) corresponds to the operating result (EBIT) before depreciation and amortization. By adjusting EBITDA and EBIT for items affecting comparability (IAC), transparency is further increased and the comparability of the Groupʼs operational performance on a period-to-period basis is improved.

IACs are defined as significant costs and income which, because of their exceptional nature, cannot be viewed as inherent to the Groupʼs underlying performance. The content of these items excluded is summarized in the table below and the reconciliation with EBIT defined by Swiss GAAP FER is disclosed in segment reporting:

Reorganization and restructuring comprise expenses in relation to dormakabaʼs new strategy Shape4Growth, which changed the operating model of dormakaba, and consequently the organizational setup as well as the financial reporting. Strategic IT harmonization projects that are closely related to the execution of Shape4Growth, such as ERP harmonization and accelerated IT infrastructure optimization, including state-of-the-art business continuity management across applications and processes, are also included.

In the first half of financial year 2021/22, dormakaba divested its interior glass business (IGS). Details on the divestments are disclosed in chapter business combinations and divestments.

Other exceptional items comprise revaluation gains or losses, significant gains on sale of property, plant, and equipment, as well as other significant items that cannot be viewed as inherent to the Groupʼs underlying performance.

Capital expenditure

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

Free cash flow and free cash flow before acquisitions/divestments

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

Net debt

Net debt describes the current borrowings and non-current liabilities minus cash and cash equivalents.

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 Groupʼs performance management. dormakaba defines net working capital as trade receivables plus inventories, minus the sum of trade payables, advances from customers, and deferred income.

Operating cash flow margin

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

Organic sales growth

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

Return on capital employed (ROCE)

EBIT divided by capital employed (CE) results in ROCE. dormakaba bases the calculation on a 12-month rolling EBIT, adjusted for items affecting comparability (IAC). CE equals the sum of net working capital, property, plant, and equipment, and intangible assets. For the calculation, the average of the last three published balance sheet information is considered (31 December 2022, 30 June 2022, and 31 December 2021). For the previous year comparison, the same principles were applied.

The following table bridges the previous year’s disclosed segment performance to the new operating model and includes the impact from the change of the internal IT cost allocation principles. Further details are disclosed in the chapter basis of preparation.

To enable a fair comparison with current year data, the consolidated income statement was retrospectively adjusted for the change in the internal IT cost allocation principles. Further details are disclosed in the chapter basis of preparation.