Notes to the consolidated financial statements

Basis of preparation

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 2023 until 31 December 2023 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 accounting policies have been applied consistently by Group companies with the exception of the goodwill accounting policy choice. Please refer to chapter changes in accounting principles and restatement of previous period.

The consolidated half-year report should be read in conjunc­tion with the consolidated financial statements compiled for the financial year ended 30 June 2023, 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 in accounting principles and restatement of previous period

The Board assessed the implication of the revised standard of Swiss GAAP FER 30 (“Consolidated financial statements”) and decided to change the standard’s accounting policy choice regarding goodwill accounting to increase transparency and improve comparability regarding acquired businesses.

Previously, goodwill was offset in equity at the date of the acquisition. As a result, amortizations and impairments of goodwill did not affect the income statement; they were disclosed in the notes to the consolidated financial statements, while only the sale or discontinuation of the respective business activities led to a recycling through the income statement.

Making use of the accounting policy choice provided in Swiss GAAP FER 30 – Consolidated financial statements – goodwill is capitalized and amortized in the income statement to better reflect the economic reality. Since this is a change to the former accounting principles, the prior period has been restated accordingly.

The financial impact of this change in accounting policy choices within the requirements of Swiss GAAP FER is disclosed in chapter restatement of previous year financial information.

Segment reporting

Reconciliation of operational figures to the consolidated financial statement

Business acquisitions and divestments

Business acquisitions

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 2023/24 and for the full financial year 2022/23 in comparison.

In the period reported, no acquistions were made. The cash payment relates to earn-out payments from acquisitions of previous years.

In the previous year, dormakaba acquired Alldoorco based in Nijkerk (NL) as per 1 August 2022. Alldoorco contributed CHF 2.7 million to the net sales in the half year ended 31 December 2022 and generated net sales of CHF 0.5 million from 1 July 2022 until the acquisition date.

Business divestments

In the period reported and in the previous year, no material divestments were made.

Restatement of previous year financial information

The following tables bridge the previous year's disclosed consolidated income statement and consolidated balance sheet, showing the impact of the change in goodwill accounting policy choice.

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.

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 that, 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 transformation expenses in relation to dormakabaʼs Shape4Growth strategy, which aims to further consolidate the global production footprint, to reduce the supplier base, to improve sourcing capabilities, to re-focus Product Development through a single global roadmap and to optimize its General & Administrative functions by leveraging shared service centers for Human Resources and Finance. Strategic IT harmonization projects to support the transformation and which are closely related to the execution of the Shape4Growth transformation, such as ERP harmonization and accelerated IT infrastructure optimization, including state-of-the-art business continuity management across applications and processes, are also included.

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.

Amortization mainly relates to amortized goodwill, which is treated as IAC to increase comparability with historical EBIT and with other financial statements that apply accounting policies which do not result in goodwill amortization.

Capital expenditure

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

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 is calculated by adjusting the current year’s sales for acquisition impact and comparing it to the previous year’s sales adjusted for currency translations and divestment impact.

The relative changes resulting from translation exchange differences and impacts from divestment are calculated based on the total sales for the previous period. The relative changes resulting from acquisition and organic sales growth are calculated based on the total sales for the previous year, adjusted for the effects of translation exchange differences and impacts from 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 excluding goodwill. For the calculation, the average of the last three published balance sheet information is considered (31 December 2023, 30 June 2023, and 31 December 2022). For the previous year comparison, the same principles were applied.