Notes to the consolidated financial statements

1. Liquid assets

Liquid assets amounted to EUR 106.3 million (2019: EUR 48.9 million) whereas interest-bearing financial liabilities reached EUR 9.9 million (2019: EUR 23.4 million). Thus, at year end, net liquidity¹ amounted to EUR 96.4 million (2019: EUR 25.5million).

¹ See Alternative performance measures in the consolidated financial statements in this Financial Report.

2. Trade accounts receivable and other receivables

As well as bad debt operating allowances for receivable risks that are specifically identifiable, additional general allowances are made for the following overdue periods:

3. Inventories

4. Development of non-current assets

Property, plant and equipment

Financial assets

For further details on reserves for employer contribution, please refer to item 14. Employer contribution reserves and pension fund liabilities in these notes to the consolidated financial statements.

Intangible assets

Intangible assets include software licences amounting to EUR 0.8 million (2019: EUR 1.0 million), patents amounting to EUR 0.1 million (2019: EUR 0.1 million) and land use rights amounting to EUR 2.1 million (2019: EUR 2.2 million).

5. Loans

Short-term loans show an interest rate of 0 to 2% (2019: 0 to 4%). Long-term loans show an interest rate of 0 to 5% (2019: 0 to 6%), the majority of which consists of mortgage loans.

6. Provisions

The tax provisions include deferred as well as other tax provisions in accordance with item “9. Provisions” of the Accounting and valuation principles in the consolidated financial statements in this Financial Report.

The discount rate for German pension obligations was 1.0% (1.0% in the previous year).

The other provisions include provisions for warranties, earn-out for acquisitions made, pending legal cases as well as personnel-related provisions.

7. Equity capital

At the balance sheet date, the equity ratio was 66% (2019: 64%). The factors that contributed to changes in con­solidated equity are presented in the consolidated statement of changes in equity.

As in 2019, the share capital totalled CHF 0.6 million, corresponding to EUR 0.4 million at the exchange rate of 1 January 2003. It is made up of 9,756,000 registered shares A with a par value of CHF 0.05 each and 9,900,000 ­registered shares B with a par value of CHF 0.01 each.

The statutory and legal reserves and those not available for distribution amounted to EUR 4.2 million (2019: EUR 4.3 million).

Shares were sold at a discount of 30% to management staff participating in a stock ownership plan and issued to members of the Board of Directors as part of their fee (see item 22. Shares granted in these notes to the consolidated financial statements).

8. Contingent liabilities

At year end, there were guarantee obligations vis-à-vis third parties totalling EUR 1.9 million (2019: EUR 3.1 million).

With regard to Group financing, Group guarantees for subsidiaries were at the maximum level of EUR 43.7 million (2019: EUR 69.9 million).

9. Pledged assets

Of the Group’s total assets, EUR 20.3 million served as collateral (2019: EUR 22.2 million). The pledged assets were exclusively land and buildings.

10. Liabilities to pension funds

At 31 December 2020, there were liabilities to pension funds in the amount of EUR 0.6 million (2019: EUR 0.5 million) and are included in other short-term liabilities.

11. Transactions with related parties

In the reporting year, as was the case in the previous year, no products were sold to companies that were not fully consolidated and there were no receivables with regard to companies that were not fully consolidated.

In the year under review, as per the previous year, Zehnder Group did not complete any major transactions with shareholders and there were no receivables or obligations.

As per the previous year, Zehnder Group completed no major transactions with minority shareholders of subsidiaries. At the end of the reporting year, as in the previous year, there were neither receivables nor obligations with regard to minority shareholders.

During the reporting year, one member of the Board of Directors (Jörg Walther) was compensated for additional services, such as legal advice in specific projects and extraordinary expenses associated with ad hoc Board of Directors committees, with EUR 0.2 million (2019: EUR 0.2 million). Please refer to item 5.1 Remuneration to the Board of Directors in the 2020 financial year in the Compensation Report.

12. Derivative financial instruments

13. Operating leasing not recognised in the balance sheet

Current operating leasing contracts expire as follows:

14. Employer contribution reserves and pension fund liabilities

Employer contribution reserve (ECR)

No interest was paid on the employer contribution reserve in either year.

Economic benefits/economic liabilities and pension expenses

Please refer to item “10. Pension funds” of the Accounting and valuation principles in the consolidated financial statements and to the pension commitments in item 6. Provisions in these notes to the consolidated financial statements.

15. Segment reporting

In accordance with Swiss GAAP FER 31/8, segment reporting used at top management level for corporate management is disclosed. The Zehnder Group is an indoor climate system supplier. With the two segments, Europe and China & North America, the Group is classified according to geographical regions. These are managed independently from one another and their business performance is assessed separately. The regions of China and North America are reported together on grounds of materiality. Each of them only account for 8% (previous year: 9%) of total sales.

The Europe segment comprises a total of 42 production, sales and management companies in 17 European countries. The largest locations are in Germany, France, the United Kingdom, Switzerland and the Netherlands.

The China & North America segment is comprised of a total of 11 production, sales and management companies in China and North America. These sites are located in China, the US and in Canada.

16. Sales

At EUR 617.7 million consolidated sales in 2020 were 4.1% lower than in 2019 (2019: EUR 644.4 million). Organically¹, sales revenues decreased by 3.9%.

In revenue terms, EUR 1.4 million (2019: EUR 0.0 million) from long-term contracts are recognised.

Sales by region and business area are classified as follows:

For sales by segment, please refer to the preceding item 15. Segment reporting.

¹ See Alternative performance measures in the consolidated financial statements in this Financial Report.

17. Other operating income

Other income is as follows:

The main sources of miscellaneous operating income are income generated by scrap materials, rental income from third parties and payments from insurance claims.

18. Other operating expense

The other operating expenses break down as follows:

19. Financial result

The exchange losses of EUR 2.0 million (2019: EUR 0.2 million) is primarily the result of currency losses associated with the Turkish lira.

20. Income taxes

The tax ratio (= taxes in per cent of earnings before taxes) was 16% (2019: 22%).

The Zehnder Group anticipates that tax loss carry-forwards amounting to EUR 34.8 million (2019: EUR 56.9 million) may be applied in the future. The deferred tax assets on this carried forward items would amount to EUR 5.7 million (2019: EUR 8.6 million).

The differences between the expected income tax expense, based on the expected income tax rate and the effective income tax expense shown in the income statement, has been influenced by the following factors. The expected income tax rate of the Group is based on the profit/loss before taxes and the applic­able tax rate in the tax year for the Group companies.

The effect of tax incentives includes a deferred tax asset that was recorded in the tax balance sheet as a result of the tax reform measures introduced in Switzerland and the resulting step-up.

The other effects can be largely attributed to changes resulting from tax provisions.

21. Net profit per registered share

The undiluted net profit per registered share A is calculated by dividing the net profit excluding minority shares by the total nominal value adjusted shares, less the average number of own shares held by Zehnder Group AG.

For the calculation of the diluted net profit per registered share A, for the outstanding options, whose strike price on the balance sheet date is below the market price (in-the-money) on the balance sheet date, the number of additional registered shares A are calculated and these are added to the total outstanding nominal value adjusted shares.

No dilution effect occurred for the reporting year or the previous year.

The undiluted/diluted net profit excluding minority interests per registered share B amounts to one fifth of the undiluted/diluted net profit excluding minority interests per registered share A.

22. Shares granted

The Zehnder Group introduced an employee investment plan in 2001. This plan allows operating unit managers and members of Group management to acquire registered shares A. The registered shares A issued also include the Board of Directors’ shares. Half of the fee that the members of the Board of Directors receive is made up of registered shares A. The shares are issued at a discount to the persons entitled to receive them.

In 2019, Zehnder Group introduced a long-term, variable compensation element (long-term incentive or LTI). This is granted as part of a long-term investment plan in which rights to shares are awarded under certain conditions. The general contractual basis and exercise conditions are explained under item 4.3 Variable long-term compensation element (long-term incentive, LTI) in the Compensation Report.

The value of shares issued at the time of allocation is equal to the current value. The current value is determined as the closing rate on the day of allocation.

The difference between the current value at the time of allocation and the issue price is recognised in personnel costs.

Shares granted

23. Acquisitions

No acquisitions were made in the year under review.

The following acquisition was made in the previous year:

• On 7 March 2019, the Zehnder Group acquired the full complement of shares in the Dutch ventilation company Recair for EUR 7.4 million. As a result, the Group acquired net assets amounting to EUR 1.1 million. These included liquid assets of EUR 1.3 million, other current assets of EUR 1.4 million, non-current assets of EUR 0.7 million and liabilities of EUR 2.3 million. Net outflow of liquid assets resulting from the acquisition totalled EUR 6.1 million. The resulting goodwill amounted to EUR 6.3 million and was offset against equity.

24. Goodwill

In accordance with the consolidation principles, Zehnder Group directly nets acquired goodwill with equity at the time of first consolidation.

If the parts of the acquired goodwill that could be capitalised had been capitalised and written down over a period of five years, the following figures would have resulted:

Impact of theoretical capitalisation of goodwill on balance sheet

Impact of theoretical capitalisation of goodwill on results

25. Disclosure of compensation paid to the Board of Directors and the Group Executive Committee

The total compensation for the Board of Directors and Group Executive Committee is shown in the table below.

Please also refer to the items 5.1 Compensation to the Board of Directors in the business year 2020 and 5.2 Compensation for the Group Executive Committee in the business year 2020 in the Compensation Report.

26. COVID-19 impacts

With regard to the potential impact of COVID-19, the following balance sheet items were analysed in detail: receivables, inventories, non-current assets, provisions and goodwill offset against equity. With the exception of the increased short-term provisions for targeted staffing measures – see item 6. Provisions in these notes to the consolidated financial statements – no major adjustments were required.

To a similar extent as restructuring provisions were recognised in the reporting year, government contributions were received largely in the form of short-time work compensation. These are recorded in personnel costs with a cost-reducing effect.

27. Events after the balance sheet date

Following on from the 3 November 2020 announcement of the takeover of Zhongshan Fortuneway Environmental Technology Co., Ltd, headquartered in Zhongshan (Guangdong province, China), the effective transfer of control (closing) is likely to take place in the first half of 2021.

Apart from this, there were no extraordinary pending transactions, risks or further events after the balance sheet date which ought to be disclosed in these consolidated financial statements.

The 2020 financial statements were approved by the Board of Directors on 19 February 2021.