Notes to the consolidated financial statements

1. Liquid assets

Liquid assets amounted to EUR 77.2 million (previous year: EUR 55.1 million), whereas interest-bearing financial liabilities reached EUR 6.4 million (previous year: EUR 9.7 million). At year end, net liquidity¹ amounted to EUR 70.8 million (previous year: EUR 45.4 million).

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

2. Trade accounts receivable and other receivables

Due to the ongoing housing crisis in China and the associated outstanding loans, the related value adjustments on trade receivables amount to EUR 16.7 million (previous year: EUR 18.1 million).

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

3. Inventories

Despite the reduction in the gross inventory value, the value adjustment on inventories was increased to EUR 20.7 million (previous year: EUR 18.7 million) due to the lower inventory turnover.

4. Development of non-current assets

Property, plant and equipment

Financial assets

For further details on reserves for employer contributions, 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 1.2 million (previous year: EUR 1.2 million), patents amounting to EUR 3.7 million (previous year: EUR 4.0 million), and land use rights amounting to EUR 1.5 million (previous year: EUR 1.7 million).

5. Financial liabilities

Financial liabilities consists of:

Financial lease liabilities have the following maturity structure:

Total financial liabilities have the following maturities and currencies:

Short-term loans are at average interest rates of 1.8% (previous year: 2.9%). Long-term loans are at average interest rates of 1.9% (previous year: 2.4%).

6. Provisions

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 3.5% (previous year: 4.0%).

Other provisions include mainly provisions for pending legal cases and personnel-related provisions.

7. Equity capital

At the balance sheet date, the equity ratio was 67% (previous year: 64%). The factors that contributed to changes in con­solidated equity are presented in the consolidated statement of changes in equity.

As in the previous year, 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.

Statutory and legal reserves and those not available for distribution amounted to EUR 43.5 million (previous year: EUR 29.1 million).

The transferred shares were sold at a discount of 30% to management staff participating in a stock ownership plan, transferred to the Executive Committee as part of the share-based compensation plan (LTI), 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).

The share buyback programme launched on 24 March 2021 was completed on 18 September 2023. A total of 487,800 registered shares A (as at 31 December 2022: 336,932 shares) were bought back, corresponding to 5% of all registered A shares. At the Annual General Meeting on 11 April 2024, the Board of Directors intends to propose that the registered shares A of Zehnder Group AG acquired under the buyback programme be cancelled by means of a capital reduction.

8. Contingent liabilities

At year end, guarantee obligations and contingent liabilities vis-à-vis third parties amounted to EUR 15.5 million (previous year: EUR 18.9 million).

The following contingent liabilities exist in connection with the acquisitions of Zhongshan Fortuneway Environmental Technology Co., Ltd. and Zehnder Caladair International SAS:

• Zehnder Group owns 51% of Zhongshan Fortuneway Environmental Technology Co., Ltd. Zehnder Group has agreed on the conditions of the potential transfer of the additional 25% stake in Zhongshan Fortuneway Environmental Technology Co., Ltd. with the current owner. On the one hand, Zehnder Group has received call options on the remaining 49% stake in Zhongshan Fortuneway Environmental Technology Co., Ltd. On the other hand, Zehnder Group has issued put options on a 25% stake in Zhongshan Fortuneway Environmental Technology Co., Ltd.
• Zehnder Group owns 75% of Zehnder Caladair International SAS. Zehnder Group has agreed on the conditions of the potential transfer of the remaining 25% stake in Zehnder Caladair International SAS with the current owner. On the one hand, Zehnder Group has received call options on the remaining 25% stake in Zehnder Caladair International SAS. On the other hand, Zehnder Group has issued put options on 25% stake in Zehnder Caladair International SAS.

Both options rights are exercisable from 2024. As the options do not meet the recognition criteria for an asset or a liability, they are not recognised in the balance sheet.

9. Pledged assets

None of the Group's assets were pledged in the reporting year. In the previous year, EUR 7.8 million served as collateral, whereby the pledged assets were exclusively land and buildings.

10. Liabilities to pension funds

At year end, there were liabilities to pension funds of EUR 1.0 million (previous year: EUR 0.9 million). These 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 due from 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.

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 by the top management level for corporate management is disclosed. Zehnder Group is an indoor climate system supplier. With the two segments, ventilation and radiators, the Group is classified according to business areas. These are managed independently from one another and their business performance is assessed separately. 

The ventilation segment covers the three product lines for ventilation, heat exchangers, and clean air solutions. The radiator segment contains two product lines: radiators and climate ceilings.

The Sales by region and segment table also provides information on the regions in which the sales were generated. Sales are allocated to the region to which the products and systems were sold. In order to reflect the global activities of Zehnder Group, the regions have been expanded accordingly to EMEA (Europe, Middle East and Africa), Asia-Pacific, and North America. 

16. Sales

Consolidated sales amounted to EUR 762.1 million (previous year: EUR 812.5 million), a decrease of 6.2%. Organic¹ sales decreased by 6.5%.

Sales include EUR 5.7 million (previous year: EUR 2.3 million) recognised on long-term contracts.

Sales by region and segments are classified as follows:

For sales by segment, please refer to 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 classified as follows:

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

18. Other operating expense

Other operating expenses are classified as follows:

19. Financial result

20. Income taxes

The tax ratio (=taxes as a percentage of earnings before taxes) was 21.8% (previous year: 19.6%).

Zehnder Group anticipates that losses of EUR 0.5 million (previous year: EUR 1.7 million) can be utilised against future taxable profits. The deferred tax assets on these losses amount to EUR 0.1 million (previous year: EUR 0.4 million).

Total deferred tax assets not capitalised amount to EUR 6.5 million (previous year: EUR 6.8 million) and originate predominantly from the countries Canada and Finland.

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, is explained 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.

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.

The shares eligible for the share-based compensation plan (LTI) are also held as own shares. The shares allocated will be included proportionately, resulting in a dilution of the net profit per registered share A.

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

As part of the Zehnder Group Management Share Plan (ZGMSP), the managers of operating units and members of Group management of Zehnder Group are given the opportunity to acquire registered shares A. The shares are issued at a discount to the persons entitled to receive them. 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.

In the case of the ZGMSP, the difference between the current value at the time of allocation and the issue price is recognised in personnel expenses.

Furthermore, 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.

23. Acquisitions

In the year under review, no acquisitions were made.

The following acquisitions were made in the previous year:

• As of 21 February 2022, Zehnder Group acquired ventilation company Airia Brands Inc., Canada.
• As of 29 April 2022, Zehnder Group acquired air filter manufacturer Filtech. In addition to its headquarters and a production facility in the Netherlands, the company also has two other production sites in France and Switzerland.

24. Goodwill

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

If the parts of the acquired goodwill that were able to 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. Global minimum tax pillar II

As part of the BEPS Pillar Two project led by the OECD, Switzerland, together with around 140 other countries, has committed to implementing the global OECD minimum tax for multinational groups with a consolidated turnover of EUR 750 million or more (also known as Pillar Two or GloBE Rules). This is intended to ensure that multinational corporations pay at least 15% tax in every country in which they operate. Taking international developments into account and weighing up the associated advantages and disadvantages for Switzerland, the Federal Council decided on 22 December 2023 to take the initial step of implementing the minimum taxation for financial years beginning on or after 1 January 2024.

Many of the countries in which Zehnder Group operates have now decided to implement the OECD minimum tax rate or are likely to do so in the future. Zehnder has carried out an assessment of the potential income tax burden. If the minimum taxation had already been applicable for 2023, there would have been no significant impact on the 2023 financial statements. The situation and developments will continue to be monitored and assessed on an ongoing basis.

26. Events after the balance sheet date

The option to acquire the remaining 25% stake in Zehnder Caladair International SAS was exercised in January 2024. The local financial statements for determining the definitive sales price are not yet available. A contingent liability of EUR 5.0 million was recognised in the 2023 annual financial statements.

Apart from this, there were no extraordinary pending transactions, risks or further events after the balance sheet date which would require disclosure in the financial statements.

The financial statements 2023 were approved by the Board of Directors on 23 February 2024.