Consolidated financial statements

Report of the statutory auditor to
the Annual Shareholders’ Meeting of
Georg Fischer Ltd, Schaffhausen

Report on the audit of the consolidated financial statements

Opinion

We have audited the consolidated financial statements of Georg Fischer Ltd and its subsidiaries (the Group), which comprise the consolidated balance sheet as at 31 December 2016, consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement  for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2016 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Swiss GAAP FER and comply with Swiss law.

Basis for opinion

We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report.

We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our audit approach

Overview

Audit scope

The Group is structured along three divisional lines, GF Piping Systems, GF Automotive and GF Machining Solutions, operating across three key geographical locations – Europe, North & South America and Asia. The Group’s financial statements are a consolidation of 131 reporting units, each of which, including both the Group’s operating businesses and the central service functions, is considered a component.

In six countries, we identified 46 reporting units that, in our view, required a full scope audit and three reporting units that required specific procedures due to their size or risk characteristics. These full scope audits addressed over 70% of the Group’s revenue and 72% of the Group’s total assets, while the specific procedures addressed 7% of the Group’s revenue and 3% of the Group’s total assets.

The remaining 23% of the Group’s revenue and 25% of the Group’s total assets was represented by a large number of smaller reporting units. None of these reporting units individually contributed more than 2% to consolidated revenue or total assets.

Where the work was performed by component auditors, we determined the necessary level of our involvement in the audit work, which consisted of either visiting component audit teams, inspecting the work performed by them, conducting planning and closing calls, or reviewing their final reporting.

Where component audits were conducted by an auditor outside of PwC, the work performed was discussed and reviewed by PwC on a sample basis.

Further specific audit procedures on central service functions, the Group consolidation and areas of significant judgement (including M&A transactions, taxation, treasury and litigation) were led by the Group audit team.

Not considered in the above coverage is our audit evidence from performing audit work at Group level, including testing of monitoring controls and disaggregated analytical review procedures, which covers a significant portion of the Group’s smaller and lower-risk components that were not included directly in our Group audit scope.

Materiality

The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole.

 

 

 

Overall materiality

 

CHF 14 million

How we determined it

 

5% of profit before taxes

Rationale for the materialitybenchmark applied

 

We chose profit before taxes as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured, and it is a generally accepted benchmark.

We agreed with the Audit Committee that we would report to them misstatements above CHF one million identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for qualitative reasons.

Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Revenue recognition in the GF Machining Solutions division

 

 

 

Key audit matter

 

How our audit addressed the key audit matter

As set out in the segment information, the GF Machining Solutions division recorded revenues of CHF 916 million. The Group’s accounting principles for sales and revenue recognition are described in the corporate accounting principles. We focused on revenue recognition in the GF Machining Solutions division because of the use of multiple element contracts. Multiple element contracts require a thorough assessment of revenue recognition in the income statement as they have a higher inherent risk due to their complexity. This concerns in particular the accounting for transactions where different elements – machines, maintenance and support, as well as financing – are sold together. The complexity of multiple element contracts relates to the allocation of revenues to the individual elements and the timing of their recognition.

 

We focussed on whether the revenues allocated to the machines, maintenance, support and financing elements were recorded based on the corresponding contractual agreements and in accordance with the Group’s accounting principles. In this context, it should be noted that Georg Fischer has updated the relevant sections of the Group’s accounting principles. We confirmed that this complies with the latest revisions to Swiss GAAP FER. We re-performed the calculations to allocate the revenues to the various elements of such transactions. Where discounts had been agreed with customers, we tested whether they had been allocated based on the corresponding fair values. We also tested transactions to ensure that the amount of revenue deferred was accurately calculated and appropriately recognised. This involved reconciling the revenue from maintenance and support services and from financing elements with the figures derived from calculations based on the contractual terms and conditions. In addition, we tested whether each single element of the multiple element contract was recorded in the appropriate period. Further, where revenue was recorded through manual journal entries, we performed tests to establish whether the sale had occurred or the service had been provided in the financial year in order to support the revenue recognition. We obtained sufficient audit evidence to address the risk of revenue recognition in the GF Machining Solutions division.

Responsibilities of the Board of Directors for the consolidated financial statements

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with Swiss GAAP FER and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors intends either to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

A further description of our responsibilities for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: https://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.

Report on other legal and regulatory requirements

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers Ltd

Stefan Räbsamen
Audit expert

Auditor in charge


Roman Uehli
Audit expert


Zurich, 17 February 2017