2. Operating assets and liabilities

2.1Trade accounts receivable

Trade accounts receivable value-adjusted by region in CHF million

2021

2020

CHF million	31.12.2021	31.12.2020

Gross values	645	580

Individual value adjustments	–5	–6
Overall value adjustments	–28	–24
Net values	611	550

Europe	237	215
– Thereof Germany	35	29
– Thereof Switzerland	27	20
– Thereof rest of Europe	175	166
Americas	98	73
Asia	251	228
– Thereof China	165	167
– Thereof rest of Asia	85	61
Rest of world	26	34
Total	611	550

As of the balance sheet date, the aging structure of the trade accounts receivable, which are not subject to individual value adjustments, was as follows:

		31.12.2021	31.12.2020
CHF million	Receivable after individual value adjustments	Overall value adjustment	Receivable after individual value adjustments	Overall value adjustment

Not yet due	490		445
1 to 30 days overdue	71		53
31 to 90 days overdue	39		38
91 to 180 days overdue	18	14	22	11
More than 180 days overdue	21	14	16	13
Total	639	28	574	24

The individual value adjustments amounted to CHF 5 million (previous year: CHF 6 million). It is expected that part of the underlying receivables will be paid. Receivables not due are mainly receivables arising from long lasting customer relationships. Based on experience, GF does not anticipate any significant defaults. For further information on credit management and trade accounts receivable, see note 3.6 Risk management.

Accounting principles

Accounts receivable are stated at nominal value. Value adjustments for doubtful accounts are established based on maturity structure and identifiable solvency risks. Besides individual value adjustments with respect to specific known risks, other value adjustments are recognized based on historical experience of default risk.

2.2Other accounts receivable

CHF million	31.12.2021	31.12.2020

Tax credits from indirect taxes	38	31
Other current accounts receivable	36	30
Total	74	61

2.3Inventories

CHF million	31.12.2021	31.12.2020

Raw materials and components	279	208
Unfinished goods	158	139
Finished goods	522	468
Gross value	959	815

Valuation adjustments	–182	–177
Total	776	638

Accounting principles

Goods held for trading are generally stated at average cost and internally manufactured products at standard cost, including direct labor and materials used, as well as a commensurate share of the related overhead costs. Cash discount deductions are treated as reductions in the purchase cost. If the net realizable value is lower than the above, a corresponding valuation adjustment is made. Inventories with an insufficient turnover rate are partly or fully value-adjusted.

2.4Other liabilities

CHF million	31.12.2021	31.12.2020

Social security	22	22
Derivative financial instruments	2	2
Other tax liabilities	32	25
Other non-interest-bearing liabilities	40	26
Total	96	75
- Thereof current	68	54
- Thereof non-current	28	21

2.5Categories of financial instruments

The table shows the carrying amount of all financial instruments per category. The carrying amount of the marketable securities recognized at their actual value is determined on the basis of the publicly available prices at the balance sheet date. Derivative financial instruments are stated at their actual value at the balance sheet date.

CHF million	31.12.2021	31.12.2020

Financial instruments (assets)
Cash and cash equivalents (excl. fixed-term deposits)	589	526
Fixed-term deposits	343	308
Trade accounts receivable	611	550
Other accounts receivable (excl. tax credits)	36	30
Accrued income	13	16
Other financial assets	93	98
Loans and receivables stated at amortized cost	1’096	1’002
Marketable securities (excl. derivative financial instruments)	7	5
Financial assets recognized in income statement at market value	7	5
Derivative financial instruments (assets)	5	2

Financial instruments (liabilities)
Trade accounts payable	543	445
Bonds	775	775
Other financial liabilities	222	180
Accrued liabilities and deferred income	273	239
Other liabilities (excl. derivative financial instruments)	94	73
Liabilities stated at amortized cost	1’907	1’712
Derivative financial instruments (liabilities)	2	2

2.6Property, plant, and equipment

CHF million	Investment properties	Land	Buildings and building components	Machinery and production equipment	Other equipment	Assets under construction	Assets held under finance leases	Property, plant, and equipment

Cost at 1.1.2021	194	44	779	1’446	238	80	24	2’612
Additions	0	2	4	34	6	89	0	135
Disposals	–0	–1	–5	–33	–22		–0	–60
Changes in scope of consolidation		0	1	5	1	0		7
Reclassifications	24	6	–16	40	6	–62	–1	–27
Translation differences	–8	–1	–3	–12	–1	1	–1	–17
Cost at 31.12.2021	210	50	762	1’480	228	107	22	2’648

Accumulated depreciation at 1.1.2021	–121		–391	–1’004	–176	–1	–13	–1’585
Additions	–3		–26	–78	–15		–3	–122
Impairment				–6	–0			–6
Disposals	0		4	31	22		0	57
Changes in scope of consolidation			0	0	0			1
Reclassifications	–16		15	1	1	1	0	17
Translation differences	5		3	14	1	–0	1	19
Accumulated depreciation at 31.12.2021	–134		–395	–1’042	–168	–0	–14	–1’619

Carrying amount at 31.12.2021	76	50	367	438	60	107	7	1’029

Cost at 1.1.2020	196	48	762	1’414	230	133	23	2’610
Additions	0	1	10	26	9	95	2	143
Disposals	–1	–2	–33	–35	–10		–0	–80
Reclassifications	0	0	54	72	15	–143	–0	–2
Translation differences	–1	–2	–14	–31	–6	–5	–1	–59
Cost at 31.12.2020	194	45	779	1’446	238	80	24	2’612

Accumulated depreciation at 1.1.2020	–119		–396	–974	–172	–2	–12	–1’556
Additions	–2		–26	–78	–15		–3	–122
Impairment			–1	–4	–1	1		–5
Disposals			29	34	9		0	72
Reclassifications	–0		–1	3	0			2
Translation differences	0		4	15	3	0	1	23
Accumulated depreciation at 31.12.2020	–121		–391	–1’004	–176	–1	–14	–1’586

Carrying amount at 31.12.2020	73	45	388	442	62	79	10	1’026

Additions to property, plant, and equipment for GF Piping Systems included investment in equipment in Schaffhausen (Switzerland) in the amount of CHF 10 million and Shawnee (USA) in the amount of CHF 5 million, as well as investment in new buildings or expansion of buildings in El Monte (USA) in the amount of CHF 5 million, Yangzhou (China) in the amount of CHF 4 million, Ratnagiri (India) in the amount of CHF 4 million and Bani Suwayf (Egypt) in the amount of CHF 3 million. Additions for GF Casting Solutions included investment in equipment in the light metal foundry in Mills River (USA) in the amount of CHF 16 million and Altenmarkt (Austria) in the amount of CHF 7 million, as well as investment in new buildings or the expansion of buildings in Shenyang (China) in the amount of CHF 16 million and Suzhou (China) in the amount of CHF 6 million. Additions for GF Machining Solutions included investment in the expansion of buildings in Losone (Switzerland) in the amount of CHF 7 million.

The movements in “Changes in scope of consolidation” result from acquisitions explained in more detail in note 4.1 Changes in scope of consolidation. The movements in “Changes in scope of consolidation” under “Accumulated depreciation” result from the ownership increase of Langfang Shuchang Auto Parts Co Ltd and Beijing Jingran Lingyun Gas Equipment Co Ltd.

Land includes CHF 4 million of undeveloped properties (previous year: CHF 4 million).

The overall movements in “Reclassifications” are explained by the reclassification of a building from property, plant, and equipment to investment properties in Werdohl (Germany), as well as demo machines earmarked for sale reclassified to inventories.

In the previous year, the sale of investment properties in Schaffhausen (Switzerland) was recorded as a disposal. The actual value of investment properties, as determined by internal assessments on the basis of capitalized and current market values, is CHF 117 million (previous year: CHF 98 million).

Impairments amounting to CHF 6 million related mostly to obsolescence of equipment due to phase-outs of product groups. In the previous year, impairments amounting to CHF 5 million related entirely to the relocation of production from Werdohl (Germany).

Management assumptions and estimates

The recoverability of property, plant, and equipment are reviewed whenever there are indications that their carrying amount may no longer be recoverable, due to changed circumstances or events. If such a situation arises, the recoverable amount is determined. It corresponds to the higher of the discounted value of expected future net cash flows and the expected net selling price. If the recoverable amount is lower than the carrying amount, a corresponding impairment loss is recognized in the income statement. The main assumptions on which these measurements are based include growth rates, margins, and discount rates. The actual future cash flows can differ considerably from discounted projections.

Accounting principles

Property, plant, and equipment are stated at cost or manufacturing cost less depreciation and impairment. The recoverability of property, plant, and equipment is reviewed at least once a year. If there is any indication of an impairment, an impairment test is performed immediately. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized in the income statement. Financing costs of assets under construction are part of the costs of the asset if material. Assets held under finance lease contracts are capitalized at the lower of the present value of the minimum lease payments and fair value. The related outstanding finance lease obligations are presented as liabilities. Assets held under the terms of a finance lease are described in note 3.4 Leasing. Assets are depreciated on a straight-line basis over their estimated useful lives or lease terms:

Investment properties: 30–40 years
Buildings: 30–40 years
Building components: 8–20 years
Machinery and production equipment: 6–20 years
Other equipment (vehicles, IT systems, etc.): 1–5 years

Land and assets under construction are usually not depreciated. When components of larger assets have different useful lives, these are depreciated separately. Useful lives and residual values are reviewed annually on the balance sheet date and adjustments are recognized in the income statement. Any gains or losses on the disposal of items of property, plant, and equipment are recognized in the income statement.

2.7Intangible assets

CHF million	Land use rights	Software	Royalties, patents, others	Intangible assets

Cost at 31.12.2021	20	64	14	98
Accumulated amortization at 31.12.2021	–6	–43	–9	–58
Carrying amount at 31.12.2021	14	21	5	40

Cost at 31.12.2020	18	55	18	91
Accumulated amortization at 31.12.2020	–5	–38	–12	–55
Carrying amount at 31.12.2020	13	17	6	36

Accounting principles

Land use rights are amortized on a straight-line basis over the duration of the usage rights granted. For this item, useful lives can be up to 50 years. Software is amortized on a straight-line basis over the estimated useful lives of 1 to 5 years. Acquired royalties, patents, and similar rights are capitalized and amortized on a straight-line basis over their estimated useful lives of 3 to 15 years. The recoverability of intangible assets is reviewed at least once a year. If there is any indication of an impairment, an impairment test is performed immediately. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized in the income statement. All research costs are recognized in the income statement in the period in which they were incurred. Development costs are recognized as an asset only to the extent that the following specific recognition criteria are all met cumulatively:

costs are clearly defined, clearly attributable to the product or process, and can be separately identified and measured reliably
the technical feasibility can be demonstrated
the company intends to produce and market the product or to use the process
a market exists
the required internal resources are available
the amount recognized is covered by future cash flows

2.8Goodwill

The theoretical capitalization of the goodwill would affect the consolidated financial statement as follows:

Theoretical movements in goodwill

CHF million	2021	2020

Cost at 1.1.	615	646
Additions from acquisitions	41	–1
Adjustments	1	–1
Translation differences	–16	–29
Cost at 31.12.	641	615

Accumulated amortization at 1.1.	–574	–546
Additions regular	–37	–34
Impairment		–21
Translation differences	15	27
Accumulated amortization at 31.12.	–596	–574

Theoretical carrying amount at 31.12.	45	41

Effect on income statement

CHF million	2021	2020

Operating result (EBIT)	278	166
Return on sales (EBIT margin) %	7.5	5.2
Amortization goodwill	–37	–34
Impairment goodwill		–21
Theoretical operating result (EBIT) incl. amortization/impairment of goodwill	241	111
Theoretical return on sales (EBIT margin) %	6.5	3.5

Net profit	200	112
Amortization goodwill	–37	–34
Impairment goodwill		–21
Theoretical net profit incl. amortization/impairment of goodwill	163	57

Effect on balance sheet

CHF million	31.12.2021	31.12.2020

Equity according to balance sheet	1’496	1’389
Theoretical capitalization of goodwill	45	41
Theoretical equity incl. goodwill	1’541	1’430

Equity as % of balance sheet total	39.7	40.3
Theoretical equity incl. goodwill as % of balance sheet total incl. goodwill	40.4	41.0

Goodwill from acquisitions is offset against the consolidated equity at the acquisition date. The theoretical amortization is based on the straight-line method over the useful life of five years. The additions in 2021 are mainly attributable to the acquisitions of F.G.S. Brasil Indústria e Comércio Ltda. (CHF 31 million) and Oxford Flow Utility & Industries Ltd (CHF 9 million).

As of the balance sheet date no indications of impairment were found except for the goodwill of Global Supply Company LLC, Hallandale (USA), GF Casting Solutions SRL, Pitești (Romania), and Symmedia GmbH, Bielefeld (Germany). These goodwill items were tested for impairment. By applying the capital asset pricing model, individual costs of capital were calculated. The calculation required an assessment of the relative market risk of different peer groups as well as the determination of specific risk-free interest rates, equity market risk premiums, the borrowing costs, and relevant tax rates. Since the cash flow projections were based on cash flows after tax, the discount rate has also been determined after tax. The discount rates are for Global Supply Company LLC at 7.6%, for GF Casting Solutions SRL at 11.3%, and for Symmedia GmbH at 7.5%. The impairment tests for Global Supply Company LLC, GF Casting Solutions SRL, and Symmedia GmbH revealed that the resulting recoverable amounts based on value in use calculations exceeded the respective carrying amounts.

In 2020, the impairment tests for GF Urecon Ltd, Global Supply Company LLC, GF Casting Solutions SRL, and Symmedia GmbH revealed that the resulting recoverable amounts based on value in use calculations exceeded the respective carrying amounts. The impairment test for GF Precicast SA showed that the value of the goodwill was not fully supported by the calculated value in use. As a result, an impairment charge on the partial carrying amount of goodwill of CHF 21 million was recorded in the theoretical goodwill reconciliation. GF Precicast SA mainly serves the international aerospace and industrial gas turbine markets. The partial impairment of the goodwill was triggered by the strong decrease in demand for aircraft engine parts and the expectation of a delayed recovery in that market segment.

Management assumptions and estimates

For goodwill, an impairment test is performed if there is any indication that the theoretical book value is no longer recoverable. As a basis for the calculation, business plans for the next five years are used. The projections are based on knowledge and experience as well as on current judgments made by management as to the probable economic development of the relevant markets. It is assumed that there are no significant planned changes in the organization of any of the divisions, except for the measures already decided and announced.

Accounting principles

In the event of a business combination, goodwill as of the date of acquisition is calculated as follows: the acquisition price plus transaction costs incurred in connection with the business combination less the value of the acquired and revalued net assets on the balance sheet.

The positive or negative goodwill resulting from acquisitions and changes in ownership are offset in equity against retained earnings at the date of acquisition. Upon the disposal of a GF Corporate Company, the goodwill previously offset in equity is transferred to the income statement. If parts of the purchase price are dependent on future results, they are estimated as accurately as possible at the acquisition date and recognized in the balance sheet. In the event of disparities when the definitive purchase price is settled, the goodwill offset in equity is adjusted accordingly.

The recoverability of the goodwill reported in the theoretical movement table is reviewed at least once a year. If there is any indication of an impairment, an impairment test is performed immediately. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized. As the goodwill is already offset in equity at the date of the acquisition, an impairment of the goodwill does not affect the income statement, but leads to a disclosure in the notes only.

2.9Provisions

CHF million	Personnel	Warranties	Legal	Onerous contracts	Restructuring	Other	Provisions

Balance at 1.1.2021	56	39	7	9	12	17	140
Increase	7	19	3	3	0	5	37
Use	–5	–12	–1	–1	–10	–3	–32
Release	–2	–8	–1	–4	–0	–1	–16
Changes in scope of consolidation		0	0			0	0
Translation differences	–2	–1	–0	–0	–0	–1	–5
Balance at 31.12.2021	54	36	9	7	2	17	125
– Thereof current	3	24	1	5	2	6	42
– Thereof non-current	50	12	8	1	0	11	83

Balance at 1.1.2020	56	37	14	8	15	25	155
Increase	4	20	6	5	13	0	48
Use	–3	–12	–10	–2	–15	–7	–49
Release	–1	–4	–2	–2	–1	–1	–11
Translation differences	–0	–2	–1	–0	–0	–0	–3
Balance at 31.12.2020	56	39	7	9	12	17	140
– Thereof current	4	29	1	6	12	5	57
– Thereof non-current	52	10	6	3	0	12	83

Personnel

Includes provisions for employee retirement benefits and other service-related employee benefits which are not provided by pension funds or similar institutions as well as anniversary bonuses and provisions for work accidents. For employee benefits provided by pension funds refer to note 5.1 Employee benefit obligations.

Warranties

Cover expected expenses for warranty benefits such as repairs and replacements. All three divisions provide warranty benefits to their customers: 39% of the provisions relate to GF Piping Systems (previous year: 26%), 28% GF Casting Solutions (previous year: 44%), and 33% GF Machining Solutions (previous year: 30%).

Legal

Includes all obligations deriving from legal cases and litigations. None of the individual provisions should lead to an outflow of more than CHF 5 million (previous year: CHF 5 million).

Onerous contracts

Summarizes contracts for which the fulfillment leads to unavoidable costs that exceed the associated economic benefits.

Restructuring

Summarizes provisions for legal and/or constructive obligations deriving from restructurings. A constructive obligation arises when a detailed and formal plan for a restructuring exists and a legitimate expectation of third parties that the obligation will be fulfilled was raised. The changes in provision in 2021 and 2020 are related to restructuring and relocation activities in Europe.

Other

Includes all other events that give rise to a provision such as non-warranty claims by customers and risks from business activities not allocated to the warranties, legal, or onerous contract categories.

Management assumptions and estimates

In the course of their ordinary operating activities, GF Corporate Companies can become involved in litigation. Provisions for pending legal proceedings are measured on the basis of professional expertise of internal and external lawyers and a best estimate of the expected outflow of resources (considering available insurance coverage). The assessment may change in the following year depending on the future development of ongoing legal proceedings. If there are any contractual obligations for which the unavoidable costs of meeting the obligations exceed the expected economic benefits (e.g. onerous contracts), provisions are made for the agreed amounts over the entire period or over a prudently estimated period.

Accounting principles

Provisions are recognized if a legal or constructive obligation exists as a result of a past event that makes it probable that an outflow of resources will be required to settle this obligation and the amount can be estimated reliably. The valuation of provisions in all categories is based on actual data if available (e.g. claims that have occurred or been reported) or on the experience of recent years and management estimates. Possible obligations whose occurrence cannot be assessed on the balance sheet date or obligations whose amount cannot be reliably estimated are disclosed as contingent liabilities.

2.10Accrued liabilities and deferred income

CHF million	31.12.2021	31.12.2020

Overtime, holiday, bonuses, and premiums	119	95
Accrued liabilities/deferred income for commissions and discounts	51	43
Other accrued liabilities and deferred income	103	101
Total	273	239

2.11Contingent liabilities

Contingent liabilities amounted to CHF 90 million (previous year: CHF 90 million) and include guarantees to third parties. In the previous year, GF sold all remaining interests in related parties. As a result, former guarantees to related parties in favor of third parties became guarantees to third parties. The amount of guarantees to former related parties in favor of third parties at year-end 2020 was CHF 86 million.

Consolidated financial statements

2 Operating assets and liabilities

Accounting principles

Accounting principles

Management assumptions and estimates

Accounting principles

Accounting principles

Theoretical movements in goodwill

Effect on income statement

Effect on balance sheet

Management assumptions and estimates

Accounting principles

Personnel

Warranties

Legal

Onerous contracts

Restructuring

Other

Management assumptions and estimates

Accounting principles