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Consolidated financial statements

2 Operating assets and liabilities

This section provides information on current assets and liabilities that support the ongoing operational liquidity of the GF Corporation. The section further describes the non-current tangible and intangible assets required at the GF Corporate Companies to provide products and services to their customers. Furthermore, it provides a summary on the different items of goodwill and the theoretical impact of a capitalization and subsequent amortization of goodwill.

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.

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