Financial report  >  Consolidated financial statements Geberit Group

Notes to the Consolidated Financial Statements

  1. 1. Basis of preparation

  2. 2. Changes in Group organization

  3. 3. Summary of significant accounting policies

    New or revised IFRS standards and interpretations 2012 and their adoption by the Group
    Standard/Interpretation Enactment Relevance for Geberit Introduction
    IFRS 1 – First-time Adoption 1.7.2011 Amendments regarding hyperinflation and functional currency. This amendment has no impact on the consolidated financial statements. 1.1.2012
    IFRS 7 – Financial Instruments: Disclosures 1.7.2011 Improvement of the disclosure requirements in relation to transferred financial assets. This amendment has no impact on the consolidated financial statements. 1.1.2012
    IAS 1 – Presentation of Financial Statements 1.7.2012 This amendment requires entities to separate items presented in OCI into two groups, based on whether or not they may be recycled to profit or loss in the future. This amendment has no material impact on the consolidated financial statements. 1.1.2013
    IAS 12 – Income Taxes 1.7.2011 Amendment of deferred tax in relation with investment property at fair value. This amendment has no impact on the consolidated financial statements. 1.1.2012

    New or revised IFRS standards and interpretations as from 2013 and their adoption by the Group
    Standard/Interpretation Enactment Relevance for Geberit Planned adoption
    IFRS 9 – Financial Instruments: Phase 1, Classification and Measurement 1.1.2015 IFRS 9 treats the classification and measurement of financial assets and financial liabilities. These new rules result from the first phase of the project to replace IAS 39. This amendment has no material impact on the consolidated financial statements. 1.1.2015
    IFRS 10 – Consolidated Financial Statements 1.1.2013 This standard replaces the guidance on control and consolidation in IAS 27 and SIC-12. A consistent definition of control is introduced. This amendment has no material impact on the consolidated financial statements. 1.1.2013
    IFRS 11 – Joint Arrangements 1.1.2013 Replaces IAS 31 Joint Ventures and SIC 13. The proportionate consolidation has been eliminated. This amendment has no material impact on the consolidated financial statements. 1.1.2013
    IFRS 12 – Disclosure of Interests in Other Entities 1.1.2013 Enhancement of required disclosures for subsidiaries, joint arrangements and unconsolidated entities. This amendment has no material impact on the consolidated financial statements. 1.1.2013
    IFRS 13 – Fair Value Measurement 1.1.2013 Overall standard to measure and disclose assets and liabilities at fair value. This standard does not include rules in which cases the fair value has to be used. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This value is disclosed accordingly (Level 1 - 3). This amendment has no material impact on the consolidated financial statements. 1.1.2013
    IAS 19 – Employee Benefits 1.1.2013 1) The optional corridor approach is eliminated. As the Geberit Group already recognizes actuarial gains and losses in other comprehensive income, this amendment has no impact on the consolidated financial statements.
    2) The net periodic pension cost now comprises the net interest cost or income, measured on the basis of the funded status of the plan by applying the discount rate for the defined benefit obligation. Based on current assumptions, this adjustment will lead to around MCHF 6 in additional costs for the Geberit Group.
    3) New principle-based disclosure requirements are introduced to enable a wide evaluation of the (risk) management of pension plans. The Notes must be expanded to account for this adjustment.
    1.1.2013
    Annual improvements of IFRS and interpretations (IFRIC) various The ordinary yearly clarifications and minor amendments of various standards and interpretations have no material impact on the consolidated financial statements. various
    The Geberit Group does not plan an early adoption of any standard or interpretation (IFRIC).

    Foreign currency translation

    The functional currencies of the Group’s subsidiaries are generally the currencies of the local jurisdiction. Transactions denominated in foreign currencies are recorded at the rate of exchange prevailing at the dates of the transaction, or at a rate that approximates the actual rate at the date of the transaction. At the end of the accounting period, receivables and liabilities in foreign currency are valued at the rate of exchange prevailing at the consolidated balance sheet date, with resulting exchange rate differences charged to income. Exchange rate differences related to loans which are part of the net investment in foreign entities are recorded in  “other comprehensive income” and disclosed as cumulative translation adjustments. For the consolidation, assets and liabilities stated in functional currencies other than Swiss francs are translated at the rates of exchange prevailing at the consolidated balance sheet date. Income and expenses are translated at the average exchange rates (weighted sales) for the period. Translation gains or losses are accumulated in  “other comprehensive income” and disclosed as cumulative translation adjustments.

    Cash and cash equivalents

    Cash and cash equivalents consist of cash on hand, balances with banks and short-term, highly liquid financial investments with maturities of three months or less as at their acquisition date that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The carrying amount of cash and cash equivalents approximates to their fair value due to the short-term maturities of these instruments.

    Marketable securities

    Marketable securities are principally traded in liquid markets. Marketable securities with a remaining time to maturity of 4-12 months or which are purchased with the intention of selling them in the near future have to be measured at their fair value through the income statement.

    Inventories

    Inventories are stated at the lower of cost or net realizable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Both the purchase cost and the cost of production are determined using the weighted-average method. Net realizable value corresponds to the estimated selling price in the ordinary course of business less the estimated costs of completion and the selling costs. An allowance is made for obsolete and slow-moving inventories.

    Property, plant and equipment

    Property, plant and equipment are carried at cost less accumulated depreciation. Betterment that increases the useful lives of the assets, improves the quality of the output, or enables a substantial reduction in operating costs is capitalized and depreciated over the remaining useful lives. Depreciation of property, plant and equipment is calculated using the straight-line method based on the following useful lives: buildings (15–50 years), production machinery and assembly lines (8–15 years), molds (4–6 years), equipment (4–20 years) and vehicles (5–10 years). Properties are not regularly depreciated. Repairs and maintenance related to investments in property, plant and equipment are charged to income as incurred.

    Borrowing costs of all material qualified assets are capitalized during the production phase in accordance with IAS 23. A qualified asset is an asset for which an extensive period is required to transform it to its planned usable condition. If funds are specifically borrowed, the costs that can be capitalized are the actual costs incurred less any investment income earned on the temporary investment of these borrowings. If the borrowed funds are part of a general pool, the amount that can be capitalized must be determined by applying a capitalization rate to the expenses related to this asset.

    If there is any indication for impairment, the actual carrying amount of the asset is compared to its recoverable amount. If the carrying amount is higher than its estimated recoverable amount, the asset is reduced accordingly and charged to the income statement.

    Intangible assets and goodwill

    The Group records goodwill as the difference between the purchase price and the net assets of the company acquired, both measured at fair value. If the value of net assets is higher than the purchase price, this gain is credited immediately to the income statement.

    Goodwill and intangibles such as patents, trademarks and software acquired from third parties are initially stated and subsequently measured at cost. Goodwill and intangible assets with an indefinite useful life are not regularly amortized but tested for impairment on an annual basis. Since the Geberit trademark is an inherent element of the business model of the Geberit Group and therefore is used over an indefinite time period, it is assigned with an indefinite useful life. Impairments are expensed in the consolidated income statements when they occur, and in the case of goodwill, not reversed in subsequent periods. The amortization of intangible assets with a definite useful life is calculated using the straight-line method based upon the following useful lives: patents and technology (10 years), trademarks (5 years) and software (4–6 years).

    Valuation of intangible assets and goodwill

    Intangible assets with an indefinite useful life and goodwill are tested for impairment at each reporting date. In this process, the actual carrying amount of the asset is compared with the recoverable amount. If the carrying amount is higher than its estimated recoverable amount, the asset is reduced correspondingly. The Group records the difference between recoverable amount and carrying amount as expense. The valuation is based on single assets or, if such valuation is not possible, on the level of the group of assets for which separately identifiable cashflows exist. The Geberit trademark is valued on the Group level.

    For the impairment tests of intangible assets with an indefinite useful life and goodwill, the Group applies the most recent business plans (period 4 years) and the assumptions therein concerning development of prices, markets and Group’s market shares. To discount future cashflows, the Group applies market or country-specific discount rates. Management considers the discount rates, the growth rates and the development of the operating margins to be the crucial parameters for the calculation of the recoverable amount. More detailed information is disclosed in  Note 12.

    Provisions

    The Group recognizes provisions when it has a present legal or constructive obligation to transfer economic benefits as a result of past events, and when a reasonable estimate of the size of the obligation can be made. The Group warrants its products against defects and accrues for such warranties at the time of sale based upon estimated claims. Actual warranty costs are charged against the provision when incurred.

    Revenue from sales

    The relevant sales figure according to IFRS is reported in the income statements as “revenue from sales”. As additional information, the consolidated income statements start with “sales” in order to disclose the for the Geberit business model relevant development of “cash discounts and customer bonuses”.

    Customer bonuses are sales deductions linked to the achievement of predefined sales targets. Cash discounts are sales deductions recognized on receipt of timely payments.

    Revenue from sales is recognized when the risks and rewards are transferred to the customer, which normally happens when the products are shipped to the customer, i.e. when the products are handed over to the carrier at the ramp of a Geberit logistics center. Revenue from sales includes the invoiced net sales amount after deduction of rebates listed on the invoice. Subsequently granted customer bonuses and cash discounts are also deducted.

    Additional information on the business model is provided in  Notes 1 and  29.

    Marketing expenses

    All costs associated with advertising and promoting products are expensed in the financial period during which they are incurred.

    Taxes

    The consolidated financial statements include direct taxes that are based on the results of the Group companies and are calculated according to local tax rules. Deferred taxes are recorded on temporary differences between the tax base of assets and liabilities and their carrying amount using the “liability method”. Deferred taxes are calculated either using the current tax rate or the tax rate expected to be applicable in the period in which these differences will reverse. If the realization of future tax savings related to tax loss carryforwards and other deferred tax assets is no longer probable, then the deferred tax assets are reduced accordingly.

    A liability for deferred taxes is recognized for non-refundable taxes at source and other earning distribution-related taxes for foreign subsidiaries for which available earnings are intended to be remitted and of which the parent company controls the dividend policy.

    Research and development expenditures

    Geberit spends around 2% of sales on research and development (R&D) every year. The R&D expenses remain relatively constant over the years. Around 70% of the R&D expenses are incurred in relation to basic research, product and product range management, customer software development and R&D support/overhead. The residual expenses (around 30%) relate to development costs for new products. These expenses are capitalized if they concern the development of material new products. Material development projects are reviewed at each balance sheet date in order to verify if the capitalization criteria of IAS 38.57 are fulfilled. In 2012 this was not the case and the development expenses were charged directly to the income statement. In 2012, R&D expenses amounted to MCHF 49.8 (PY: MCHF 48.4). The costs are included in personnel expenses, depreciation expenses and other operating expenses, net.

    Retirement benefit plans

    The Group companies have various defined benefit and defined contribution pension schemes which comply with applicable laws and customs in the respective countries in which the Group operates. For defined benefit plans, the defined benefit obligations are calculated annually by independent actuarial experts using the projected unit credit method based on the service life, projected development of salary and pension benefit and expected return on pension fund investments. Experience adjustments and the effects of changes in actuarial assumptions are recognized in  “other comprehensive income”. The Group recognizes the funded status of independently funded defined benefit plans in its consolidated balance sheets. In the case of a positive funded status, the surplus is determined and recognized according to IAS 19.58 and IFRIC 14.

    Annual net pension costs in connection with defined benefit plans are charged to income in the period incurred. The corresponding costs for defined contribution plans are based on fixed percentages of participant salaries as defined in the respective plan documents and are also charged to income as incurred.

    Participation plans

    Rebates granted to employees and members of the Board of Directors when buying Geberit shares under share participation programs are charged to the income statement in the year the programs are offered.

    The fair value of the options provided in share participation and option plans is determined at the grant date and recorded as personnel expenses over the vesting period. The values are determined using the binomial model, adjusted by the expected employee departure rate.

    Earnings per share

    The number of ordinary shares for the calculation of the earnings per share is determined on the basis of the weighted average of the issued ordinary shares less the weighted average number of the treasury shares. For the calculation of diluted earnings per share, an adjusted number of shares is calculated as the sum of the total of the ordinary shares used to calculate the earnings per share and the potentially dilutive shares from option programs. The dilution from option programs is determined on the basis of the number of ordinary shares which could have been bought for the amount of the accumulated difference between the market price and exercise price of the options. The relevant market price used is the average Geberit share price for the financial year.

    Earnings per share and diluted earnings per share are defined as the ratio of the attributable net income to the relevant number of ordinary shares.

    Financial instruments

    Trade accounts receivable and other current assets are carried at amortized cost less allowances for credit losses. Trade and other payables are carried at amortized cost. The carrying amount of such items basically corresponds to its fair value.

    The recognition and measurement of marketable securities is described in the section  “Marketable securities”.

    Debt is initially recorded at fair value, net of transaction costs, and measured at amortized cost according to the effective interest rate method. The Group classifies debt as non-current when at the balance sheet date, it has the unconditional right to defer settlement for at least 12 months after the balance sheet date.

    Derivatives are initially recorded at fair value and subsequently adjusted for fair value changes. The recognition of derivatives in the Group’s balance sheet is based on internal valuations or on the valuation of the respective financial institution (see  Note 16).

    Hedge Accounting

    Geberit applies hedge accounting in accordance with IAS 39 to hedge balance sheet items and future cashflows, thus reducing income statement volatility. Changes in the value of instruments designated as fair value hedges are recorded together with the change in fair value of the underlying item directly in the income statements, net. The effective portion of instruments designated as cashflow hedges is recognized in  “other comprehensive income”. The ineffective portion of such instruments is recorded in financial result, net.

  4. 4. Risk assessment and management

  5. 5. Management of capital

  6. 6. Marketable securities

  7. 7. Trade accounts receivable

  8. 8. Other current assets and current financial assets

  9. 9. Inventories

  10. 10. Property, plant and equipment

  11. 11. Other non-current assets and non-current financial assets

  12. 12. Goodwill and intangible assets

  13. 13. Short-term debt

  14. 14. Other current provisions and liabilities

  15. 15. Long-term debt

  16. 16. Derivative financial instruments

  17. 17. Retirement benefit plans

  18. 18. Participation plans

  19. 19. Deferred tax assets and liabilities

  20. 20. Other non-current provisions and liabilities

  21. 21. Contingencies

  22. 22. Capital stock and treasury shares

  23. 23. Earnings per share

  24. 24. Cash discounts and customer bonuses

  25. 25. Other operating expenses, net

  26. 26. Financial result, net

  27. 27. Income tax expenses

  28. 28. Cashflow figures

  29. 29. Segment reporting

  30. 30. Related party transactions

  31. 31. Foreign exchange rates

  32. 32. Subsequent events

  33. 33. Additional disclosures on financial instruments

  34. 34. Group companies as of December 31, 2012