ANNUAL REPORT 2021
Notes to the Consolidated Financial Statements
as at December 31, 2021
Feintool International Holding AG, Industriering 8, 3250 Lyss, is a public limited company under Swiss law with headquarters in Lyss, Switzerland (“Company”). The consolidated financial statements for the period from January 1 to December 31, 2021, include the Company and its subsidiaries (“Feintool”). Feintool is the world’s leading technology group specializing in the development of fineblanking systems and a worldwide provider of high-quality and cost-effective fineblanked, formed steel components and punched electro sheet metal products. The Group maintains close partnerships with its customers across the entire fineblanking, forming and punching of electric engine components process – from component design, tool design and system construction through to large-scale series parts production. In addition to fineblanking, the Feintool Group also deploys other key processes such as precision forming and punching of electric engine components technology, and is the world’s only supplier of all-round solutions for the cost-effective manufacture of complex precision components.
With locations in Europe, US, China and Japan, the Feintool Group is represented in the world’s major automotive markets. Headquartered in Lyss, Switzerland, the Group has a headcount of 2 478. At its various locations, Feintool provides training for 89 young people mainly as polymechanics, constructing engineers and commercial employees.
The consolidated financial statements for the financial year are based on the financial statements of the Group companies as at December 31, 2021, which were prepared in accordance with consistent accounting policies.
The consolidated financial statements are prepared in accordance with Swiss law and the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting principles of the SIX Swiss Exchange Listing Regulations have also been observed. In the management’s opinion, the consolidated financial statements give a true and fair view of the Group’s financial position, results of operations and cash flows.
The consolidated financial statements are prepared on a going-concern basis under the historical cost convention, with the exception of derivative financial instruments (measured at fair value) and net liability or assets from defined benefit plans (measured at present value of defined benefit obligations less fair value of plan assets).
The consolidated financial statements are prepared in Swiss francs (CHF), with amounts rounded to the nearest thousand (1 000). They are available in German and English. The German version is authoritative.
Further information on financial covenants is provided in section 19 of the Notes. As of December, 31st 2021, all the covenants had been met.
The consolidated financial statements contain assumptions and estimated amounts which affect the amounts reported. Should these estimates and assumptions prove incorrect or incomplete, this may substantially affect the amounts reported and therefore Feintool’s financial position, results of operations and cash flows.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Feintool regularly reviews whether the depreciation period chosen at the time matches the actual useful life, or capacity utilization rate, of the item of property, plant and equipment. If significant differences between the depreciation period and useful life are identified, the depreciation period is adjusted accordingly. If the expected cash flows on the item of property, plant and equipment no longer cover future depreciation, impairment losses are recognized.
In general, the right-of-use asset is initially recorded at the present value of the lease liability at the commencement of the lease term. This appraisal takes into account whether the ability to exercise renewal options is reasonably certain, or whether a termination option is not considered reasonably certain. In the case of indefinite leases, the value of the right-of-use asset and the amortization period are based on estimates of the economic life of such leases.
All assumptions are continuously reviewed.
The fair value of intangible assets is estimated at the date of acquisition. The residual value (difference between the purchase price and fair value of net assets acquired) represents goodwill. Most intangible assets acquired have a finite life and are therefore amortized. Goodwill is not amortized, but is instead tested annually for impairment. The allocation to intangible assets and goodwill on the acquisition date therefore has an effect on amortization in subsequent periods.
When testing goodwill for impairment, various estimates are made which require medium and long-term (terminal value) estimates. This relates to both internally projected data (cash flow, growth rates, etc.) and external parameters (discount rate). Should these estimates prove incorrect, significant changes in value might result. Further information is given in section 17.2 of the Notes.
Current tax receivables and deferred tax assets
Feintool is liable to taxation in various jurisdictions. Provisions for income taxes incurred worldwide are based on estimates. For many transactions and calculations in its ordinary business, the tax charge is uncertain. If actual tax charges differ from the estimated charges, the corresponding adjustment is recognized in the financial year in which the definitive assessment is made. Management considers the corresponding estimates to be realistic and the corresponding provisions to be appropriate. Deferred tax assets are formed from temporary differences, and from tax loss carryforwards, but only if realization is deemed probable. The recoverable amount of capitalized tax assets recognized for loss carryforwards is therefore based on future forecasts for the relevant taxable entity over a period of several years. Should these future forecasts prove incorrect, significant changes in value might result. In a referendum held on May 19, 2019, Swiss voters adopted the Federal Act on Tax Reform and Old Age and Survivors’ Social Insurance Funding (STAF), thereby confirming the reform of corporate taxation in Switzerland. Feintool uses the instrument of the “patent box”, which results in a slight tax relief.
Further information is given in sections 9 and 10 of the Notes.
Research & development
On its balance sheet, Feintool carries purchased as well as its own research and development work if the following conditions are met cumulatively:
All the above points are based on assumptions. Should these assumptions prove incorrect or incomplete, this may substantially affect valuation of the corresponding intangible asset. Further information is given in section 17.1 of the Notes.
Provisions are recognized if (a) a present obligation to a third party has arisen as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (c) the amount of the obligation can be reliably estimated. Provisions are recognized for a number of possible events and are explained in detail in section 22 of the Notes. By definition, however, they involve a higher degree of estimation than other items in the balance sheet, since the estimated obligations may result in a higher or lower outflow of funds depending on the outcome of the situation.
Employee benefit plans
Feintool operates defined benefit plans for its employees in three countries. Their accounting status is in part based on long-term actuarial assumptions, which may differ from reality. Reassessments arising from changes in assumptions regarding life expectancy, developments in the capital market and changes in discount rates can amount to considerable sums. These are recognized directly in equity (other comprehensive income). Calculation of the respective underlying percentages involves estimated amounts that may substantially affect the financial position and results of operations. Further information is given in section 23 of the Notes.
The Board of Directors and management believe the basis of planning and the assumptions to be realistic.
Feintool holds confirmed credit lines with various banks. These are considered to be financially noncurrent in nature, even if the individual installments have maturities of less than 360 days. The classification of interest-bearing liabilities as current or noncurrent is based on assumptions and estimates. These estimates are reviewed periodically, at least once a year. Details regarding the change in estimates can be found in section 19 of the Notes.
SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
With the exception of newly issued or revised Standards and Interpretations that became effective in the financial year, Feintool essentially applies the same accounting policies as those applied in the previous year. In the Financial Year 2021, Feintool adopted the following new Standards and Interpretations:
Feintool is either unaffected by these changes, or the changes have no material effect on its financial position, results of operations or cash flows.
NEW ACCOUNTING REQUIREMENTS
Various new IFRS regulations were published on the balance sheet date, but have not yet entered into force. Feintool decided against early adoption of the following standards, revised standards and interpretations. Feintool plans to adopt the changes from the financial years beginning on or after the date indicated:
Feintool is assessing the impacts of the revised Standards and Interpretations. Based on its initial findings, Feintool does not foresee any significant impacts on its financial position, results of operations or cash flows.
BASIS OF CONSOLIDATION
The consolidated financial statements in principle encompass the annual financial statements of Feintool International Holding AG, Lyss (Switzerland), in addition to the financial statements of all Group companies in which Feintool International Holding AG directly or indirectly owns more than 50 % of the voting rights or that it controls in any other way. A list of all investments is provided in section 6 of the Notes to the Financial Statement of Feintool International Holding AG.
On November 22, 2019, Jela Immobilien GmbH purchased a 90 % interest in Vireo Verwaltungsgesellschaft mbH from HL Holding AG. On May 6, 2020, Jela Immobilien GmbH acquired the remaining 10 % interest in Vireo Verwaltungsgesellschaft mbH from HL Holding AG. Effective October 16, 2020, Jela Immobilien GmbH (absorbing entity) and Vireo Verwaltungsgesellschaft mbH (absorbed entity) were merged.
As of January 1st 2021 HL Holding AG was absorbed by System Parts Lyss AG.
METHOD OF CONSOLIDATION
All companies that Feintool controls are included in the consolidated financial statements according to the full consolidation method. Assets and liabilities as well as income and expenses are therefore included in full in the consolidated financial statements. Minority interests in equity and income are disclosed separately in the consolidated balance sheet and the statement of comprehensive income. Intercompany liabilities, credits, expenses and income are offset. Unrealized temporary gains on inventories or assets are eliminated on consolidation.
ACQUISITIONS AND GOODWILL
Newly acquired companies are consolidated using the acquisition method. The balance sheet and income statement are consolidated at the date on which control is obtained. The difference between the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiring party, on the one hand, and the purchase price, on the other, is recognized as goodwill. Acquisition costs are charged immediately to the statement of comprehensive income. After initial measurement, goodwill is reported at cost less any impairments. Goodwill is tested for impairment annually by calculating the recoverable amount (higher of fair value minus disposal costs and value in use) of the relevant cash generating units or group of cash generating units. Where the recoverable amount is less than the carrying amount, an impairment is recognized in the statement of comprehensive income.
Decisions are often made on the level of the business units. Sales are centralized within the business units; orders are distributed across them on the basis of the specific skills of individual plants (machinery, employee experience). This optimizes cash flows for the business units, although the cash flows of the individual production locations change randomly. Feintool is deciding about impairments on the level of the business units.
When a Group company is sold or control over a Group company is lost, the difference between the selling price and the net assets sold, including goodwill and cumulative foreign exchange gains, is recognized in the statement of comprehensive income under either “Other operating income” or “Other operating expenses”. The company is deconsolidated on the date on which control over it is lost.
The functional currency of the consolidated entities is the currency of their local economic environment. Transactions in foreign currencies are translated at the respective daily rate. Monetary assets and liabilities in foreign currency are converted into the functional currency at the rate of exchange prevailing on the balance sheet date. In principle, the exchange translation differences are reported in net financial income/finance costs. Non-monetary assets and liabilities at historical cost are translated at the exchange rate applicable at the time of the transaction.
On consolidation, the balance sheet amounts of foreign subsidiaries are translated at closing rates, equity at historical rates and the amounts in the statements of comprehensive income and cash flows at average rates for the year. Exchange differences arising from translation differences in balance sheets and income statements are directly recognized in other comprehensive income and reported under shareholders’ equity. When a Group company is sold or liquidated, or when control over the company is lost, the cumulative translation differences are reclassified to net income as part of the gain or loss on disposal.
Foreign currency gains on certain equity-type loans that form part of the net investment in a company are recognized in the statement of comprehensive income (other comprehensive income), provided settlement of these loans is neither planned nor likely to occur in the near future.
The Feintool Group used the following exchange rates in financial years:
FINANCIAL ASSETS AND LIABILITIES
Classification and Valuation of financial assets
In the first instance Feintool Group classifies a financial asset as “Amortized costs”, as “Fair value through other comprehensive income – debt investments”, as “Fair value through other comprehensive income – equity investments” or as “Fair value through profit and loss” (“FVTPL”). Classification is based on the basis of the company’s business model for the control of financial assets and the characteristics of the contractual payment flows of the financial asset.
A financial asset is to be evaluated at amortized cost if the following two conditions are met:
A financial asset is to be valued as “Fair value through other comprehensive income” if the following two conditions are met:
On initial recognition of an equity instrument that is not held for trading, the Feintool Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on investment-by-investment basis.
In the initial calculation, the Feintool Group values a financial asset (with the exception of a trade receivable with no significant financing component) at fair value. For financial assets that are not valued at fair value through profit or loss, the valuation takes place with the addition or deduction of transaction costs that can be attributed directly to the acquisition or the disbursement of the financial asset. Trade receivables with no significant financing components are initially recognized at the transaction price.
The following valuation guidelines apply for the subsequent valuation of financial assets:
Feintool does not currently apply hedge accounting.
Impairment of financial assets
Expected credit losses are recorded. This model applies for financial assets at amortized cost as well as for contract assets. At the Feintool Group, the financial assets at amortized costs consist of trade and other receivables, cash and cash equivalents, and other current and non-current financial assets.
Under IFRS 9, the expected credit losses are valued based on one of the following two principles:
For trade and other receivables and similar receivables, the Feintool Group records the credit losses expected over the duration.
A credit loss is expected in the following two cases:
The calculation of the expected credit losses takes into account experience values and future expected losses based on market development, client position, and other components.
According to IFRS 9, the expected credit losses must likewise be evaluated with the following financial assets:
Feintool does not expect any material credit losses for these items.
The avoidance of clumping risks and a concentration of the financial investments on first-rate counterparties should help to avoid bigger loan losses. The Feintool Group carries out its banking business exclusively with nationally and internationally renowned banks that boast a BBB rating or better. It specifies the type of transactions that the subsidiaries are permitted to carry out with the banks.
Financial liabilities mainly include debt and trade payables, which are measured at amortized cost. Financial liabilities designated at fair value through profit or loss (derivatives) are stated at fair value. Non-current financial liabilities are measured using the effective interest method. In addition to the actual interest payments, interest expenses therefore also include the amounts of annual interest cost and pro rata transaction costs.
Financial liabilities are de-recognized when repaid.
In the 2019 financial year, the Feintool Group entered into a revolving receivables purchase agreement with Weinberg Capital DAC (the program’s special purpose entity) governing the sale of trade receivables. The negotiated structure provides for the sale of the Feintool Group’s trade receivables as part of an ABS transaction, which was successfully initiated in December 2019. The receivables are being sold by the Feintool Group to the program’s special purpose entity.
Under this ABS program with a maximum value of up to kCHF 15 497, the Feintool Group’s European subsidiaries sold receivables valued at kCHF 12 786 (previous year kCHF 9 034) as of December 31, 2021, of which kCHF 1 428 (previous year kCHF 3 787) was retained as purchase price retentions. These funds are held as hedging reserves but are not paid out and are recognized as other financial assets. The basis for the transaction is the assignment of trade receivables from individual Feintool companies to the program’s special purpose entity as part of an undisclosed assignment. The program’s special purpose entity does not have to be consolidated under IFRS 10, as Feintool has neither the decision-making power nor any significant vested interest and there is no link between decision-making power and the variability of returns from the program’s special purpose entity.
The Feintool Group continues to perform receivables management (servicing) for the receivables sold.
Feintool is meeting the requirements regarding the derecognition of financial liabilities in accordance with IFRS 18.104.22.168, as the receivables are transferred in accordance with IFRS 22.214.171.124 b). An assessment pursuant to IFRS 126.96.36.199 has shown that Feintool has neither substantially transferred nor retained all of the risks and rewards. This means that in accordance with IFRS 188.8.131.52, Feintool must recognize its continuing involvement.
The maximum amount of the continuing involvement of kCHF 242, i.e. the amount for which Feintool is still liable for the default risk, will continue to be reported under trade receivables with a corresponding other financial liability. Any interest to be expected until receipt of payment is not recognized for reasons of materiality.
Cash and cash equivalents
Cash and cash equivalents comprise cash holdings, balances on postal and bank accounts as well as fixed-term deposits with a maturity not exceeding 90 days.
Trade receivables/other receivables
This item contains accounts receivable from ordinary business activities. Bad debt provisions on trade receivables are calculated and recognized based on the expected credit losses. Other receivables are stated at their nominal amount less expected credit losses. Notes on the calculation of the expected credit loss can be found under “Financial assets and liabilities”.
Raw materials and purchased goods are stated at weighted average cost. Finished and semi-finished goods are stated at cost of conversion including manufacturing overheads, but at no more than their net realizable values. Inventories with low turnover and obsolete items are written down. Work in progress is stated at the cost of conversion.
This item includes all contract assets less prepayments received and necessary allowances for identifiable risks. Recording of net sales of contract assets takes place over the specific period if several conditions are met. These conditions are explained in detail in chapter “Net Sales”.
If these conditions are not met, the income is recognized when the control is transferred. If it is expected that the costs from a construction contract will exceed the contractually agreed income, the expected overall loss from the order is charged immediately and in full to the statement of comprehensive income.
The stage of completion of construction contracts is obtained from the ratio between the contract costs incurred and the total cost of the contract (cost-to-cost method), or based pro rata on the time spent (effort-expended method), provided the project can be assumed to proceed on a straight-line basis.
Property, plant and equipment
Items of property, plant and equipment are carried at cost less accumulated depreciation. Cost includes any costs attributable to bringing the asset to the condition necessary for it to operate in the intended manner. Borrowing costs are a component of cost if they are directly attributable to the asset. Subsequent maintenance costs are recognized in the carrying amount if the operational life is extended as a result or production capacity can be increased. Non-value-enhancing maintenance work and repairs are recognized in the income statement. Components of property, plant and equipment with different useful lives are recognized individually and depreciated separately. Depreciation is recognized on a straight-line basis over the estimated useful life. As a rule, land is not written down. Impairments (see separate section) are recognized when the carrying amount no longer appears to be recoverable. Such impairments are presented separately.
As a rule, the following depreciation periods are applied:
Buildings: 20 to 40 years
Plant and equipment: 5 to 15 years
Vehicles: 3 to 5 years
IT hardware: 2 to 5 years
Capitalized costs that are closely linked to leased premises are depreciated over a maximum of the contractually agreed lease term.
Government contributions (funding received) for assets (mostly property, plant and equipment) are deducted from the cost of acquisition or manufacture of the asset in question. Funds that are not related to a specific asset are capitalized and amortized on a straight-line basis over the period of the associated stipulations/conditions. As the funding usually comes with certain conditions attached that, if not complied with, would result in the funding having to be repaid, the funding received is also declared as a contingent liability.
Upon entering into a contract, the Feintool Group will assess whether the contract should be classified as a lease or contains a lease component. In making this assessment, which requires a certain degree of discretion, the Group will assess whether a specific asset is affected, whether the Group obtains substantially all the economic benefits from the use of the asset, and whether the Group has the right to control the use of the leased asset.
The Feintool Group will recognize a right-of-use asset and a lease liability at the beginning of the lease term, except in the following two cases:
In both cases, lease payments are recognized as an expense on the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease. If this rate cannot be readily determined, the Feintool Group will use an incremental borrowing rate specific to the country, term, and currency of the contract. Lease payments include, for example, fixed and variable payments that depend on an index or rate known at the commencement of the lease. The lease liability is subsequently measured at cost less accumulated depreciation and accumulated impairment on the basis of the effective interest method and remeasured (with a corresponding adjustment to the right-of-use asset) if future lease payments change as a result of renegotiation, changes in an index or interest rate, or a revaluation of options.
The right-of-use asset is initially measured at the amount of the lease liability, any initial direct costs, as well as restoration obligations, less any lease incentives granted. The right-of-use asset is amortized on a straight-line basis from the date of commencement to the end of the lease term unless ownership of the underlying asset is transferred to the company at the end of the lease term or the cost of the lease reflects the fact that the company will exercise a purchase option. In this case, the right-of-use asset is amortized over its useful economic life, which is determined in accordance with the rules for property, plant, and equipment. Similar to assets held by the Group, the recoverability of the right-of-use asset is also reviewed if there are indications of impairment.
The right-of-use asset is recognized under property, plant, and equipment and the lease liability under current and noncurrent financial liabilities.
The following contract terms or depreciation periods generally apply:
Property: 3 to 10 years
Machines: 5 to 15 years
Other tangible assets: 3 to 5 years
Further information is given in section 5, 16 and 19 of the Notes.
Intangible assets primarily include goodwill, in acquisitions purchased customer relations, patents, software, land-use-rights and certain development costs. The latter are only capitalized if the technical feasibility of completing an asset that is ready for market can be demonstrated, the costs can be measured reliably and the costs appear to be feasible based on the marketplace. Intangible assets are capitalized at cost and amortized over their estimated useful life on a straight-line basis. Any impairments are recognized when the carrying amount no longer appears to be recoverable. Such impairments are presented separately.
Intangible assets (with the exception of goodwill) have a finite life and are amortized as follows:
Patents, brands: max. 10 years
Capitalized development costs: 3 to 5 years, max. 10 years
Software: 2 to 5 years
In acqu. purchased customer relations: max. 15 years
The recoverable amount of assets (property, plant and equipment, intangible assets) is reviewed when events or changes in circumstances indicate that the assets may be overvalued. In addition, the recoverable amount of goodwill is reviewed at least annually. If the carrying amount exceeds the recoverable amount (higher of fair value less disposal costs and value in use), it is immediately written down to the net realizable value. When calculating value in use, future cash flows are discounted using a pre-tax discount rate. This discount rate reflects current market assessments and risks specific to the assets in
Financial assets include loans granted to third parties and rental deposits. Depending on their nature (see “Financial assets and liabilities”), financial assets are stated at fair value or measured at amortized cost using the effective interest method. Gains and losses on these financial assets are recognized in financial result.
Current liabilities are those with a remaining term to maturity of less than one year. The current portion of non-current liabilities is also included.
Accrued expenses and deferred income
Expenditures incurred in the period at the end of the reporting year, for which no receipts are yet available, are recognized under accrued expenses and deferred income. On the other hand, revenues received in advance in the period at the end of the reporting year for which no work has yet been performed are also recognized here. In the Feintool Fineblanking Tech-nology segment in particular, it is often the case that clients are billed for fineblanking presses without all supplier invoices having been received as yet or all contractually agreed work on the press having been performed.
Provisions are recognized if (a) a present obligation to a third party has arisen as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (c) the amount of the obligation can be reliably estimated. No provisions are recognized for future operating losses. Provisions are recognized for restructuring efforts when the Group company has a constructive obligation to implement restructuring as a result of communicating the plan to the individuals affected by it, and provided the costs can be reliably determined on the basis of a detailed plan. Reversals of provisions no longer required are recognized when the item for which the provision was originally recognized no longer exists or it is no longer probable that this item will occur.
Deferred taxes are accounted for using the balance sheet liability method. Under this method, the tax implications of temporary differences between carrying amounts in the consolidated financial statements and the tax base are recognized as a non-current liability or asset. They are generally calculated on the basis of actual or expected local rates of tax. Deferred tax liabilities are calculated for all taxable temporary differences. Deferred tax assets, including those for tax loss carryforwards and expected tax credits, are only recognized if it is probable that profits will be available for realizing the loss carryforwards and tax credits.
Changes in deferred taxes are recognized in the income statement except for deferred taxes on amounts recognized directly in other comprehensive income, which are also recognized in other comprehensive income.
Shares are issued to Group management as part of the remuneration at a contractually predefined amount. Individual members of the Board of Directors receive a contractually predefined number of shares.
Employee benefit plans
The Group operates various employee benefit plans, which differ depending on the circumstances of the individual com-pany. The benefit plans are financed through contributions made by the employer and/or the employee to state pension systems, separate legal entities (trusts, insurance companies) or through the accumulation of corresponding provisions in the balance sheet of the company itself.
In the case of defined contribution plans, the accrued expenses correspond to the agreed contributions by the Group companies. In the case of defined benefit plans, the costs are calculated by independent experts in the form of an actuarial report using the projected unit credit method. The calculations are updated periodically. Benefit plans operated by external providers are funded plans, while the agreed commitments of the Group companies themselves are unfunded plans. The liability carried consists of the defined benefit obligation as defined by the actuary, less any assets recognized at fair value.
The expense recorded in the statement of comprehensive income is an actuarial calculation of the cost less contributions from employees. This comprises:
The current past service cost is recognized in personnel expense. The impact of changes in pension plan benefits is also reported in personnel expenses. The interest on the net defined benefit liability is recognized in financial expense. The expense or income from reassessments is recognized as other comprehensive income in the statement of comprehensive income.
Other long-term obligations to employees, such as anniversaries or sabbatical leave programs are recognized using the same methodology, with the exception that any actuarial changes are recognized in personnel expense.
Equity represents the residual value (assets less liabilities). Capital reserves result from premium payments made by shareholders, transactions involving treasury shares, employee options and the fair value of conversion rights at the time of issue. Retained earnings comprise the income earned and retained by the Group as well as the reassessment of the net defined benefit liability (asset). Acquisitions of treasury stock are deducted from equity at cost. Other payments from equity instruments (derivatives classified as equity) are also taken directly as equity.
Net sales – Revenue from contracts with customers
Under IFRS 15, income is recorded from the point when the client takes control of the product or service. The following provides an overview of the fundamental valuation guidelines.
Sale of series parts
These net sales arise in the System Parts segment. The client gets control upon the delivery of the series parts – depending on the arrangement of the income terms. The net sales are recorded at this specific point in time. In the case of client complaints as a result of quality deficiencies, the client issues an invoice to Feintool. These complaints are dealt with swiftly and – where justified – are recorded in material expenditure.
Sale of presses and tools
These net sales arise in the Fineblanking Technology segment. The client gets control over the period of production of the presses, including peripheral devices and tools, as the process here is job production with corresponding specifications. Any dissolution of a contract results in invoicing of the manufacturing costs plus the calculated profit. Recording of net sales therefore takes place over the specific period if the following conditions are also met:
The expenditure for expected warranty costs is incorporated in the calculation, and a corresponding accrued liability is shown via the material expenditure across the whole period. In warranty cases, the press is repaired and the accrued costs charged to the accrued liability.
The System Parts segment also sells tools in connection with parts production. Since these tools remain in the corresponding production facility for the parts production, invoicing takes place after the “Production Part Approval Process” (PPAP).
Service contracts (in the press business)
The service and inspection contract is similar to a framework agreement with a description of the service scope and the daily rates to be applied. Customers are charged once the service has been rendered. The recording of net sales takes place at the defined time.
Other operating income/expenses
Other operating income includes gains on the disposal of property, plant and equipment, investments and various smaller items of income, such as revenue from staff restaurants, IT costs charged to third parties and letting income.
Other operating expenses include operating costs with the exception of material cost and personnel expenses as well as depreciation.
Gains/losses on the disposal of property, plant and equipment are recognized when ownership and the incidental risks and rewards are transferred.
The cost of materials includes the following costs associated with production:
Income from recycling scrap metal is deducted from the cost of materials.
Research & development
Order-related development costs are capitalized as work in progress. Research & development costs are charged in full to the statement of comprehensive income in the year in which they are incurred, provided they are not capitalized. Development costs for new products are capitalized only if there is a likely prospect of realization in technical and market terms, the cost can be measured reliably and it is probable that the expected future economic benefit attributable to the asset will accrue to Feintool.
Interest is recognized using the effective interest method. Interest not yet received or paid is reported at the end of the reporting period in deferred income or expense. Interest is reported on the statement of comprehensive income under financial result.
1 Segment information
The following footnotes are applicable to the 2021 and 2020 financial years.
1) Total Net Sales include “Sales from products transferred over time” about kCHF 12 515 (previous year kCHF 14 078). The net sales have been recognized in the Fineblanking Technology Segment. The remaining net sales in this segment mainly consist of tool sales and services.
2) In the 2020 financial year, Feintool received a loan of USD 8.4 million under the PPP program in the United States to mitigate the impact of the COVID-19 pandemic. In the first half of 2021, the government assured the company that this loan would not have to be repaid. Feintool also received kCHF 3 928 in immediate aid from the Swiss government in the year 2021 to mitigate the effects of the COVID-19 pandemic. In addition, in the 2020 financial year, the company agreed to a change in benefits in the Swiss pension plan and a curtailment due to the staff reduction measures, which had a positive one-off effect of kCHF 6 253 on comprehensive income for the period in accordance with IAS 19. Please refer to section 4 of the Notes.
3) Due to capacities no longer required at one plant, an impairment loss on manufacturing equipment totaling kCHF 12 103 was recognized in the 2021 financial year (in the prior year an impairement loss of kCHF 5 932 was related to two plants). In addition, please refer to sections 16.2 and 16.3 of the Notes.
Segment reporting is in accordance with internal reporting, and the one-time effects demonstrated have thus been factored into the group performance assessment by the Board of Directors and the management.
4) Net working capital comprises trade receivables, inventories, net assets of construction contracts and prepaid expenses and accrued income less trade payables, advance payments received from customers and accrued expenses and deferred income. The remaining receivables and liabilities is included in the calculation for “Finances/Other”.
5) Net sales is allocated to countries based on the customer’s domicile.
The following explanations on the segment information apply to the financial years 2021 and 2020.
The Fineblanking Technology segment comprises the development, manufacture and sale of presses, tools, peripheral systems and all related services.
The System Parts segment develops, produces and sells high-precision system components and assemblies using fineblanking and forming technology as well as electronic sheet stamping. The segment also sells production-specific tools to third-party customers. The production and internal sale of tools is also included in this segment.
“Finances/Other” essentially comprises the figures for Feintool International Holding AG and the German sub-holding company Feintool Holding GmbH.
The operating profit/loss comprises all operating income and expenses directly attributable to the individual segments. This includes all cross-segment expenses, which are charged directly. Feintool’s financing is undertaken at the Group level. Financial expenses and income, financial liabilities as well as taxes, are therefore reported only at the Group level and do not appear in the segment reports. Feintool generates 20.4 % (previous year 18.3 %) of consolidated sales with one customer. Income is generated in all segments. With the other customers, the share is less than 12.4 % (previous year 12.1 %) in each case.
There is no reconciliation of data in management reports and data contained in the financial reports, as internal and external reporting are subject to the same valuation principles.
2 Net sales
1) Total gross sales include “sales generated over a period” of kCHF 12 515 (previous year kCHF 14 078). These sales were generated in the Fineblanking Technology segment. For a further breakdown of sales, see Section 1.1 Segment information.
3 capitalized Self-generated assets
4 Personnel expenses
1) In the 2020 financial year, a change in benefits was adopted in the Swiss pension plan, which entails a gradual reduction in the conversion rate from 5.2 % to 4.4 %. In addition, a curtailment was implemented due to the staff reduction measures. These changes had a positive one-off effect of kCHF 5 388 and kCHF 865, respectively, on the Statement of Comprehensive Income for the previous year. The one-time effect is reported under wages and salaries. See also sections 1 and 27 in the Notes.
2) Direct personnel expenses are personnel expenses that can be directly assigned to the production process.
3) With respect to the change in benefits adopted in the Swiss pension plan, kCHF 2 454 is reported under direct labor costs and kCHF 2 934 under indirect labor costs in the previous year.
In the 2020 financial year, various Feintool Group companies received short-time work compensation totaling CHF 2 million (previous year: CHF 7.5 million), which was deducted directly from labor costs. At the end of the financial year, the Feintool Group had 2 478 employees (previous year: 2 570) and 89 vocational trainees (previous year: 100).
5 Other operating expenses
6 Other operating income
1) “Other income” includes the immediate aids from governments to mitigate the effects of the COVID-19 pandemic totaling kCHF 11 577 as well as income from staff restaurants and subletting.
7 Financial expenses
1) Besides bank charges, other financial expenses include annual amortization of establishing cost for the promissory note, syndicated loan and ABS program, market making costs and valuation expenses from hedging.
8 Financial income
9 Income taxes
1) The weighted tax rate is calculated from the income tax rates likely to apply to the income of the individual Group companies in the respective tax jurisdiction, which naturally varies according to the actual earnings figures.
2) Unrecognized tax loss carryforwards from the current year refer to Segment System Parts
10 Deferred taxes
Feintool does not disclose deferred taxes related to earnings not distributed as dividends, which will presumably be reinvested permanently in subsidiaries. The tax effect is estimated as not material.
10.3 Unrecognized tax assets
Deferred tax assets, including those for tax loss carryforwards and expected tax credits, are only recognized if it is probable that profits will be available against which the loss carryforwards and tax credits can be utilized.
Income taxes and information regarding the tax charge are shown in Note 9.
11 Consolidated earnings per share
No dilution effects were recognized in the financial year.
Earnings per share are calculated on the basis of the consolidated net income for the financial year divided by the average number of shares in circulation. No dilution effects were recognized in the financial year.
1) As of December 31, 2021, trade receivables with a value of kCHF 17 820 were sold under factoring and ABS programs (previous year kCHF 15 743).
1) In the previous year the tool spare elements have been reported in raw material.
14 contract assets
The gross margin recorded under contract assets as at the closing date amounted to 21.5 % (previous year 37.4 %).
15 Prepaid expenses and accrued income
1) Prepaid expenses for customer orders includes expenses for constructions that are assigned to a specific order. These prepaid expenses are released on a straight-line basis over the course of the order.
16 Property, plant and equipment
1) Reclassifications include positions of immaterial assets amounting to kCHF -3 (previous year kCHF -69), of assets in leasing amounting to kCHF -14 871 (previous year kCHF -989) and a revaluation of assets in leasing amounting to kCHF 114.
2) In the financial year 2021, System Parts Europe recognized impairment losses on machinery & buildings of kCHF 12 030 and Software of kCHF 73 totaling kCHF 12 103. Of the impairment losses, kCHF 1 662 relate to leased machinery.
3) Depreciation and amortization of real estate increased by kCHF 606 in the previous year due to the unscheduled depreciation of a property not required for operational purposes to its market value.
4) In the previous year, 2 entities of System Parts Europe recognized impairment losses on machinery totaling kCHF 5 932. Of the impairment losses kCHF 1 878 relate to leased machinery (see section 16.3).
Other property, plant and equipment includes installations, vehicles and assets under construction. Assets under construction amounted to kCHF 29 446 in the year under review (previous year kCHF 39 790). Gains on asset disposals are recognized as other operating income (Note 6). A gain of kCHF 111 (previous year kCHF 258) was generated in the reporting year. Losses on asset disposals are stated as other operating expenses (Note 5). In the year under review, this loss totaled kCHF 1 056 (previous year kCHF 398). As at December 31, 2021, the Feintool Group had entered into purchase commitments for the purchase of property, plant and equipment totaling approx. CHF 27.7 million (previous year CHF 33.1 million).
1) In the financial year 2021, System Parts Europe recognized impairment losses on machinery and buildings totaling kCHF 12 103. Of the impairment losses, TCHF 1 662 relate to leased machinery.
2) In the previous year, 2 entities of System Parts Europe recognized impairment losses on machinery totaling kCHF 5 932. Of the impairment losses kCHF 1 878 relate to leased machinery (see section 16.2).
In the 2021 financial year, interest expenses from lease liabilities were incurred in the amount of kCHF 525 (previous year kCHF 516).
17 Intangible assets
1) Research and development expenses amounting to kCHF 4 455 (previous year kCHF 4 369) were charged to the consolidated statement of comprehensive income.
2) Other intangible assets primarily comprise patents and licenses, customer relations purchased within acquisitions as well as land-use-rights.
The following impairment test was performed for all business units in the financial year: The recoverable amounts for the cash-generating units are calculated on the basis of the value in use and compared with the carrying amount. The values in use were calculated using the DCF method (discounted cash flow method). The Feintool Group uses the results from the respective current business plan with the assumptions contained therein regarding price, market and market share development. The first 3 plan years are approved by the Board of Directors, the further plan years by the Group CFO. The growth rates are based on the forecasts of established institutions and on the Group’s own past experience of price and market share development. A discount rate based on the weighted average cost of capital of the Feintool Group is used to discount future cash flows.
The goodwill of the cash-generating unit System Parts Stamping Europe is allocated to Feintool System Parts Jessen GmbH and its subsidiaries acquired in the financial year 2018. The acquisition of this company is related to the expected increase in e-mobility. This development is expected to continue for at least the next ten years. For this reason, the period of future cash flows has been set at a total of six years.
The cash-generating units System Parts Fineblanking Europe and Forming Europe are included in the System Parts Europe group. As of the date of the impairment test, the recoverable amount of the cash-generating unit System Parts China exceeded the net carrying amount by kCHF 1 168 (previous year kCHF 966). An increase in the weighted average cost of capital after taxes to 9.5 % (previous year 8.9 %) as well as a decrease in the growth rate to 3.5 % lead to a situation where the value in use equates the net carrying amount. In the impairment test, the first 3 years are approved by the Board of Directors on the basis of the business plan and the further extrapolation years are approved by the Group CFO. For the cash-generating unit Stamping Europe the recoverable amount exceeded the net carrying amount by kCHF 7 783 (previous year kCHF 769). An increase in the weighted average cost of capital after taxes to 8.0 % (previous year 7.4 %) as well as a decrease of the growth rate to 1.1 % lead to a situation where the value in use equates the net carrying amount. A shortening of the plan years from 6 to 5 years for the cash-generating unit Stamping Europe would result in the recoverable amount falling short of the net carrying amount by kCHF 11 123.
18 Financial assets
The weighted average interest rate in the reporting period was 0.14 % (previous year 0.2 %). Loans to third parties consist of marketable securities and loans to staff. Non-current receivables refers to tools the customer has ordered but not yet or only partially paid for. Amortization is based on either the parts produced or an agreed payment plan.
19 Financial liabilities
The weighted average interest rate in the reporting period was 1.5 % (previous year 1.9 %).
The weighted average interest rate in the year under review was 1.7 % (previous year 0.8 %).
On July 15, 2016 and July 15, 2021 promissory notes in the amount of EUR 75 million were issued. The issuer, with a guarantee from Feintool International Holding AG, is Feintool Holding GmbH based in Germany. The loan is divided into the following tranches:
– EUR 25.0 million, term until fiscal year 2023
– EUR 14.5 million, term until fiscal year 2024
– EUR 29.5 million, term until fiscal year 2026
– EUR 6.0 million, term until fiscal year 2028
Standard covenants are defined in the loan agreement. The only material covenant to be complied with is:
– Equity ratio > 25 %
As of December 31, 2021, all the covenants relating to the promissory note had been met.
On June 13, 2017, Feintool signed a CHF 90 million syndicated loan agreement in cash loans with six banks with an option of increase about CHF 60 million. On May 17, 2018, this contract was extended and will now run until June 13, 2023. The syndicated loan defines a number of covenants, the principal one being:
– Equity ratio > 30 %
– Net senior debt/EBITDA < 3.0x
In March 2020, it became apparent that Feintool was likely to breach individual financial covenants in its financial agreements over the course of 2020. In June 2020, Feintool signed an amendment to the agreement with the banks concerned that essentially increases the credit line by CHF 30 million to CHF 120 million and suspends the critical covenants until December 30, 2021. In their place, covenants relating to minimum profitability requirements and “available funds” (liquid funds and unused credit lines) were added to the agreement. The acquisition of the company Kienle + Spiess GmbH will temporarly increase the net debt. Therefore the covenant net debt / EBITDA was increased until end of November 2022.
As of December, 31st 2021, CHF 27.9 million of the syndicated loan had been used (previous period CHF 63.7 million) and all the covenants – both the modified and the original covenants – had been met. In accordance with the principle of substance over form, the syndicated loan is recognized as a noncurrent financial liability, although the individual installments each have a term of less than 360 days. As a result of the difficult market environment at present, hardly any repayments are planned for the next year. The extension of the individual installments has been confirmed until the end of the contract, provided that the covenants are met.
Credit agreements concluded on a bilateral basis with various banks also contain standard covenants, that are largely equivalent to those of the syndicated loan. As of December, 31st 2021, all the covenants had been met.
If the Group or companies were unable to meet one or several covenants of the syndicated loan, promissory note or bilateral debts, the banks would have the right to terminate the loans at short notice.
As at December, 31st 2021, Feintool has CHF 110.8 million (previous year CHF 65.6 million) in unused, confirmed creditlines at the bank.
1) This item includes the borrowing of interest-bearing debt of kCHF 15 916 (previous year kCHF 67 958), the repayment of interest-bearing lease liabilities of kCHF 8 332 (previous year repayment kCHF 15 854) and the repayment of interest-bearing debt of kCHF 49 961 (previous year kCHF 27 051).
20 Trade and other payables
1) Liabilities from factoring and ABS include all customer payments not yet forwarded and the corresponding liability in respect to the continuig involvement from ABS. Further information on the ABS program can be found in the notes to the financial statements, section “financial assets and liabilities”.
21 Accrued expenses and deferred income
Provisions for actual warranty events cover the estimated cost arising from warranty services provided by the Group companies, which the company must cover for contractual reasons or due to its conduct. The outflow of funds occurs as and when the warranties are taken up, over a maximum of three years.
“Other provisions” include provisions for restructuring, scrap rebates, customer complaints, price reductions that were not passed on and various small items. The expected duration of the outflow of funds is 1 to 2 years.
23 Employee benefit plans
The assets of the employee benefit plans do not include treasury shares (previous year kCHF 0). The Group uses assets (tangible assets) belonging to the retirement fund with a value of kCHF 4 500 (previous year kCHF 6 000). The “Net defined benefit liability (asset)” item contains various benefit plans in Switzerland, Germany and Japan. The net liability from the Swiss plan amounts to kCHF 12 170 (previous year kCHF 36 551), the German plan to kCHF 8 390 (previous year kCHF 10 384) and the Japanese plan to kCHF 733 (previous year kCHF 856). On account of the materiality of the figures, only the Swiss and German plans are shown in Note 23.3 onwards.
The majority of Feintool employees in Switzerland are insured against the risks of death, old age and disability through the semi-autonomous Feintool Group pension fund. The benefits provided by the Feintool Group’s pension fund exceed the minimum level prescribed by the Federal Occupational Old Age, Survivors’ and Disability Pension Act (BVG). The ordinary employer contributions comprise risk contributions of 2.2 % and age-related contributions of 3.0 %–16.5 % of the insured salary for credits to individual retirement assets. The typical retirement age is 65 for men and 64 for women (until December 31, 2020 5.5 %–14.0 %). Employees have a right to early retirement from age 58, in which case the conversion rate is reduced in accordance with the longer expected pension payment period and the absence of contribution payments prior to retirement. Furthermore, employees can withdraw their retirement pension in full or in part as a lump sum. The amount of pension paid out is arrived at from the conversion rate, which is applied to the insured individual’s accumulated retirement savings at the time of retirement. In the case of retirement at age 65/64, the conversion rate is 5.2 % (previous year 5.4 %). Afterwards, it will fall by 0.2 % each year until it reaches 4.4 % in financial year 2025. The amendment to the regulations of the Swiss pension fund until the financial year 2021 has been agreed on in financial year 2016. In the reporting year, the company decided to adjust the conversion rate in subsequent years as well. The accumulated retirement assets are arrived at from the employee and employer contributions paid into the individual savings account of each insured member, together with the interest credited to the retirement assets, vested benefits brought in and any voluntary payments made by the insured person. The interest rate paid on the retirement assets is set by the Board of Trustees each year.
The legal form of the Feintool Group’s pension fund is that of a foundation. The Board of Trustees, which comprises an equal number of employee and employer representatives, is responsible for managing the foundation. The duties of the pension fund Board of Trustees are laid down in the BVG and in the rules of the pension fund. A temporary shortfall is permitted under the BVG. The Board of Trustees is required to take measures to rectify any underfunding within a reasonable period. Under the BVG, additional employer and employee contributions may be incurred if the pension fund exhibits a significant shortfall (shortfall < 90 % = considerable shortfall; in this instance, contributions to rectify the situation are essential). In these cases, the contributions to rectify the situation are split between the employer and the employee; the law does not require the employer to assume more than 50 % of the additional contributions. The BVG funding ratio of the Feintool Group pension fund was around 108.7 % as at December 31, 2021 (previous year 99.8 %). The Board of Trustees is the central coordination and monitoring body for the management of the assets. The pension assets are administered by a mandated, independent financial services provider. The Board of Trustees determines the investment strategy and tactical bandwidths in accordance with the statutory provisions. In accordance with its guidelines, the financial services provider is able to decide on the asset allocation subject to the statutory requirements concerning asset classes and bandwidths. In the financial year 2016, the company that established the pension fund committed to the addition of another CHF 1.2 million annually for the restructuring of the pension fund for the Feintool Group – along with the standard contributions – until a 100 % degree of coverage is achieved. Furthermore, during the reporting year, the pension trust made a one-off additional payment of CHF 2.0 million toward accelerating the restructuring of the Feintool Group’s pension fund.
The German plans comprise:
This essentially includes the right to a lifetime pension payable upon retirement, disability and/or death. The level of monthly pension entitlement on reaching the retirement age of 65, and on reaching age 63 at the earliest, amounts to 50 % of the annual pensionable income broken down into a monthly amount; the annual pensionable income is deemed to be the fixed annual income at the time the pension becomes due for payment.
The Japanese plan includes all employees who have worked at the company for three or more years. Employees are entitled to a pension from age 60.
1) In the previous year, the Swiss pension fund approved an amendment to the regulations, which will result in a gradual reduction of the conversion rate from 5.2 % to 4.4 %. This amendment had a positive one-time effect of kCHF 5 388 on the statement of comprehensive income in the previous year.
2) Triggered by the global economic slowdown, the number of employees in Switzerland fell by 34 in the previous year. This resulted in a curtailment in the Swiss pension fund that had a positive one-off effect of kCHF 838 and is reported on the Statement of Comprehensive Income of the previous year.
3) As at December 31, 2021, the weighted-average duration of pension benefit obligations was 13.8 years for the Swiss plan (previous year 14.8 years) and 18.6 – 19.1 years for the German plans (previous year 19.2 – 19.7 years). Feintool uses the BVG 2020 G mortality table (prior year BVG 2015 G) in Switzerland and Heubeck RT 2018 G (same as last year) in Germany for the hypothetical life expectancy.
4) In the financial year, the pension trust made contributions of CHF 3.2 million to restructure the Feintool Group’s Swiss pension fund (previous year 4.8 million). Restructuring contributions of CHF 1.2 million annually have been committed until a coverage ratio of 100 % has been reached, CHF 2.0 million are a one-time special payment to accelerate the restructuring process.
The expected contributions made to the employee benefit plans for the following financial year amount to CHF 4.0 million in the case of employer contributions and CHF 2.9 million in the case of employee contributions.
The plan assets are invested by an AAA-rated bank in line with the predefined strategy. The following limits apply to investment:
Currencies other than the CHF are hedged. With the exception of directly held real estate, all investments are traded on a public exchange.
The German plan includes a reinsurance policy to cover pension liabilities. Assets from the insurance policy are included in plan assets.
This conditional capital of 55 750 registered shares with a par value of CHF 10 each was created following the resolution of the Extraordinary General Meeting of July 2, 1998 for the payment of rights conferred under the employee stock option plan.
According to the decision of the Annual General Meeting of April 20, 2021, the Board of Directors is authorized to create capital up to a maximum amount of CHF 10 000 000 as required through the issue of up to 1 000 000 new shares, each having a nominal value of CHF 10. The new shares are to be paid up in full. The Board of Directors is authorized to restrict or exclude subscription rights under certain circumstances. The new shares can be issued in one or more stages. The approval is limited to a period of two years. The authorized capital will expire on April 19, 2023.
In the 2020 financial year, 10 000 shares were purchased at an average price of CHF 66.63 (previous year 12 650 shares at an average price of CHF 50.23) and 12 803 shares transfered at an average price of CHF 56.44 (previous year 12 172 shares at an average price of CHF 55.43) for the share-based management remuneration. Treasury shares are reserved primarily for management remuneration.
25 shared based payment plans
As a component of the bonus, 12 803 shares (previous year 12 172) were allocated to the Board of Directors, the Group Management and other managers in the financial year at a transaction value of kCHF 747 (previous year kCHF 652). Of this amount, 5 000 shares have been distributed in January 2022, 7 803 shares in December 2021. All shares were transferred from treasury shares and were transferred directly to the ownership of the recipient.
26 Off-balance sheet transactions, contingent liabilities
Contingent obligations comprise funding that has been received and is subject to certain conditions. In the event of a breach of these conditions, there is a risk that these funds or a portion of them will have to be repaid.
Feintool owns properties at some locations that are either contaminated or suspected of being contaminated. Under the supervision of the local authorities, Feintool is remediating these plots of land to remove the corresponding pollution and contaminants. Based on our current assessment, these activities are not expected to have a significant impact on the Feintool Group’s net assets, financial position, or results of operations.
At the end of the reporting period, Feintool was not involved in any other court proceedings. However, disputes relating to product liability, promotional activities, labor law and unfair dismissals, anti-trust law, securities trading, sales and marketing practices, health and safety, environmental and tax-related claims, state investigations and copyright law are always a possibility. Such proceedings could result in substantial claims being brought against Feintool that may not be covered by insurance policies. Feintool believes, however, that any such proceedings would not have a significant effect on the Group’s financial position, operating results or cash flows.
27 Assets pledged as security for own liabilities
28 Economic risks
The COVID-19 pandemic had a significant impact on economic development in the reporting year. At the present time, it is impossible to assess the further impact of the pandemic on global economic development.
Continuously growing protectionism with rising tariffs, the change in raw material and energy prices as well as the persistently high external trade imbalances entail risks for the future development of the global economy. These factors could lead to a decline in global economic growth. The inherent uncertainties cause stronger exchange rate fluctuations, and a continuation of the weakness of the euro in particular. The scenarios described could give rise to severe adverse effects for Feintool.
Management of financial risks
Financial risk management is based on the directives approved by the Board of Directors and Group Management. The principles of risk management and the processes applied are reviewed on a regular basis in order to address changes in the market environment and in Feintool’s activities.
Besides standards for general financial risk management, these directives include standards for specific aspects of liquidity, interest rate, exchange rate and default risk management, the use of derivative financial instruments, capital procurement and the policy on investing surplus liquidity. Capital procurement within the Group is mostly undertaken on a centralized basis.
Liquidity risk denotes the risk that the Feintool Group may at some point in the future be unable to meet its regular payment obligations on time and in full. Feintool must ensure that the Group is able to meet its payment obligations at all times. This will be the case if sufficient funds can be generated by the cash flow from operating activities or if the necessary financial resources can be raised on the financial markets or from banking institutions. Feintool Group’s management considers an operating liquidity reserve equivalent to one month’s costs of the Group (approx. CHF 25 million) to be adequate. This liquidity reserve can also be secured through unused credit lines. Management receives regular reports on the Group’s present and anticipated liquidity status, giving it an overview of the liquidity situation.
Feintool has a syndicated loan of CHF 120 million (previous year EUR 120 million), a promissory note in the amount of EUR 75 million (previous year EUR 65 million), bilateral credit loans and several leasing and rental contracts (more details in note 19).
These contracts contain standard covenants, particularly
In March 2020, it became apparent that Feintool was likely to breach individual financial covenants in its financial agreements over the course of 2020. In June 2020, Feintool signed an amendment to the agreement with the banks concerned that essentially suspends the critical covenants until December 30, 2021. In their place, covenants relating to minimum profitability requirements and “available funds” (liquid funds and unused credit lines) were added to the agreement. The acquisition of the company Kienle + Spiess GmbH will temporarly increase the net debt. Therefore the covenant net debt / EBITDA was increased until end of November 2022.
Were the Group or individual companies unable to meet these covenants, the banks would have the right to terminate the loans at short notice. As at December 31, 2021, all covenants – both the modified and the original covenants – had been met. As at December 31, 2021, Feintool had CHF 110.8 million (previous year CHF 65.6 million) in unused, confirmed credit lines at the bank.
1) Excluding social security obligations, advance payments from third parties and outstanding VAT obligations.
2) Excluding accruals for salary, bonus and overtime as well as outstanding installations and other work to be fulfilled in relation to customer orders.
3) As at December 31, 2021, the contractual values of the forward exchange deals amounted to kCHF 125 620 (previous year kCHF 202).
Interest rate risk
Interest rate risk can have a negative impact on the Group’s earnings as a result of higher interest rates on borrowings or lower interest rates on assets. Furthermore, changes in interest rates can affect the fair value of underlying financial instruments. Depending on the expected trend in interest rates, Feintool obtains financing at either fixed or variable rates. There are currently financial liabilities from the promissory note loan due to fixed interest payments, from bank loans where half have fixed rates and half adjustable rates, and from lease liabilities with fixed rates, fixed terms and running amortization. Interest rate management is mostly undertaken on a centralized basis so as to limit the impact of interest rate changes on net financial income/finance costs.
A 0.5 % increase in the adjustable interest rate would adversely affect pretax profits by kCHF 933.
Exchange rate risk
Owing to its geographical diversification, Feintool is exposed to exchange rate risk particularly in relation to the euro (EUR), US dollar (USD), the Chinese currency yuan (CNY), the Japanese yen (JPY) and the Czech (CZK). Changes in exchange rates can affect the fair value of existing financial instruments and in particular the expected future cash flows. As far as possible, the Group uses natural hedges in order to offset the impact of exchange rate fluctuations. It seeks to ensure that costs are incurred in the same currency as the resulting income. The resulting surpluses (euro in particular) and requirements (Swiss franc in particular) at Group level are coordinated centrally in the various currencies. The net position of the most important foreign currencies is hedged over a period of usually six to twelve months, as required.
The Feintool Group’s exchange rate risk is calculated by way of the following sensitivity analysis. The table shows the impact on total earnings if foreign currencies were decreased by 5 % versus the Swiss franc and simultaneously all other variables were to remain the same.
Other market risks
The fair value of financial instruments may change as a result of exchange rates, interest rates or changes in credit ratings, and may therefore affect the Group’s financial position and earnings. Feintool seeks to minimize the net effect of market risks through a balanced financing and asset structure.
Derivative financial instruments
Derivative financial instruments are used to minimize existing interest rate or exchange rate risks. The positive and negative fair values in the Notes show current market values. The contract volumes also shown indicate the extent of the exposure to derivatives.
In terms of capital management, the Group’s objective is to ensure that the business has the financial means necessary to continue as a going concern, and to provide the resources required to achieve the Group’s objectives so that added value can be generated for shareholders and other stakeholders and a cost-effective, low-risk capital structure can be maintained. Among the criteria used by the Group to monitor its capital structure are the equity ratio and net financial liabilities. In addition, it monitors the main covenants (equity, senior net debt/EBITDA) under the syndicated loan agreement.
The equity ratio is calculated as the ratio of equity to total assets. Net financial liabilities consist of current and non-current interest-bearing liabilities less cash and cash equivalents.
The Group’s aims for an equity ratio of at least 40 % and for a net-debt/EBITDA ratio of less than 1. Comments on the aforementioned ratios are provided in the Financial Review (chapter “Consolidated Balance Sheet”). In terms of dividends policy, Feintool aims to pay shareholders approximately 30 % of consolidated annual profit in the form of a dividend.
Feintool’s credit risk is the book value of the recognized financial assets with the exception of financial guarantees. In this case, the guaranteed amount corresponds to the credit risk.
Default risk is the risk that a counterparty will be unable to meet its liabilities to the Group companies. By avoiding cluster risk and concentrating financial investments among first-class counterparties, it should be possible to avoid extensive credit default risk. The automobile sector is the focal point of Feintool’s operations. By definition, this market segment involves a certain risk for Feintool’s operations. As far as normal customer credit balances are concerned, outstanding receivables are constantly monitored as part of the process of regular reporting by the Group companies to Head Office. As at December 31, 2021, the overall default risk amounts to kCHF 146 750 (previous year kCHF 142 584). Feintool generates more than 20.4 % (previous year 18.3 %) of consolidated sales for one customer. Income is generated in all segments. With the other customers, the share is less than 12.4 % (previous year 12.1 %) in each case.
The Feintool Group banks exclusively with renowned national and international institutions that have a minimum rating of BBB. It specifies the type of transactions that the subsidiary companies may conduct with the banks.
29 Financial instruments
The carrying amounts do not differ significantly from the fair values.
1) Excluding accruals for commitment fees, prepaid expenses for customer orders rental agreements, prepaid insurance premiums and tax.
2) Excluding accruals for salary, bonus and overtime as well as outstanding installations, tax and other work to be fulfilled in relation to customer orders.
29.3 Fair value hierarchy
Feintool has measured financial instruments at fair value and uses the following hierarchy to determine fair value.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices)
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Feintool holds only financial instruments in Level 2 amounting to kCHF -1 220 net (previous year kCHF 2).
Currency instruments primarily relate to the hedging of foreign-currency risks in euros. The life of the foreign exchange futures is a few months.
30 Related parties
30.1 Compensation paid to members of the Board of Directors and Group Management
Levels of compensation paid to the Board of Directors and Group Management are defined by the Nomination and Compensation Committee and approved by the full Board of Directors. Total compensation (excluding tax-allowable expenses), specifically fees, salaries, credits, bonuses and benefits in kind agreed during the financial year and paid directly or indirectly to the members of the Board of Directors and Group Management, amounted to kCHF 3 209 (previous year kCHF 2 431).
1) Incl. benefits in kind (Provision of company cars, etc.).
2) For the Chairman of the Board of Directors, allocation of a predefined number of shares. The shares are locked in for five years. The valuation corresponds to the price at the time of allocation. For the 2021 financial year, the shares were transferred on January 4, 2022. Group Management is entitled to a predefined amount in Swiss francs. Remuneration is in the form of shares. The number of shares depends on the average price in October/November. The shares have a staggered lock-in period of 1–4 years. Disbursement took place in December.
31 Major shareholders
1) The notice dated July 15, 2013, comprised 400 285 shares or 8.97 % of the corresponding share capital. Following the capital increase on September 20, 2018, 400 285 shares correspond to a capital share of 8.14 %.
32 Events after the balance sheet date
On December 6th 2021, Feintool agreed to acquire Kienle + Spiess GmbH, a major manufacturer of stators and rotors for electric drives. The acquisition will significantly strengthen Feintool’s position in E-lamination and extend its manufacturing footprint. The approval by the antitrust authorities was received end of February 2022. The preliminary share purchase price is estimated at EUR 71 million plus debt and pension liabilities of around EUR 100 million and depends on purchase price elements such as net debt and actual working capital in relation to target working capital. The exact amount and distribution of the assets are not yet known. Kienle + Spiess GmbH generated sales of approximately EUR 140 million in 2020/2021.
33 Approval of the consolidated financial statements
The consolidated financial statements were authorized for issue by the Board of Directors on March 1, 2022 and will be submitted to the Annual General Meeting for approval on April 28, 2022.