Notes to the consolidated financial statements
1 Significant accounting policies
1.1 Basis of preparation
Autoneum Holding Ltd (“the Company”) was incorporated on December 2, 2010 as a Swiss corporation domiciled in Winterthur. The Company is listed on the SIX Swiss Exchange (AUTN, ISIN: CH0127480363) since May 13, 2011. Autoneum Holding Ltd together with its subsidiaries will henceforth be referred to as “Autoneum Group”, “Group” or “Autoneum”. A list of subsidiaries, associated companies and non-consolidated investments of Autoneum Group can be found in note 35.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements are based on historic cost, with the exception of employee benefit assets and liabilities, which are measured at the fair value of the plan assets less the present value of the defined benefit obligation, and specific financial instruments, which are measured at fair value. The consolidated financial statements were authorized for issue by the Board of Directors on March 5, 2019 and are subject to approval by the Annual General Meeting of shareholders on March 28, 2019.
The consolidated financial statements are published exclusively in English. Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount.
1.2 Significant accounting judgments, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties include the risk management process (refer to note 2) and the sensitivity analyses of defined benefit plans (refer to note 24).
In the process of applying the Group’s accounting policies, management has made the following judgment in connection with the consolidation of entities in which the Group holds less than the majority of voting rights.
Assessing whether Autoneum has control over an entity includes all facts and circumstances that may indicate that the Group is able to direct the relevant activities and key decisions. Autoneum concludes that it has control over certain entities in which it holds 50% or more (refer to note 22), based on specific rights allocated. Facts and circumstances indicating that Autoneum controls an entity may change and lead to a reassessment of the management’s conclusion.
Estimates and assumptions
Key assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending December 31, 2018 include the following:
Impairment losses on tangible assets are assessed based on estimated cash flows, which may vary from actual cash flows. Important assumptions to consider are useful lives, growth rates, achievable margins as well as discount rates (refer to note 13).
Preproduction costs that are capitalized in the balance sheet include mainly employee costs. In case hourly records are not available, controlling staff estimate the hours spent for each project. Testing for impairment of the capitalized preproduction costs requires management to estimate both the total future consideration and total future costs of a project.
For defined benefit plans, actuarial valuations which are the basis for the employee benefit assets and liabilities in the balance sheet are carried out regularly. These calculations are based on statistical and actuarial assumptions. In particular, the present value of the defined benefit obligation is affected by assumptions such as discount rate, expected future salary growth and the life expectancy. Other assumptions for the valuation are derived from statistical data such as mortality tables and staff turnover rates. Actuaries are independent from Autoneum. Assumptions may differ significantly from actual results. These deviations can ultimately have an effect on the employee benefit assets or liabilities in future periods (refer to note 24).
In the course of the ordinary operating activities of Autoneum Group, obligations from guarantee and warranty, litigation and tax risk, and environmental risk can arise. Provisions for these obligations are measured on the basis of estimated future cash outflow. The outcome of these business transactions may result in claims against Autoneum that may be below or above the related provisions. Provisions for litigation and tax risk comprise complex cases that include material uncertainties. Environmental provisions are recognized for the expected costs for the cleanup and reconstruction of contaminated sites that are interdependent of many uncertainties, such as Autoneum’s share of the cost or the applicable approach for determining these costs. The financial impact of these cases for future periods can only be estimated, because uncertainties relating to amount and date of cash outflow exist (refer to note 25).
Assumptions in relation to income taxes include interpretations of the tax regulations in place in the relevant countries. The adequacy of these interpretations is assessed by the tax authorities. This can result, at a later stage, in changes in the income tax expenses. To determine whether a deferred income tax asset on tax loss carryforwards may be recognized requires judgment in assessing whether there will be future taxable profits against which these tax loss carryforwards can be offset (refer to note 11).
1.3 Changes in accounting policies
Adopted changes in accounting policies
Except as described below, the accounting policies applied in these consolidated financial statements are the same as those applied in the consolidated financial statements as of December 31, 2017.
The Group has initially adopted IFRS 9 “Financial Instruments” effective as of January 1, 2018. IFRS 9 includes revised guidance on the classification and measurement of financial assets and financial liabilities, including a new expected credit loss model for calculating impairment as well as general hedge accounting requirements. Autoneum is mainly impacted in the area of valuation of trade receivables and contract assets, which is now assessed based on the customer’s credit rating as well as the maturity of the financial asset. In the course of the adoption of IFRS 9 as of January 1, 2018 trade receivables decreased by CHF 0.8 million, financial assets decreased by CHF 0.5 million, other assets decreased by CHF 0.2 million, deferred income tax assets increased by CHF 0.3 million, deferred income tax liabilities increased by CHF 0.1 million, and the cumulative impact of CHF 1.2 million is recognized in retained earnings. In the course of the adoption of IFRS 9, Autoneum elected to classify its equity investments in Nihon Tokushu Toryo Co. Ltd., Tokyo, Japan, into the category “at fair value through other comprehensive income” (FVOCI). Under this new category, the cumulative change in fair value is reclassified from the fair value reserve to retained earnings on disposal of the investment, and is not recycled to profit or loss. The prior-year’s financial information has not been restated, as the impairment need on assets as well as the classification and measurement could not be assessed without the use of hindsight.
The Group has initially adopted IFRS 15 “Revenue from Contracts with Customers” effective as of January 1, 2018. IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized based on a five-step approach. Under IFRS 15, an entity recognizes revenue when control of the promised goods and services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled. It replaces existing revenue recognition guidance, including IAS 18, IAS 11 and IFRIC 13. Autoneum implemented the new standard as of January 1, 2018 using the full retrospective method. The resultant impact of the conversion is recognized in retained earnings as of January 1, 2017 and the prior-year’s financial information has been restated accordingly.
IFRS 15 requires that preproduction costs be capitalized as “costs to fulfill a contract”. Instead of an immediate recognition in the income statement, the costs are capitalized and amortized over the period when revenue is recognized. The capitalized preproduction costs amount to CHF 86.6 million and are included in other assets (non-current) as of December 31, 2017. The Group capitalized preproduction costs of CHF 21.4 million and amortized preproduction costs from prior periods of CHF 19.0 million in 2017. Both transactions are recorded in the consolidated income statement in the line item “Material expenses”.
The implementation of IFRS 15 led to changes in the timing of recognition of costs and revenue for certain projects in which Autoneum sells the serial production tool to the OEM. According to IFRS 15, both costs and revenue are recognized when Autoneum fulfills the respective performance obligation, which is at a clearly defined point in time. According to the accounting principles applied previously, costs and revenue were in some cases recognized over the serial production period. As a consequence, the line items “Other assets” (non-current and current) decreased by CHF 17.1 million as of December 31, 2017, which is mainly the result of deferred expenses that were reported as a part of other assets and are recognized as material expenses in the year 2017 or earlier, applying the new standard. Inventories decreased by CHF 6.9 million as of December 31, 2017 and the related costs are recognized in the year 2017 or earlier. Other liabilities (non-current and current) decreased by CHF 25.9 million as of December 31, 2017, which is mainly the result of deferred revenue that is recognized as revenue in the year 2017 or earlier, applying the new standard.
The adoption of IFRS 15 resulted in an increase in total equity of CHF 71.1 million as of December 31, 2017, which is net of deferred income taxes. The impact on the consolidated income statement and on the consolidated statement of comprehensive income is immaterial in relation to the Group’s results, as the effect of the change in the accounting for the preproduction costs is partly offset by the effect of the change in the timing of recognition of costs and revenue.
Other new and revised standards and interpretations are effective as of January 1, 2018 but have no or no significant impact on the Group’s consolidated financial statements.
The tables below show the restatement of the prior-year’s financial information due to the retrospective implementation of IFRS 15.
Future changes in accounting policies
The following new and revised standards and interpretations have been issued, but are not yet effective. They have not been applied early in these consolidated financial statements. However, a preliminary assessment has been conducted by the management and the expected impact of each standard and interpretation is presented in the table.
IFRS 16 “Leases” brings most leases on the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. For lessors, however, the accounting remains largely unchanged. Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly. 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 can be readily determined. If the rate cannot be readily determined, the lessee’s incremental borrowing rate should be used. IFRS 16 supersedes IAS 17 “Leases” and related interpretations.
The Group will implement the new standard on January 1, 2019 and will apply the modified retrospective method, with right-of-use assets measured at an amount equal to the lease liability, adjusted by the amount of the prepaid or accrued lease payments relating to those leases recognized in the balance sheet immediately before the date of initial application and will not restate prior years. Autoneum has elected not to recognize right-of-use assets and lease liabilities for short-term leases and leases of low value assets.
The Group expects that the application of IFRS 16 will result in an increase in both tangible assets and borrowings in the amount of around CHF 300 million with no impact on shareholders’ equity.
- 1 No impact or no significant impact is expected on the consolidated financial statements.
1.4 Scope and methods of consolidation
The consolidated financial statements of Autoneum Holding Ltd include the Company and its subsidiaries. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control is lost. Acquisitions are accounted for using the acquisition method. Intercompany transactions are eliminated.
If Autoneum does not have control over entities but significant influence, which is usually the case if Autoneum holds interests of between 20% and 50%, these investments are classified as associated companies and accounted for using the equity method. Interests of less than 20% where Autoneum does not have significant influence are classified as non-consolidated investments and are accounted for at fair value. The subsidiaries, associated companies and non-consolidated investments are listed in note 35.
1.5 Foreign currency translation
Items included in the financial statements of each Group company are measured using the currency of the primary economic environment in which the company operates (“functional currency”). The consolidated financial statements are prepared in Swiss francs, which is the functional currency and the reporting currency of Autoneum Holding Ltd.
Transactions in foreign currencies are translated into the functional currency by applying the exchange rates prevailing on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.
For consolidation purposes, items in the balance sheet of foreign subsidiaries are translated at year-end exchange rates, while income statement items are translated at average rates for the period. The resulting currency translation differences are recognized in other comprehensive income and, in the event of a disposal of a foreign operation, transferred to the income statement as part of the gain or loss from disposal.
1.6 Hyperinflation accounting
The Argentinian economy exceeded 100 inflation points in 36 months and is considered to be hyperinflationary in accordance with the criteria in IAS 29 “Financial Reporting in Hyperinflationary Economies” effective as of July 1, 2018. The standard requires that the financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the reporting date. The financial statements of the Argentinian subsidiary were restated accordingly before being translated and included in the consolidated financial statements of the Group. Inflation is assessed as follows:
• From January 1, 2017 onwards: Argentinian consumer price index (CPI).
• Until December 31, 2016: Argentinian wholesale price index (WPI), except for the two months of November and December 2015 for which the city of Buenos Aires CPI is used.
1.7 Tangible assets
Tangible assets are stated at historical cost less accumulated depreciation, which is recognized on a straight-line basis over the estimated useful life of the asset. Historical cost includes expenditures that are directly attributable to the acquisition of the assets. Useful life is determined according to the expected utilization of each asset. The relevant ranges are as follows:
Buildings 20–50 years
Machinery and plant equipment 5–15 years
Data processing equipment 4–8 years
Vehicles and furniture 3–10 years
Components of certain assets with different useful lives are depreciated separately. Gains or losses arising from the disposal of tangible assets are recognized in the income statement. Costs of maintenance and repair are charged to the income statement as incurred. The residual values and useful lives of tangible assets are reviewed, and adjusted if appropriate, at each balance sheet date.
Leased assets where Autoneum substantially bears all the risks and rewards of ownership (finance leases) are capitalized. Assets held under such finance leases are depreciated over the shorter of their estimated useful life or the lease term. The corresponding lease obligations, excluding finance charges, are included in borrowings. Lease installments are divided into an interest and a principal component. All other leases are classified as operating leases. Payments in respect of operating leases are charged to the income statement on a straight-line basis over the duration of the lease.
1.9 Intangible assets
Intangible assets such as product licenses, patents and trademark rights as well as software acquired from third parties are included in the balance sheet at acquisition cost and are amortized on a straight-line basis over a period of up to eight years. The residual values and useful lives of intangible assets are reviewed, and adjusted if appropriate, at each balance sheet date. Autoneum has neither in the current reporting period nor in the prior period intangible assets that have an indefinite useful life recorded in the balance sheet. Autoneum has no goodwill capitalized in the balance sheet.
1.10 Impairment of assets
Tangible assets, intangible assets and other assets (non-current) are tested for impairment if there are indications that, due to changed circumstances, their carrying value may no longer be fully recoverable. If such a situation arises, the recoverable amount is determined. This is the higher of its value in use and its fair value less cost to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount is below the carrying amount, a corresponding impairment loss is recognized in the income statement. Where the recoverable amount cannot be determined for an individual asset, it is determined for the cash-generating unit to which the asset belongs. To determine the value of an asset, estimates of the expected future cash flows from both usage and disposal are made.
1.11 Capitalized preproduction costs
In order to be able to deliver an OEM with serial parts over the production period, Autoneum designs and develops a serial part based on its existing product technologies that meets the OEM’s specifications and prepares its manufacturing process allowing serial production over the production period, which is usually between five to eight years. The costs for this process qualify as “costs to fulfill a contract” and are capitalized as “preproduction costs” in the line item “Other assets”. Those costs are capitalized when the costs are directly attributable to a project, the costs enhance resources of the entity that will be used in satisfying performance obligations in the future, and the costs are expected to be recovered. The majority of costs that fulfill those requirements are employee costs which are allocated to specific projects, either based on actual hours entered by employees multiplied by an hourly cost rate, or in case hourly records are not available, based on estimates made by controlling staff.
The capitalized preproduction costs are amortized in the income statement in the line item “Material expenses” over the period when revenue from the sale of the serial parts is recognized, which is usually between five to eight years.
In case the carrying amount of the capitalized preproduction costs exceeds the remaining amount of consideration that Autoneum will receive minus the remaining costs that Autoneum will incur to fulfill the contract, an impairment loss is recognized immediately.
1.12 Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Initial recognition and measurement of financial assets
At initial recognition, the Group classifies its financial assets, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. Trade receivables are measured at the transaction price determined under IFRS 15 (refer to note 1.20 on). The Group initially measures all other financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are “solely payments of principal and interest” (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.
Subsequent measurement of financial assets
For subsequent measurement, Autoneum classifies its financial assets in three categories:
• Financial assets at amortized cost: The Group measures financial assets at amortized cost if the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments): Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 “Financial Instruments: Presentation” and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as financial income in the income statement when the right of payment has been established. Equity instruments designated at fair value through OCI are not subject to impairment assessment. The Group elected to classify irrevocably its listed investments in non-consolidated companies under this category.
• Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also classified as held for trading. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the income statement.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired or the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through arrangement”.
Impairment of financial assets
The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next twelve months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but calculates ECLs according a provision matrix based on days the amounts are past due. For trade receivables and contract assets ECLs are determined by using publicly available credit default probabilities for the individual customer based on their ratings (mainly Standard & Poor’s long-term issuer rating). These ratings incorporate forward-looking information.
As Autoneum did not encounter material credit losses in the past the Group considers a financial asset in default when contractual payments are 180 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Initial recognition and measurement of financial liabilities
Financial liabilities are classified at initial recognition as financial liabilities at fair value through profit or loss, or as financial liabilities at amortized cost. All financial liabilities are recognized initially at fair value and, in the case of financial liabilities at amortized cost, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.
Subsequent measurement of financial liabilities
The measurement of financial liabilities depends on their classification, as described below:
• Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group. Gains or losses on liabilities held for trading are recognized in the income statement.
• The category financial liabilities at amortized cost is most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest. The effective interest amortization is included as finance expenses in the income statement. This category generally applies to interest-bearing loans and borrowings.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Derivative financial instruments
The Group uses derivative financial instruments, such as forward currency contracts, to hedge its foreign currency risks. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remea sured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss.
Raw materials, consumables and purchased parts are valued at the lower of average cost or net realizable value. Semi-finished goods and finished goods are valued at the lower of manufacturing cost or net realizable value. Valuation adjustments are made for obsolete materials and excess stock.
1.14 Cash and cash equivalents
Cash and cash equivalents include bank accounts and time deposits with original maturities from the date of acquisition of up to three months.
Ordinary shares are classified as equity since the shares are non-redeemable and any dividends are discretionary.
When shares are repurchased, the amount of the consideration paid is recognized as a deduction from equity and presented as a separate component in equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the transaction is recognized in retained earnings.
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are discounted if the impact is significant.
1.17 Income taxes
Income taxes comprise both current and deferred income taxes. Normally income taxes are recognized in the income statement, unless they are linked to a position that is recognized directly in equity or in other comprehensive income. In this case, the income taxes are also recognized directly in equity or in other comprehensive income.
Current income taxes are calculated and accrued on the basis of taxable income for the year. Deferred income taxes on temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and amounts determined for local tax purposes are calculated using the liability method. Deferred income taxes are measured at the tax rate expected to be applied to temporary differences when they reverse, using tax rates enacted or substantially enacted at the reporting date. Deferred income tax assets and liabilities are offset to the extent that an entity has a legally enforceable right to offset current income taxes, and the deferred income taxes relate to income taxes levied by the same taxation authority and relate to the same taxable entity.
Temporary differences resulting from investments in Group companies are not considered if Autoneum is able to control the timing of the reversal of the temporary differences and if it is probable that these temporary differences will not reverse in future.
The tax impact of losses and deductible temporary differences is capitalized to the extent it appears probable that such losses will be offset in the future by taxable income.
1.18 Employee benefits
Employee pension plans are operated by certain subsidiaries, depending upon the level of coverage provided by the government pension facilities in the various countries in which they are present. Some are provided by independent pension funds. If there is no independent pension fund, the respective obligations are shown in the balance sheet under employee benefit liabilities. As a rule, pensions are funded by employees’ and employer’s contributions. Pension plans exist on the basis of both defined contribution and defined benefit.
Pension liabilities arising from defined benefit plans are calculated annually by independent actuaries using the projected unit credit method. The discount rate used for the calculation is based on interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Remeasurement gains or losses are recognized in other comprehensive income. Pension cost relating to services rendered in the reporting period is recognized in the income statement as current service cost. Pension cost relating to services rendered in previous periods as a result of new or amended pension benefits is recognized in the income statement as past service cost. The net interest expenses or income on the net defined benefit liability or asset for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the then net defined benefit liability or asset, taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. The net interest expenses or income is recognized in financial expenses or income. The fair value of plan assets is deducted from the defined benefit obligations. Any asset resulting from this calculation is only capitalized up to an amount not exceeding benefits from future contribution reductions or refunds.
In the case of defined contribution plans, the contributions are recognized as expense in the period in which they incurred.
1.19 Share-based payments
Share-based payments to members of the Board of Directors, the Executive Board and senior management are measured at fair value at the grant date, and recognized in the income statement over the vesting period. The fair value is assessed based on the current market price and taking into account a discount for dividends that will not be collected by the beneficiary because the transfer of the shares is deferred. For share-based payments that are settled with equity instruments, a corresponding increase in equity is recognized.
1.20 Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer. The
Group recognizes revenue when it transfers control over a good or service to a customer.
The main business of Autoneum is to develop and produce multifunctional and lightweight components and systems for noise and heat protection for its customers, i.e. original equipment manufacturers (OEM). Autoneum and the OEM agree on a contract upon nomination. The contracts include that Autoneum sells serial parts to the OEM over a production period of five to eight years. The serial parts are manufactured using a tool, which is either manufactured by Autoneum or procured by a third-party supplier and which is sold to the OEM, usually before start of production. As a result, Autoneum agrees on two different kinds of performance obligations upon nomination: a performance obligation for each serial part that will be delivered to the OEM during the serial production period and a performance obligation for the procurement of the tools. Revenue is allocated to the performance obligations based on the selling price that is agreed with the OEM.
The majority of total revenue (more than 90%) is generated with the sale of the serial parts to the OEM and a minor part of total revenue (less than 10%) is generated with the sale of the tools to the OEM.
Upon nomination, the OEM and Autoneum agree on a sales price per serial part and agree that Autoneum will produce and deliver the serial parts to the OEM over its complete serial production period. The OEM and Autoneum agree on a contract that includes an expected quantity of serial products that will be delivered to the OEM, as the final quantity of required serial parts is depending on the number of cars that the OEM will produce. Revenue from the sale of the serial parts is recognized at the point in time when control of the parts is transferred to the OEM, which is according to the delivery terms that are agreed with the OEM. Revenue is recognized based on the applicable sales price at the point in time when the serial parts are transferred to the OEM.
The tools are either manufactured by Autoneum or by a third-party supplier. Control of the tools is transferred to the OEM at the point in time when the OEM accepts the tool.
Revenue recognized from contracts with customers is disclosed as revenue in the consolidated financial statements.
1.21 Financing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualified asset are capitalized as a part of the acquisition costs of the qualified asset. All other financing costs are recognized directly in the income statement.
1.22 Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as completed sale within one year from the date of classification. The assets must be available for immediate sale in their present condition. Assets held for sale are measured at the lower of their carrying amount at the date of their first recognition as held for sale and fair value less costs to sell. Such assets are no longer depreciated or amortized systematically. A possible impairment is included in profit or loss. A discontinued operation is a substantial component of the Group that either has been disposed of or is classified as held for sale.
1.23 Definition of non-GAAP measures
EBIT as a subtotal includes all income and expenses before addition/deduction of financial income, financial expenses, share of profit of associated companies and income taxes. EBITDA as a subtotal includes EBIT before deduction of depreciation and impairment of tangible assets as well as amortization and impairment of intangible assets.
2 Risk management
Autoneum maintains an Internal Control System with the objective of ensuring effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. The Internal Control System is an important part of the risk management system.
The process of risk management is governed by the regulation “Autoneum risk management system”, which was adopted by the Board of Directors. The regulation defines the main categories of risk, which serve as a basis of the risk management, and the bodies that deal within the Group with the various risk. In addition, the regulation defines the procedures for detecting, reporting and managing risk and the criteria for qualitative and quantitative risk assessment.
The regulation defines the following main risk categories: strategic risk, operational risk, financial risk, capital risk, litigation and other risk (e.g. political, legal, organizational, environmental and work safety risk).
Besides the financial and capital risk (refer to paragraphs 2.1 and 2.2 respectively), the following risks within the main risk categories are a focus of Autoneum:
• Strategic risk: This risk results on the one hand from different markets in which Autoneum is operating (local aspects, legal regulations, degree of maturity of markets). On the other hand, it results from the share of the customers in Autoneum’s revenue, as well as from the technical and regulatory requirements on Autoneum products.
• Operational risk: This risk results from the technical development of orders until end of production, from the need for cost-efficient production and the possibility of interruptions in production.
• Environmental and work safety risk.
Strategic risk resulting from developments in the relevant markets and of the products offered therein is assessed as part of the strategic planning and the financial planning processes. Strategic risk and operational risk are regularly reviewed at the monthly meetings within the Business Groups and with the CEO and the CFO of the Group. These meetings also deal with other risks impacting actual performance against budget, in order to identify and implement corrective measures.
Risks resulting from acquisitions, divestments or other major projects are monitored at Group level within the framework of competencies and approvals for the respective project. Quarterly review reports were prepared for the attention of the Board of Directors.
Specific risks are addressed by periodic reports in dedicated bodies. Such reports cover environmental and work safety risk at the various sites, treasury risk and risk from legal actions and compliance.
An aggregate review of all identified risks and of the instruments and measures to address them is performed on a semi-annual basis by the Risk Council, consisting of representatives of all Business Groups and Corporate functions. The review results are reported to the Board of Directors and Group Executive Board.
2.1 Financial risk
As a result of its worldwide activities, Autoneum is exposed to various financial risks, such as credit risk, liquidity risk and market risk (foreign exchange risk, interest rate risk and price risk). Autoneum’s financial risk management aims to minimize the potential adverse impact of the development of the financial markets on the Group’s financial performance and to secure its financial stability. This may include the use of derivative financial instruments to hedge certain risk exposures. Financial risks are identified primarily locally and evaluated and managed centrally by Group Treasury in close cooperation with the Group’s legal units.
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as from exposures to customers, including outstanding receivables, contract assets and committed transactions. Credit risk may result in a financial loss if one party in a transaction is unable or unwilling to meet its obligations. It is Autoneum’s objective to limit the impact of a default. The maximum risk of these positions corresponds to the book values of debt instruments that are classified as financial assets at amortized cost (refer to note 29).
Credit risk of financial counterparties is monitored centrally by Group Treasury. Significant relationships with banks and financial institutions are basically only entered into with counterparties rated not lower than “A” (according to Standard & Poor’s). At the date of reporting, management does not expect significant losses from non-performance by financial institutions where funds are invested.
Autoneum maintains business relationships with all significant automotive manufacturers and, compared to the industry sector, has a geographically broad, diversified customer portfolio. No customer accounted for more than 14.9% (2017: 16.8%) of Autoneum’s revenue. The Group monitors the creditworthiness of its key customers by using independent ratings (if available) and by taking into account their financial position, past experience and other factors. The related credit risk is considered as low at the date of reporting.
In accordance with IFRS 9, Autoneum applies the simplified approach to trade receivables and contract assets, which provides for expected credit losses based on lifetime expected losses. For trade receivables which are not overdue by more than 180 days, expected credit losses are determined by using publicly available credit default probabilities for the individual customer based on their ratings (mainly Standard & Poor’s long-term issuer rating). These ratings incorporate forward-looking information. If at this stage information indicating a higher collection risk for individual customers is available, individual allowances are recognized for the respective balances. The risk of an impairment loss increases significantly for open trade receivable balances which are overdue for more than 180 days. Unless the open balance is negligible, an individual assessment is performed to estimate expected credit losses. Individual assessments incorporate forward-looking information such as macroeconomic forecasts.
The following tables show the average expected loss rate for trade receivables per aging category as well as for contract assets at December 31, 2018:
The objective of liquidity risk management is to ensure that sufficient financial resources are available at any point in time in order to be able to completely and timely fulfill all payment obligations of the Group. As part of an integral budgeting and forecasting process, Group Treasury centrally monitors the planned liquidity position of the Group. Group Treasury compares the planned liquidity requirements with the available funds to detect shortages in a timely manner. The liquidity risk management of Autoneum includes the maintenance of sufficient liquidity reserves and the availability of funding through an adequate amount of credit lines.
Beside several smaller bilateral credit facilities with banks, Autoneum maintains a credit agreement for the medium- and long-term financing with a group of banks in the amount of CHF 150.0 million, which expires on December 31, 2022. Furthermore, a bond in the amount of CHF 75.0 million with maturity as of July 4, 2023 and a bond in the amount of CHF 100.0 million with maturity as of December 8, 2025 have been issued, both of which are listed at the SIX Swiss Exchange (refer to note 23).
The following tables show the contractual maturities of Autoneum’s financial liabilities (including interest).
- 1 Restated, refer to note 1.3.
Foreign exchange risk
Due to the global nature of its activities, the Group is exposed to foreign exchange risk. Foreign exchange risk arises from investments in foreign subsidiaries (translation risk) as well as from transactions and financial assets or financial liabilities that are denominated in a currency other than the functional currency of a legal unit (transaction risk). In order to hedge transaction risk that cannot be eliminated through offsetting transactions in the same foreign currency (natural hedging), subsidiaries may use forward contracts, which are usually traded with banks via Group Treasury. The transaction risk from foreign currencies is monitored periodically.
The subsidiaries’ cash holdings with banks are denominated mostly in the functional currency of the subsidiary. The majority of the business transacted in Autoneum’s subsidiaries is also in their functional currency. At the reporting date, the Group held financial instruments which were denominated in currencies other than the functional currency of the respective Group company as follows:
The Group is exposed to foreign exchange risk mostly against the euro and the US dollar. The currency-related sensitivity of the Group against these two currencies is shown in the following table:
- 1 Restated, refer to note 1.3.
The impact on net result is mainly due to foreign exchange gains and losses on trade receivables and trade payables as well as the translation of the profit or loss of foreign subsidiaries into Swiss francs for consolidation purposes. The impact on equity additionally includes currency translation adjustments arising from the translation of the net investment in foreign subsidiaries.
Interest rate risk
The interest rate risk of the Group relates to interest-bearing assets and liabilities. Floating interest rate positions are subject to cash flow interest risk. Fixed-interest positions are subject to fair value interest risk if measured at fair value. In general, Autoneum aims to maintain, in consideration of seasonal fluctuations, a balanced relation between fixed and floating interest-bearing financial liabilities as disclosed in note 23. The two bonds issued at fixed interest rates are not subject to any interest rate risk, whereas the long-term credit agreement with floating interest rates is subject to a cash flow interest risk.
The Group analyzes the interest rate risk on a net basis. No hedging of the interest rate risk was performed in the reporting period or in the prior period. Based on the interest-bearing assets and liabilities that existed at December 31, 2018 a 100 basis point higher level of the money market interest rates would lead to a CHF 0.7 million (2017: CHF 0.1 million) lower net result as well as equity of the Group on an annual basis. A 100 basis point lower level of the money market interest rates would lead to a CHF 0.2 million (2017: nil) higher net result as well as equity of the Group on an annual basis.
Holding financial assets that are measured at fair value exposes Autoneum to a risk of price fluctuation. Autoneum held a significant investment in a non-consolidated company whose shares are listed on the Tokyo Stock Exchange. Autoneum is exposed to a price risk according to the fluctuations in the share price. This investment is classified as a financial asset at fair value through other comprehensive income and changes in the share price do not impact profit or loss. The amount of financial assets at fair value through profit or loss that Autoneum held is not significant.
2.2 Capital risk
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders, and to maintain an optimally leveraged capital structure in order to reduce the cost of capital. Autoneum aims to maintain a stable investment grade rating as perceived by bank partners and debt investors.
Autoneum Group therefore targets a healthy balance sheet with an adequate portion of equity. In the mid-term, Autoneum aims for an equity ratio above 40%. As of December 31, 2018 the equity ratio equaled 39.2% (2017: 42.7%). For the next few years, the dividend policy will depend on a number of factors, such as net profit and the financial situation of the Group, the demand for capital and liquidity, the general business environment as well as legal and contractual restrictions. Subject to the foregoing, the Group intends to distribute at least 30% of its net profit attributable to shareholders of Autoneum Holding Ltd. Dividends, if any, are expected to be declared and paid in Swiss francs.
3 Change in scope of consolidation and significant transactions
On January 1, 2018 Autoneum Netherland B.V., Weert, Netherlands, was merged into Autoneum Belgium N.V., Genk, Belgium.
On March 23, 2018 Autoneum acquired a 25% interest in ATN Auto Acoustics Inc., Kamioguchi, Japan, for a consideration of CHF 0.2 million from Toyota Boshoku Corporation, Kariya, Japan.
On September 30, 2017 Autoneum sold its production facility in Betim, Brazil, to the automotive supplier STS Group, headquartered in Hallbergmoos, Germany. With this transaction, the Group has adapted its South American production capacity to long-term market demand. STS took over the plant with its 90 employees and has continued to supply the existing customer base. In 2017, during the nine months until disposal, the facility in Betim contributed third-party revenue in the amount of CHF 5.9 million. CHF 0.6 million of the total selling price of CHF 3.3 million was received in 2017, the remainder is payable in five installments until 2022. The loss from disposal of business in the amount of CHF 0.1 million was recorded in 2017. The final acceptance of the post-closing purchase price adjustment led to a gain of CHF 0.3 million recorded in the period under review.
On January 31, 2017 Autoneum acquired the remaining 40% interest in Autoneum Korea Ltd.,
Incheon, Korea, for a consideration of CHF 0.4 million from the minority shareholder SH Global Ltd., Iksan, Korea. The subsidiary is now fully owned by Autoneum. The difference between the carrying amount of non-controlling interests and the consideration paid to the minority shareholder was recognized as a decrease in equity attributable to the owners of Autoneum.
On January 31, 2017 Autoneum disposed of its 49% interest in the associated company SHN Co., Ltd., Daegu, Korea, to the majority shareholder SH Global Ltd., Iksan, Korea, which liquidated the company. A total consideration of CHF 0.4 million was paid to the majority shareholder and recorded as loss from disposal of associated companies (refer to note 6).
In 2017, the Group newly established Autoneum Hungary Ltd., Komárom, Hungary; Autoneum (Changsha) Co., Ltd., Changsha, China; Autoneum (Pinghu) Co., Ltd., Pinghu, China; Autoneum (Yantai) Co., Ltd., Yantai, China, and Autoneum (Tianjin) Co., Ltd., Tianjin, China.
4 Segment information
Segment information is based on Autoneum Group’s internal organization and management structure as well as on the internal financial reporting to the Group Executive Board and the Board of Directors. The chief operating decision maker is the CEO.
Autoneum is the globally leading automobile supplier in acoustic and thermal management for vehicles. Autoneum develops and produces multifunctional and lightweight components and systems for noise and heat protection and thereby enhances vehicle comfort.
The reporting is based on the following four reportable segments (Business Groups/BG): BG Europe, BG North America, BG Asia and BG SAMEA (South America, Middle East and Africa). “Corporate and elimination” include Autoneum Holding Ltd and the corporate center with its respective legal entities, an operation that produces parts for Autoneum’s manufacturing lines, investments in associates and inter-segment elimination. Transactions between the Business Groups are made on the same basis as with independent third parties.
- 1 Assets in “Corporate and elimination” include investments in associated companies in the amount of CHF 16.1 million. Autoneum increased its investments in associated companies in 2018 in the amount of CHF 0.2 million, refer to note 15.
- 2 Full-time equivalents including temporary employees (excluding apprentices).
- 1 Restated, refer to note 1.3.
- 2 Assets in “Corporate and elimination” include investments in associated companies in the amount of CHF 14.1 million. In 2017, Autoneum did not increase its investments in associated companies, refer to note 15.
- 3 Full-time equivalents including temporary employees (excluding apprentices).
- 1 Revenue is disclosed by location of customers.
- 2 Restated, refer to note 1.3.
- 3 Non-current assets consist of tangible assets, intangible assets and investments in associated companies.
- 4 Domicile of Autoneum Holding Ltd.
The following customers accounted for more than 10% of annual revenue in 2018 or 2017:
- 1 Restated, refer to note 1.3.
Information on revenue by product group is not available. The major customers generate revenue in all geographic segments.
When Autoneum is nominated by an OEM the contract includes that Autoneum will manufacture a tool which is sold to the OEM before start of production and that Autoneum will produce and deliver serial parts to the OEM over the production period, which is usually between five to eight years. As the OEM’s production volumes are continuously adapted to the market demand, the number of serial parts that Autoneum will deliver to the OEM can only be estimated. Autoneum expects that the contracts for which Autoneum was nominated as of December 31, 2018 will generate revenue in the amount of CHF 12.9 billion (2017: CHF 13.1 billion) in future years.
5 Employee expenses
Autoneum started a long-term incentive plan (LTI) for the management in 2012. Part of Autoneum’s net profit is allocated to beneficiaries defined in advance by granting them shares of Autoneum Holding Ltd. The shares become property of the beneficiaries after a vesting period of 35 months, if the beneficiaries are then still employed by an Autoneum company. Immediate vesting occurs in case of death or retirement of the beneficiary. In case of employment termination, shares not yet vested lapse without compensation. Exceptions are possible at the discretion of the Nomination and Compensation Committee. Vesting occurs every year in April. Employee expenses resulting from share-based compensation in course of the LTI are recognized over the vesting period. 3 443 shares (2017: 2 797 shares) valued at CHF 240.50 (2017: CHF 277.75) were granted in 2018, and expenses of CHF 0.7 million (2017: CHF 0.6 million) were recognized in wages and salaries.
Members of the Board of Directors receive part of their remuneration in Autoneum shares. 4 014 shares (2017: 3 569 shares) valued at CHF 255.92 (2017: CHF 280.50) were granted in 2018, and expenses of CHF 1.0 million (2017: CHF 1.0 million) were recognized in wages and salaries.
Members of the Group Executive Board receive part of their remuneration in Autoneum shares. 5 711 shares (2017: 6 124 shares) valued at a weighted average share price of CHF 164.36 (2017: CHF 291.88) were granted in 2018, and expenses of CHF 0.9 million (2017: CHF 1.8 million) were recognized in wages and salaries.
6 Other expenses
7 Other income
Miscellaneous income contains mainly income generated with by-products arising during the manufacturing process and income from release of unused provisions.
8 Depreciation, amortization and impairment
9 Financial income
10 Financial expenses
- 1 Thereof CHF 0.2 million (2017: CHF 0.2 million) amortization of transaction costs and CHF 1.3 million (2017: CHF 1.6 million) interest expenses for defined benefit plans.
11 Income taxes
- 1 Restated, refer to note 1.3.
Reconciliation between expected and actual income tax expenses:
- 1 Restated, refer to note 1.3.
The change in the average applicable income tax rate is mainly due to the different geographic composition of profit or loss before taxes.
Deferred income tax assets and liabilities pertain to the following balance sheet line items:
- 1 Restated, refer to note 1.3.
- 2 Refer to note 1.6.
The decrease in the net deferred income tax liability by CHF 1.4 million (2017: asset decreased by CHF 18.4 million to a liability) relates to the deferred income tax income recognized in the consolidated income statement of CHF 2.0 million (2017: deferred income tax expenses of CHF 17.6 million), to the deferred income tax expenses recognized in other comprehensive income of CHF nil (2017: deferred income tax expenses of CHF 1.7 million), a negative impact of CHF 0.2 due to the adoption of IFRS 9 as well as the application of IAS 29, and to a negative currency translation adjustment of CHF 0.6 million (2017: CHF 0.9 million positive impact).
No deferred income tax assets have been recognized from deductible temporary differences in the amount of CHF 61.7 million (2017: CHF 82.1 million). At the reporting date, tax loss carryforwards in the amount of CHF 59.1 million (2017: CHF 3.2 million) are recognized for Group companies that incurred losses in 2018 or 2017 (2017 or 2016) supported by taxable temporary differences and expected future profitability.
The table below discloses tax loss carryforwards by their year of expiry:
- 1 Tax loss carryforwards for which deferred income tax assets are recognized.
- 2 Tax loss carryforwards for which no deferred income tax assets are recognized.
- 3 Restated, refer to note 1.3.
The tax loss carryforwards for which no deferred income tax assets were recognized originate from countries with a deferred income tax rate between 17% and 31% in both the reporting year and the prior year.
The table below discloses tax credits by their year of expiry:
- 1 Tax credits for which deferred income tax assets are recognized.
- 2 Tax credits for which no deferred income tax assets are recognized.
12 Earnings per share
- 1 Restated, refer to note 1.3.
The average number of shares outstanding is calculated based on the number of shares issued less the weighted average number of treasury shares held. The shares vested but not yet transferred in course of the management’s long-term incentive plan (LTI) and performance-related bonus leads to a diluted average number of shares outstanding but have no dilution effect to net profit attributable to shareholders of AUTN.
13 Tangible assets
- 1 Refer to note 1.6.
Additions in tangible assets comprise mainly investments in production facilities.
Tangible assets with a book value of CHF 19.4 million were financed by long-term leasing contracts as of December 31, 2018 (2017: CHF 20.5 million). No borrowing costs were capitalized in both the reporting year and the prior year.
Tangible assets in the amount of CHF 0.9 million (2017: CHF 0.8 million) are pledged as security for financial liabilities.
14 Intangible assets
Intangible assets comprise mainly investments in a new ERP system.
15 Investments in associated companies
Investments in associated companies comprise the 30% share in SRN Sound Proof Co., Ltd., Chonburi, Thailand, the 25% share in Wuhan Nittoku Autoneum Sound-Proof Co. Ltd., Wuhan, China, and the 25% share in ATN Auto Acoustics Inc., Kamioguchi, Japan, which was acquired in 2018. On January 31, 2017 Autoneum disposed its 49% interest in the associated company SHN Co., Ltd., Daegu, Korea, to the majority shareholder SH Global Ltd., Iksan, Korea (refer to note 3). The investments in associated companies are measured using the equity method. The net book value of investments in associated companies changed as follows:
16 Financial assets
The decrease in investments in non-consolidated companies results from a change in the market value of those investments of CHF 26.9 million which is recognized in other comprehensive income.
17 Other assets
- 1 Restated, refer to note 1.3.
Contract assets result mainly when tools are sold to the OEM and Autoneum is not reimbursed at the same point in time, but with a predefined part of the price of the serial products that are sold to the OEM over the production period. The contract assets are transferred to receivables when the right for payment becomes unconditional. This usually occurs when the Group issues an invoice to the customer, which is expected within the next year for the current portion and within the next two to eight years for the non-current portion.
The following table shows the movements in capitalized pre-production costs during the year:
- 1 Restated, refer to note 1.3.
Autoneum spent CHF 66.6 million (2017: CHF 62.8 million) on research and development in the period under review, whereof CHF 26.7 million (2017: CHF 21.4 million) were capitalized. The remaining portion was recognized as an expense in the period when incurred.
- 1 Restated, refer to note 1.3.
19 Trade receivables
The following table summarizes the movement in the allowance for impairment:
- 1 Refer to note 1.3.
- 2 Reclassification from allowances for impairment to other current provisions.
The table below sets forth the aging of trade receivables and the allowance for impairment, showing amounts that were not yet due as well as an analysis of overdue amounts as of December 31, 2017. Trade receivables that were neither due nor impaired were expected to be settled within the agreed payment terms.
Trade receivables comprise receivables due from customers with the following credit rating (Standard & Poor’s long-term issuer rating):
At December 31, 2018 no trade receivables are pledged as security for financial liabilities (2017: nil). Trade receivables with a book value of CHF 0.4 million (2017: CHF 1.4 million) were sold to third parties based on factoring agreements and no material risks remain with Autoneum.
20 Cash and cash equivalents
21 Shareholders’ equity
Since the founding of Autoneum Holding Ltd on December 2, 2010 the number of registered shares has remained unchanged at 4 672 363, each with a nominal value of CHF 0.05 per share. The share capital amounts to CHF 233 618 and is composed as follows:
The holders of shares are entitled to receive dividends and are entitled to one vote per share at general meetings of the Company.
Conditional share capital
For issuing convertible bonds, warranty bonds, and for granting shareholder options, the share capital can be increased by a maximum of 700 000 fully paid-up registered shares with a par value of CHF 0.05 up to a maximum value of CHF 35 000. Furthermore, for the issuance of shares to employees of subsidiaries, the share capital can be increased by a maximum of 250 000 fully paid-up registered shares with a par value of CHF 0.05 up to a maximum value of CHF 12 500.
The following transactions with treasury shares were performed during the financial year:
The capital reserve originates from the contribution of the Autoneum companies to the Group in the course of the separation in 2011.
Fair value reserve
The fair value reserve (2017: available for sale reserve) contains changes in the fair value of listed non-consolidated investments. The reserve will be reclassified to retained earnings at disposal.
Retained earnings include accumulated earnings since the Group was established in December 2010.
Currency translation adjustment
The currency translation adjustment comprises all foreign exchange differences arising from the translation of the financial statements of foreign entities included in the consolidated financial statements.
Changes resulting from other comprehensive income
The table below discloses changes resulting from other comprehensive income to each component of equity:
- 1 Refer to note 1.6.
- 2 Restated, refer to note 1.3.
22 Non-controlling interests
The non-controlling interests derive from entities that are controlled by the Group (subsidiaries), but Autoneum has not all of the entities’ capital rights. Those subsidiaries are listed in note 35. Due to disclosure restrictions in shareholder agreements, information on significant non-controlling interests is only disclosed on an aggregated level. The table below sets out aggregated financial information of the subsidiaries with non-controlling interests:
- 1 Restated, refer to note 1.3.
On December 14, 2012 Autoneum Holding Ltd issued a fixed-rate bond with a nominal value of CHF 125.0 million, which was listed on the SIX Swiss Exchange (AUT12, ISIN: CH0196770439). The bond carried a coupon rate of 4.375% and had a term of five years with a final maturity on December 14, 2017.
On July 4, 2016 Autoneum Holding Ltd issued a fixed-rate bond with a nominal value of CHF 75.0 million, which is listed on the SIX Swiss Exchange (AUH16, ISIN: CH0326213904). The bond carries a coupon rate of 1.125% and has a term of seven years with a final maturity on July 4, 2023. On December 31, 2018 the market value of the bond was CHF 72.6 million (2017: CHF 76.5 million).
On December 8, 2017 Autoneum Holding Ltd issued a fixed-rate bond with a nominal value of CHF 100.0 million, which is listed on the SIX Swiss Exchange (AUT17, ISIN: CH0373476032). The bond carries a coupon rate of 1.125% and has a term of eight years with a final maturity on December 8, 2025. On December 31, 2018 the market value of the bond was CHF 91.7 million (2017: CHF 100.9 million).
Autoneum maintains a long-term credit agreement with a banking syndicate in the amount of CHF 150.0 million, whereof CHF 140.0 million was drawn at year-end (2017: CHF 45.0 million). The line of credit may partly be used as a guarantee facility. On December 7, 2017 the long-term credit agreement was amended and the final maturity date extended from December 31, 2019 to December 31, 2022. The interest rate is based on the LIBOR rate plus an applicable margin, which is determined based on the ratio of net debt to EBITDA. The credit agreement contains customary financial covenants, which include the ratio of net debt to EBITDA and a minimum economic equity. Compliance with financial covenants is checked semi-annually and reported to the banking syndicate. In the fiscal years 2018 and 2017, the financial covenants were met at all times.
In addition to the aforementioned bonds and the long-term credit agreement, local credit limits and borrowings with individual customary market conditions exist in several countries.
The borrowings are denominated in the following currencies:
24 Employee benefits
In the reporting period, total expenses for pensions in the amount of CHF 14.5 million have been recognized as employee expenses and interest expenses (2017: CHF 16.8 million).
Some employees participate in defined contribution plans whose insurance benefit results solely from the paid contributions and the return on investment on the plan asset. The other employees participate in defined benefit plans that are based upon direct benefits of the Autoneum Group.
Defined contribution plans
The expenses for defined contribution plans totaled CHF 6.9 million in the current reporting period (2017: CHF 8.1 million).
Defined benefit plans
Autoneum maintains defined benefit pension plans in Switzerland, Great Britain, the USA, Canada and the Netherlands. The most significant pension plans are those in Switzerland and the USA. Those plans sum up to 80.3% (2017: 78.5%) of the Group’s defined benefit obligation and to 79.5% (2017: 78.4%) of the Group’s plan assets.
The status of the defined benefit plans at year-end was as follows:
Swiss pension plans
Pension plans are governed by the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). The Group’s pension plans are administered by separate legal foundations, which are funded by regular employee and company contributions. Plan participants are insured against the financial consequences of old age, disability and death. The most senior governing body of the pension plan is the Board of Trustees. The Board of Trustees is responsible for the investment of the plan assets. All investment decisions made by the Board of Trustees need to conform to the guidelines set out in a long-term investment strategy. This strategy is based on legal requirements, expected future contributions and expected future obligations and is reassessed at least once a year. All governing and administration bodies have an obligation to act in the interests of the plan participants. The final benefit is contribution-based with certain minimum guarantees. Due to these minimum guarantees, the Swiss plans are treated as defined benefit plans for the purposes of these IFRS financial statements, although they have many characteristics of defined contribution plans. Retirement benefits are based on the accumulated savings capital, which can either be drawn as a lifelong pension or as a lump-sum payment. The pension is calculated by multiplying the balance of the savings capital with the applicable conversion rate. The plan is exposed to actuarial risks, such as longevity risk, interest rate risk and market (investment) risk. In case of an underfunding, the Board of Trustees is required to take the necessary measures to ensure that full funding can be expected to be restored within a reasonable period. The measures may include increasing employee and company contributions, lowering the interest rate on retirement account balances or reducing prospective benefits.
US pension plans
Autoneum maintains five defined benefit pension plans in the USA. Four of those plans are funded and one plan is unfunded. The defined benefit plans in the USA have been closed to new members. New employees in the USA now join defined contribution plans. The defined benefit plans are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which defines minimum standards such as the statutory minimum funded status.
Pension plans in other countries
Autoneum maintains defined benefit plans in Canada, Great Britain and in the Netherlands. The pension plan in Canada is open for all Canadian employees. The plan is funded, and the majority of the contributions are paid by the employer. The pension plan in Great Britain is funded and has been closed to new members. New employees join a defined contribution plan. The plan in the Netherlands is funded and has been closed to new members.
The movement in the defined benefit obligation over the year was as follows:
The movement in the fair value of plan assets over the year was as follows:
The major categories of plan assets were as follows:
All equity and debt instruments are listed on a stock exchange.
The amounts recognized in the income statement were as follows:
The amounts recognized in the income statement result from plans in the following regions:
The expected employer contributions for the Group’s defined benefit pension plans for 2019 amount to CHF 6.6 million. The expected benefit payments for 2019 are CHF 10.7 million.
The effect from remeasurement of the defined benefit pension plans recognized in other comprehensive income is as follows:
The table below discloses the main actuarial assumptions at year-end:
At December 31, 2018 the weighted average duration of the defined benefit obligation was 16.3 years (2017: 16.4 years).
The table below shows the results of the sensitivity analysis. It was analyzed how expected changes in the discount rate, in future salary and pension growth, and in the life expectancy would impact the defined benefit obligation. Changes in these parameters would have the following effect on the defined benefit obligation:
- 1 Restated, refer to note 1.3.
Guarantee and warranty provisions are related to the production and supply of goods or services and are based on experience.
Litigation and tax risk provisions comprise provisions for expected costs resulting from investigations and proceedings of government agencies, provisions for court cases, such as claims brought up by workers for health- or accident-related incidents, and provisions for tax risks. The majority of litigation and tax risk provisions are expected to be used within the next two to three years.
Environmental provisions contain the estimated costs for the cleanup of contaminated sites due to past industrial operations. The majority of provisions stem from Group companies within Business Group Europe. Long-term environmental provisions are expected to be used mainly over the next five to ten years.
Other provisions are made for contracts where the unavoidable costs to fulfill the obligation are greater than the expected economic benefits, as well as for other constructive or legal liabilities of Group companies. The majority of other non-current provisions are expected to be used in two to three years.
26 Other liabilities
- 1 Restated, refer to note 1.3.
Advance payments from customers qualify as contract liabilities and stem primarily from the sale of tools to the OEM which could already be invoiced, but the final acceptance from the OEM is still missing and consequently revenue is not yet recognized. The current portion of advance payments from customers is usually recognized as revenue within the next twelve months. No material amount of revenue was recognized in 2018 or in 2017 from performance obligations that were satisfied in previous periods.
27 Other commitments
Some Group companies rent tangible assets under finance and operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.
The future, cumulated minimum lease payments for operating leases and for finance leases are due as follows:
In the reporting period, CHF 47.3 million was charged to the income statement as operating leasing expenses (2017: CHF 42.7 million).
At year-end, open commitments for investments in tangible and intangible assets summed up to CHF 27.4 million (2017: CHF 32.6 million).
28 Contingent liabilities
There are no single matters pending that Autoneum expects to be material in relation to the Group’s business, financial position or results of operations.
29 Financial instruments
The following tables summarize all financial instruments classified by categories according to IFRS 9:
- 1 Restated, refer to note 1.3.
- 2 Measured at fair values that are based on quoted prices in active markets (level 1).
- 3 Measured at fair values that are calculated based on observable market data (level 2).
- 4 Classified as "loans and receivables" as of December 31, 2017.
- 5 Classified as "available for sale" as of December 31, 2017.
Borrowings comprise two bonds with a total net book value of CHF 174.5 million (2017: CHF 174.4 million) and a total fair value of CHF 164.3 million (2017: CHF 177.3 million) based on quoted prices in active markets. Refer to note 23 for further information. The book values of other financial instruments measured at amortized cost correspond to their fair values.
30 Related parties
Related parties are members of the Board of Directors and the Executive Board or close members of that person’s family, pension funds, associated companies as well as companies controlled by significant shareholders. At December 31, 2018 Artemis Beteiligungen I Ltd, Hergiswil, Switzerland, Centinox Holding Ltd, Hergiswil, Switzerland, and Michael Pieper, Hergiswil, Switzerland, held 21.06% (2017: 20.52%) of the shares of the Company and PCS Holding Ltd, Warth-Weiningen, Switzerland, and Peter Spuhler, Weiningen, Switzerland, held 17.20% (2017: 17.19%) of the shares of the Company.
The pension fund of an Autoneum Group entity granted a loan to the Company. The loan bears an interest rate of 0.35% and is due within six days upon cancellation of the agreement by either the lender or the borrower.
The total remuneration to the Board of Directors and to the Group Executive Board was as follows:
The compensation of the Board of Directors and of the Group Executive Board is disclosed in the Remuneration Report.
Year-end balances with related parties were as follows:
31 Net debt
32 Exchange rates for currency translation
33 Events after balance sheet date
There were no events between December 31, 2018 and March 5, 2019 which would necessitate adjustments to the book value of the Group’s assets or liabilities, or which require additional disclosure in the consolidated financial statements.
34 Proposal of the Board of Directors
For the year ended December 31, 2018 the Board of Directors proposes to the Annual General Meeting on March 28, 2019 a dividend of CHF 3.60 per share entitled to dividends. This represents a total distribution up to CHF 16.8 million. In 2018, a total dividend of CHF 30.3 million (CHF 6.50 per share entitled to dividends) was distributed to the shareholders of Autoneum Holding Ltd.
35 Subsidiaries, associated companies and non-consolidated investments
- 1 The company was established in 2018.
- 2 Autoneum has 49% of the capital rights.