Notes to the Group Account
1. Consolidation and valuation principles
Introduction
The present group accounts are based on the individual financial statements for the group companies, drawn up according to uniform guidelines as per 31 December 2019 and stated in Swiss francs (CHF). The consolidated annual accounts are based on the following principles:
1.1. Accounting and valuation principles
The consolidated annual accounts of MCH Group Ltd. comply with the specialist recommendations for accounting (Swiss GAAP FER) and thus fulfil the requirements of the SIX Swiss Exchange Directives for the “Swiss Reporting Standard” segment. They present a true and fair view of the group's assets, financial assets and earnings and have been drawn up on the assumption that the corporate activity will be continued. The group accounts are based on the principle of individual valuation for assets and liabilities and on historical acquisition costs, with the exception of the assets that are held for sale which are assessed at their current values (without revaluation above the original purchase price).
1.2. Consolidation principles
The group accounts include the annual accounts of MCH Group Ltd. as well as all the group companies, observing the following criteria:
- Companies in which MCH Group Ltd. holds, either directly or indirectly, more than half of the voting rights or which are otherwise controlled by MCH Group Ltd. are fully consolidated. It is possible, under certain circumstances, for MCH Group Ltd. to exercise control over a company even without holding half of the voting rights. In this case, 100% of the assets, liabilities, income and expenses are included. Any shares of minority shareholders in the equity and profits of the consolidated companies are stated separately in the group balance sheet and the group income statement.
- Companies in which MCH Group Ltd. holds, either directly or indirectly, between 20% and 50% of the voting rights and which are not controlled by MCH Group Ltd. are included on the basis of the equity method. The share of equity held is stated under “Financial assets” in the group accounts. The pro-rata result for the year is stated under “Result of associated organisations” in the group income statement.
- Companies in which the MCH Group Ltd. holds less than 20% of the voting rights are included on the consolidated balance sheet at acquisition price minus any value adjustment necessary for business reasons.
Initial consolidation is performed at the time at which MCH Group Ltd. acquires control over the company. The assets and liabilities of the company acquired are valued at their current value at the time of acquisition. Any difference remaining between the purchase price and the equity of the acquired company following this re-evaluation is directly charged against or credited to the retained earnings as goodwill. Upon disposal of an investment, the goodwill previously recognised in equity is taken into account at the original cost for purposes of determining the gain or loss on the disposal of investments recognised in net income. This transaction is disclosed on a separate line in the equity statement. Transaction costs are recognised as expenses.
In performing full consolidation, 100% of the assets, liabilities, income and expenditure are included. Any shares of minority shareholders in the equity and profits of the consolidated companies are stated separately in the group balance sheet and the group income statement. Intragroup assets and liabilities, and also expenditure and income from intragroup transactions and relations between intragroup companies are eliminated, as are profits from intragroup transactions. When shares are sold to or bought from minority shareholders, the difference between the selling price and the pro-rata book value of the net assets sold is recognised in retained earnings.
1.3. Foreign currency conversion
Annual accounts for consolidated companies in foreign currencies are converted as follows: current assets, fixed assets and liabilities at year-end rates (reporting date rate); shareholders’ equity at historical rates. The income statement and cash flow statement are converted at the average rate for the year. The resultant currency translation differences are recognised in equity without affecting the operating result.
Items kept in foreign currencies are converted applying the reporting date exchange rate method. All assets and liabilities are converted at the exchange rate on the balance sheet date. The effects of foreign currency adjustments are included in the income statement. Unrealised exchange gains are similarly recognised with an effect on net income.
Transactions in foreign currencies are converted at the official average rate of the Swiss Federal Tax Administration for the month in question (previous year for third-party sales without value added tax, on the basis of the currently weekly exchange rate). Other transactions in foreign currencies can also be converted at the current rate.
1.4. General posting concepts
The annual accounts are drawn up on the basis of correct period accrual. The impact of business transactions and other occurrences is thus reported at the time they take place and not at the time cash and cash equivalents are received or paid. This means inter alia that expenses and income are assigned to and recognised in the relevant periods. A check is carried out on all assets at the end of the year to establish whether there are any signs that the book value of the asset is in excess of the realisable value (value impairment). If an impairment can be demonstrated, the book value is reduced to the realisable value, with the impairment being charged to the result for the period in question.
1.5. Valuation and accounting principles
Income
The MCH Group generates its sales with exhibitions, events and stand construction projects. The sales and associated expenditure for exhibitions and events are recognised, affecting net income, at the time at which the event is held. The last day of the exhibition or event is decisive for recognition in net income. Stand construction projects are recognised in net income at the time of the event, when the benefits and risks of the delivery and/or service pass to the purchaser. Deposits received from customers or paid to suppliers for projects in future business years are entered as prepayments and deferred income on the balance sheet for exhibitions and events; for stand construction projects, they are entered as work in progress and liabilities.
Cash and cash equivalents
Cash and cash equivalents include cash holdings and cash at banks and the Post Office, as well as short-term fixed deposits (remaining term less than 90 days). They are stated at their nominal value.
Accounts receivable for deliveries and services
Receivables are stated at their net value, i.e. after deduction of any appropriate impairment (bad debt provision). Receivables are first written down individually. All receivables that are not written down individually are subject to a lump-sum value adjustment calculated on the basis of the following empirical values, without consideration of the country of origin:
Due date of invoice and value adjustment as a percentage of sum invoiced:
- > 360 days: 100%
- 181 – 360 days: 50%
- 91 – 180 days: 30%
- 61 – 90 days: 15%
- 31 – 60 days: 5%
- 00 – 30 days: 2%
- Not due: 2%
Assets held for sale
The valuation of assets held for sale does not differ from the fundamental valuation of assets as per Swiss GAAP FER. Since the value in use is no longer appropriate, a value adjustment is made on the basis of the net market value minus the costs incurred in selling. If no current value is available, the assets held for sale are valued at most at acquisition cost.
Inventories and work in progress
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Inventories
Inventories are valued at the lower of acquisition or production cost and their net realisable value. Production costs include all the directly attributable material and manufacturing costs as well as overheads that have been incurred in conveying the inventories to their current location and converting them into their current state. If the acquisition and production costs are greater than the net market value, a value adjustment (expenditure) must be made for the amount of this difference. This value is determined on the basis of the current market price on the sales market. Discounts granted are deducted from the cost of goods as a reduction in the purchase price. Measurement subsequent to initial recognition is performed using the average cost method. -
Work in progress
Work in progress relates to long-term projects for stand construction, which is recognised and valued using the completed contract method, since the conditions for the percentage of completion method are not cumulatively fulfilled. The project expenses incurred during stand production are capitalised as work in progress. A long-term project is only recognised, affecting net income, when the delivery and performance risk has been transferred. Any losses are recognised immediately with an impact on net income. Advance payments received are recognised without affecting net income. They are offset against the corresponding long-term projects for which the advance payment has been made, insofar as there is no right of recovery. They are otherwise shown as liabilities.
Other receivables and loans granted to others
Other receivables (including fixed deposits with a remaining term in excess of 90 days) and loans granted to others are stated at their nominal value minus any impairment.
Prepayments, accruals and deferrals
Prepayments, accruals and deferrals are valued according to the principles that apply for receivables and liabilities. The prepayments and accrued income include both third-party and own work entered into the books for exhibitions and events taking place in the following year (with the exception of work in progress on stand construction) and any sales for the reporting year that have not yet been invoiced. The accrued expenses and deferred income take in already-invoiced income from exhibitions, events and stand construction for the following year, as well as supplier invoices that have not yet arrived for goods and services already received. The accruals for current income tax are also stated under accrued expenses and deferred income.
Tangible fixed assets
Tangible fixed assets are included in the balance sheet at acquisition or production cost and measured with allowance for the scheduled straight-line depreciation and any impairment. If the factors that have led to an impairment loss in the past improve significantly, the impairment loss will be reversed in part or in full by means of an impairment reversal. Depreciation of tangible fixed assets commences on the first day of their use. Assets under construction are thus not depreciated. The depreciation period corresponds to the estimated useful life and is as follows:
- Land: no depreciation
- Buildings: 40 years
- Various investments in extensions to buildings and systems: 10 – 20 years
- Furniture and fittings: 3 – 10 years
- Vehicles: 5 – 8 years
- Sound and lighting equipment: 5 – 10 years
- Hardware: 3 – 5 years
If it is ascertained that the useful life of a fixed asset is changing, especially as a result of technical progress, the state of the asset or the market, the residual book value of the asset will be depreciated over its new envisaged remaining useful life.
Accompanying services provided by our own employees in creating tangible fixed assets are not included as assets on account of the type of activity involved (general planning). Interest expenditure during the construction phase of a tangible fixed asset is included on the balance sheet as acquisition or production costs.
Intangible assets
Intangible assets are non-monetary assets without physical substance. At the MCH Group, only acquired immaterial assets are capitalised, employing the following categories (including the estimated useful life):
- Acquired exhibitions and events: 3 – 5 years
- Software: 3 – 5 years
Intangible assets developed by the group itself (exhibitions, events, software and other intangible assets) are not included as assets.
Liabilities and loans taken up
Liabilities and loans taken up are stated at their nominal value. A liability or loan taken up is deemed to be short-term if it:
- is to be fulfilled within 12 months of the balance sheet date or
- an outflow of funds is to be expected in the operating activities on account of it.
All other liabilities are long-term.
Derivative financial instruments
A derivative is included on the balance sheet if it meets the definition of an asset or a liability. The group employs currency futures and swaps for hedging currency risks. Use is made of cash flow hedges in particular for foreign currency hedging in order to reduce foreign currency risks for highly probable future cash flows from sales in foreign currencies. All open positions from cash flow hedges on the balance sheet date are disclosed in the notes and recognised in equity via the hedging reserve.
Pension benefit obligations
The pension obligations of the Group companies for old age, death and disability are based on the local regulations and practices in the countries concerned. With the exception of MC2, the most important companies are located in Switzerland, where employee pensions are managed by a legally independent foundation. Only isolated pension plans are operated abroad. The actual economic impacts of all the group’s pension plans are calculated as per the balance sheet date.
Any benefit arising from the employer contribution provisions is recognised as an asset. The capitalisation of further economic benefit (resulting from an excess funded status of the pension fund) is neither intended nor are the conditions for this fulfilled. An economic obligation is recognised as a liability if the conditions for the formation of a provision are fulfilled or, if appropriate, is stated as an obligation.
Provisions
Provisions are established to cover all the identifiable risks and obligations existing at the time the balance sheet is drawn up. Provisions are stated on the balance sheet if a probable obligation exists towards third parties which is attributable to an event that took place in the past (prior to the balance sheet date) and if the level of the obligation can be estimated. The amount of the provision is based on the expected outflow of funds to settle the obligation, which is re-evaluated each year. The amount of the provision is determined through an analysis of the respective event in the past, as well as on the basis of events that have occurred subsequent to the balance sheet date, insofar as these contribute to clarifying the situation. Anticipated losses from exhibitions and events are recognised immediately with an impact on net income and shown under provisions. Obligating events after the balance sheet date have an impact on provisions if it becomes clear that they are caused by circumstances originating prior to the balance sheet date,
Goodwill
In the case of an acquisition, the net assets acquired are valued at their current value. The excess of the acquisition costs over the revalued net assets corresponds to goodwill. Goodwill is offset directly against equity at the time of acquisition. This is permissible under Swiss GAAP FER insofar as the impact of theoretical capitalisation and theoretical amortisation on the goodwill and the equity is set out separately in the equity statement and in the notes. The goodwill is amortised on a theoretical basis over a period of five years. In the event of any impairment of the goodwill, this will be stated in the notes.
Upon disposal of an investment, the goodwill previously recognised in equity is taken into account at the original cost for purposes of determining the gain or loss to be recognised in profit or loss.
Taxes
In stating current and deferred income tax consequences, a distinction is made between current and deferred income tax. Current income tax is calculated in accordance with the tax regulations for determining taxable income and is stated as expenditure. Current income tax is included under accrued expenses. Deferred taxes result from valuation differences between the group’s values and the decisive values for tax purposes and are included as deferred items accordingly. The recognition of deferred income tax is based on a balance-sheet approach and fundamentally takes into account all future income-tax consequences. The deferred tax liability is calculated on the basis of the actual future tax rates to be expected and shown under the long-term provisions. Deferred tax assets from losses carried forward are not capitalised.
Subsidies
In the context of the “Messe Basel New Buildings” project, various subsidies were granted from the public purse (Cantons of Basel-Stadt, Basel-Landschaft and Zurich and also the City of Zurich); these included investments à fonds perdu. In the 2012 business year, MCH Swiss Exhibition (Basel) Ltd. received a non-repayable loan, secured by a mortgage, of CHF 50.0 million from the Canton of Basel-Stadt, as a financing contribution à fonds perdu. This was to run for 20 years and incurred the obligation to continue operating the Congress Center Basel (CCB) for 20 years. Under buildings and fixed installations, an acquisition value was eliminated for the same amount as the non-repayable loan secured by a mortgage. Each year, the corresponding part of the building is depreciated by CHF 2.5 million and, at the same time, the non-repayable loan secured by a mortgage is reduced by CHF 2.5 million.
2. Cash and cash equivalents
3. Accounts receivable for deliveries and services
4. Inventories and work in progress
5. Prepayments, accruals and deferrals
The level of prepayments, accruals and deferrals is influenced primarily by the frequency of the individual exhibitions. As per 31 December 2019, this essentially relates to the following exhibitions in 2020: Swissbau, Baselworld, Giardina, SWISS-MOTO and Habitat-Jardin. Under prepayments and accrued income, own work for exhibitions and events totalling CHF 9.8 million (previous year CHF 9.2 million) is included in the item for exhibitions and events. In 2018, under other accrued expenses and deferred income, the expected loss for exhibitions and events in the following year that were likely to close with a loss was deferred in the 2018 financial year already. In 2019, this has been taken into account in the provisions.
In 2018, prepayments received on long-term customer orders were reported under accrued expenses and deferred income. In the current reporting year, this item has been broken down in more detail. For better comparability, the more detailed breakdown has also been aligned for the previous year.
6. Financial assets
The book value of the investments consolidated by the equity method is made up as follows:
7. Investments in subsidiaries
Change in consolidation scope
The majority holding in Seventh Plane Networks Pvt. Ltd. increased from 60.3% to 65% in the 2018 financial year. Seventh Plane Networks Pvt. was sold on 02.09.2019. All assets and liabilities were transferred to the new owners on this date and were therefore no longer included in the consolidated balance sheet. The result of the Seventh Plane Networks Pvt. Ltd., by contrast, is included in the consolidated annual accounts up to the transaction date with an annual operating turnover of CHF 2.0 million. At the time of the sale, the balance sheet total was CHF 0.3 million and the shareholders’ equity CHF -0.5 million. The sale of Seventh Plane Networks Pvt. Ltd. generated an overall profit of CHF 0.1 million. This comprises CHF 0.9 million amortisation of goodwill (“recycled” via the income statement, since it was offset directly against equity at the time of acquisition) and CHF 1.0 million profit from the sale of the shares.
On 1 January 2017, MCH Swiss Exhibition (Basel) Ltd. acquired a 25.1% share in the capital of art.fair International GmbH, Cologne (Germany). art.fair International GmbH stages the ART DÜSSELDORF art fair every year. art.fair International GmbH, Cologne, was sold on 29.05.2019. This resulted in a loss of CHF 0.2 million.
On 30 April 2017, MCH US Corp. acquired 100% of the shares in MC2, New York (USA) and, at the same time, took over control of the company. In a further step, 2% of the shares were sold to the local management. MCH Group Ltd. has a repurchasing right permitting it to buy back, indirectly via MCH US Corp. as of 30 April 2020, the shares in Creative Management Services LLC that are held by the management. MCH Group Ltd. can similarly be obliged by any member of the management to buy back their individual share in Creative Management Services LLC indirectly via MCH US Corp. The options are not facts that require posting at present.
With the purchase and assignment agreement of 3 July 2015, MCH Group Ltd. acquired 20% of the share capital of metron Vilshofen GmbH, Vilshofen (Germany) as per 1 January 2015. With regard to the remaining 80% of the capital shares, the parties had agreed in the purchase and assignment agreement that the sale, which similarly took place on 3 July 2015, would be completed with effect on 1 January 2019. The purchase and assignment agreement of 3 July 2015 gave both parties the right of withdrawal by the end of 31 December 2018, with this right to be exercised by 30 September 2018. With the amendment agreement of 8 August 2018, the parties amended the contents of the purchase and assignment agreement of 3 July 2015. MCH Group Ltd. was granted certain purchase rights with regard to the remaining 80% capital share and subjected to certain co-selling obligations with regard to its capital share of 20%. The right of withdrawal was extended until the end of 31 December 2021, to be exercised by 30 September 2021, and the content was modified. The holding in metron Vilshofen GmbH will be sold to the owners in 2020 and is reclassified under current assets as assets held for sale.
MCH Swiss Exhibition (Basel) Ltd. acquired 67.5% of the shares in Masterpiece London Ltd. on 30 November 2017 and, at the same time, took over control of the company. MCH Swiss Exhibition (Basel) Ltd. is entitled to acquire the remaining shares in Masterpiece London Ltd. following the registration of the 2023 audited annual accounts. The options are not facts that require posting.
MCH Group Ltd. has sold subsidiary Winkler Livecom AG in Wohlen to the management of the technical live-communications service provider and a private investor. The sale was completed on 31.12.2018, which is why all the assets and debts were transferred to the new owners at that time and are thus no longer included on the consolidated balance sheet. The annual result for Winkler Livecom AG, by contrast, is included in the consolidated annual accounts for 2018 up until the transaction date with an annual operating turnover of CHF 22.9 million. The sale of Winkler Livecom AG resulted in an overall loss of CHF 17.8 million. This comprises CHF 13.8 million write-downs for goodwill (“recycled” via the income statement, since it was offset directly against equity at the time of acquisition), CHF 1.1 million from the sale of the shares and CHF 2.9 million from a value adjustment on a group loan associated with the sale.
8. Tangible fixed assets
The group’s outstanding mortgages at the Zurich location amount to CHF 2.3 million (previous year CHF 2.4 million) and, at the Basel location, CHF 32.5 million (previous year CHF 35.0 million). The corresponding book values of the mortgaged buildings in Zurich are CHF 33.7 million (previous year CHF 35.9 million) and, in Basel, CHF 5.6 million (previous year CHF 6.7 million).
In accordance with the decision of the Cantonal Parliament of 12 March 2008 relating to the financing concept for the new Messe Basel complex (formerly the Exhibition Center Basel 2012), security was provided for the non-repayable loan of CHF 50.0 million, secured by a mortgage, that MCH Swiss Exhibition (Basel) Ltd. received as a financing contribution (à fonds perdu) through the issue of a mortgage note for this same amount, charged to the two buildings of the Congress Center Basel and the Musical Theater Basel. Following the sale of the Musical Theater as per 01.01.2020, the Musical Theater was deleted from the mortgage note.
The MCH Group performs an impairment review of its exhibition halls every year. In so doing, it compares the current book value of the exhibition halls with the attainable value (value in use). The value in use is calculated on the basis of the estimated future cash flows. The future cash flows, in turn, are based on the estimated future and discounted sales and expenditure. In the previous year, the values in use of the exhibition halls in Basel and Zurich were calculated on the basis of the attainable hall rental income. Due to the lower estimates for expected future income in the national exhibition business, the associated lower capacity utilisation of the exhibition halls and the application of a slightly higher discount rate of 6.4%, a lower value in use resulted for the previous year, necessitating a value adjustment of CHF 132.3 million.
The assets under construction are the accrued project costs for the “Rosentalturm” in Basel.
The reversal of impairment on buildings was performed on account of the sale of Exhibition Hall 3 and the Musical Theater to the municipality of the City of Basel as per 01.01.2020. This transaction with related parties after the balance sheet date led to a re-evaluation of the basis taken for the 2018 impairment on Exhibition Hall 3 and the Musical Theater. The attainable value was higher than the book value, permitting an impairment reversal of CHF 0.5 million to be booked.
9. Intangible assets
10. Provisions
CHF 0.8 million (previous year CHF 0.8 million) are provided for contractual obligations entered into in conjunction with the repairs to the parking spaces for exhibition use at the Zurich location. A sum of CHF 0.2 million plus indexed inflation is paid into the renovation fund for Theater 11 each year. This fund is used to finance maintenance work on Theater 11. This obligation results from the agreements concluded with the grantor of the building lease, which stipulate that the amount remaining in the renovation fund upon reversion of the building rights will go back to the grantor of the building lease.
In the 2019 financial year, a provision was created for the expected costs of the structural and organisational optimisations in the national exhibition and event business. In some cases, the provision that had already been created the previous year was reversed accordingly, insofar as it had not already been used. The provisions for restructuring contain CHF 6.1 million for threatened losses from long-term contracts and CHF 2.8 million for structural and organisational optimisations. When assessing the provisions in 2019, CHF 1.3 million were reclassified as other provisions.
The other provisions result from general provisions for potential reimbursement claims of CHF 3.0 million (previous year CHF 2.5 million), potential contractual risks of CHF 3.6 million (previous year CHF 0 million) and miscellaneous provisions totalling CHF 1.5 million (previous year CHF 3.7 million).
11. Employee pension funds
The employee pension fund of the MCH Group (hereinafter referred to as the pension fund) is independent of the group. The fund is financed by employee and employer contributions as a matter of principle. Membership of the pension fund is compulsory for all employees with permanent contracts at MCH Group Ltd., MCH Swiss Exhibition (Basel) Ltd., MCH Swiss Exhibition (Zurich) Ltd., MCH Live Marketing Solutions AG, MCH Beaulieu Lausanne SA (as of 30.09.2019) and Winkler Livecom AG (until 31.03.2019). Members are entitled to benefits which include an old-age pension, disability pension and benefits in the event of death. Since 1 January 2012, the pension fund has operated as a defined contribution scheme.
The companies Techno Fot AG, Rufener events Ltd., Oceansalt LLC, MCH Global AG and Reflection Marketing AG were merged with MCH Live Marketing Solutions AG on 01.01.2019. The employees of Reflection Marketing AG, Wallisellen, were thus also integrated in the MCH Group’s employee pension fund. The employees of the other merged companies had already joined the pension fund.
The companies affiliated to the fund make an overall contribution amounting to 150% of the contributions paid by the members. Expenditure in the 2019 financial year totalled CHF 5.4 million (previous year CHF 6.0 million). An actuarial balance sheet is drawn up by an expert at least once every three years, which is currently based on the 2015 Occupational Pensions Act (2.0%). The last actuarial balance sheet was drawn up on 1 January 2018. The actuarial reserve is calculated on an annual basis. The funded status in respect of the net assets of the pension fund is 130.2% as per 31 December 2019 (previous year 115.9%). The total employer contribution reserve as per 31 December 2019 is CHF 0.7 million (previous year CHF 0.7 million).
The semi-autonomous pension fund, Caisse de pension en faveur du personnel de Beaulieu Exploitation SA, is a defined contribution scheme and insures all employees with permanent contracts. Members are entitled to benefits which include an old-age pension, disability pension and benefits in the event of death. MCH Beaulieu Lausanne SA, as the sole company affiliated to the fund (up until 30.09.2019), makes an overall contribution amounting to 150% of the contributions paid by the members. All the insured members were integrated in the MCH Group pension fund on 30.09.2019 and the Caisse de pension en faveur du personnel de Beaulieu Exploitation SA pension fund is in liquidation.
Expenditure in the 2018 financial year totalled CHF 0.4 million (statutory contributions of CHF 0.3 million, recapitalisation contribution of CHF 0.1 million). The 2015 Occupational Pensions Act (2.0%) is taken as the technical basis for the annual calculation of the funded status, which is 90.5% as per 31 December 2018. On the basis of a decision taken by the Foundation’s Board of Trustees, the employer paid a recapitalisation contribution of CHF 130,000 in the 2018 financial year. Other liabilities in 2018 include a liability to the semi-autonomous pension fund, Caisse de pension en faveur du personnel de Beaulieu Exploitation SA (under other operating expenses in the consolidated income statement) relating to the offsetting of the underfunding and dilution in the event of a transfer to the MCH Group’s pension fund, which took place on 30.09.2019.
The employees of Reflection Marketing AG, Wallisellen, were insured with a full-insurance solution until the merger with MCH Live Marketing Solutions AG. The employees of Exhibit & More AG have a full-insurance solution with AXA-Winterthur. These pension solutions have a funded status of 100%.
MC2 contributes to collective pension plans which pay out retirement pensions.
The overall amount is less than 5% of the human resources expenditure in the 2019 financial year. Expenditure in the 2019 financial year was equivalent to CHF 0.6 million (previous year CHF 0.5 million). The Pension Protection Act provides the basis for the annual calculation. The current status report on the scheme is certified by the actuarial advisor each year. Institutions in the red zone are funded to less than 65%, in the yellow zone to less than 80% and those in the green zone are funded to at least 80%. The following table shows whether the Financial Improvement Plan (FIP) or the Rehabilitation Plan (RP) is pending or has already been implemented. The main pension plans are also visible from this.
In the collective pension solutions, the assets are available to provide benefits for the employees of other employers. The employers also jointly pay any uncovered obligations. In addition, the company can also be liable for any uncovered vested benefits in the event of termination or withdrawal. The group has withdrawn from the Central States Southeast and Southwest Areas Pension Fund. The application for the refund of the sum paid in, of approximately CHF 0.5 million, has been submitted. Until the actuarial advisor has completed the audit, a provision equivalent to CHF 0.2 million has been formed.
As per 31 December 2019, approximately 15% (previous year 15%) of the human resources expenditure is used for employees in a trade union, taking in 9 (previous year 10) collective agreements. These are in force from 2020 to 2021. By this point in time, the agreements will have been renewed or renegotiated.
As per 31 December 2019, liabilities of CHF 0 million (previous year CHF 12.0 million) exist to the pension funds. These obligations have been stated under other operating expenses in the income statement.
12. Income by divisions and geographical markets
No relevant Swiss or international direct competitor currently discloses their segment results or is required to disclose the figures and segment results in a comparable manner. For this reason, the MCH Group is dispensing with the presentation of its segment results, since detailed reporting of the company's cost and earnings structure could produce competitive disadvantages compared with competitors.
13. Staff
For the provision of various services, additional temporary staff are employed as cashiers, cloakroom attendants, guards and office workers, etc.
The full-time employees (full-time equivalents) are calculated on a pro-rata basis – eight months for Indian Art Fairs in the 2019 financial year and 12 months for Winkler Livecom AG in the 2018 financial year.
14. Financial result
The interest expenditure (interest on capital) relates to the financing costs for the operational loans and various other interest expenditure.
15. Taxes
The average tax rate applied to the result before tax is -25.1% (previous year -0.7%).
Due to a tax agreement with the Canton of Basel-Stadt, the income tax payable by MCH Swiss Exhibition (Basel) Ltd. is negligible. To ensure that the loss carried forward from the 2018 financial year for Messe Basel can be claimed in subsequent years, a voluntary submission to taxation as of 2018 was applied for in the 2019 financial year. Exhibition activities in Basel would originally have been partially exempt from taxation until 2021. No special tax arrangements exist for other companies in the group.
In each of the companies (with the exception of MCH Swiss Exhibition (Basel) Ltd.), deferred tax is calculated with the effectively applicable tax rate of 18 – 21%. In the 2019 financial year, the tax loss carry forward increased by CHF 189.0 million to CHF 206.4 million.
As per 31 December 2019, no deferred tax credits were capitalised from loss carry forwards.
16. Goodwill
In accordance with the consolidation principles, the MCH Group offsets the goodwill acquired directly against equity at the time of initial consolidation or the time of acquisition.
The theoretical net book value of the goodwill is made up of the acquired companies Creative Management Services, Inc. (MC2 subgroup) and Masterpiece London Ltd. In the 2018 financial year, additional shares were purchased in Seventh Plane Networks and earn out payments made for art.fair International. The earn out payments are recognised as goodwill.
On the basis of the strategy review of investments in regional art fairs, an impairment of CHF 722,000 was determined in 2018 for the goodwill that had been offset against equity.
If the goodwill had been capitalised, assuming an amortisation period of 5 years, the following values would have been obtained:
17. Off-balance-sheet transactions
18. Derivative financial instruments
Forward transactions (currency instruments) were concluded in order to hedge future sales income in foreign currencies. The current values for derivative financial instruments are included under other prepayments and accrued income.
19. Loans taken up
In the framework of financing the MCH Group, a CHF 100 million new issue (bond) was raised in 2018 with a term running from 16.05.2018 to 16.05.2023 (5 years) and a coupon of 1.875%.
The net debt (short and long-term loans taken up minus cash and cash equivalents) fell to CHF 136.1 million (previous year CHF 148.7 million).
20. Further details
20.1. Transactions with related parties
As an organiser of exhibitions and various other events, the MCH Group maintains a range of business relationships with its most important shareholders, the Cantons of Basel-Stadt, Basel-Landschaft, Zurich and the City of Zurich, in the context of its ordinary business activity.
The Canton of Basel-Stadt has made most of the land required by MCH Swiss Exhibition (Basel) Ltd. available with a building lease.
The Canton and City of Zurich have granted MCH Swiss Exhibition (Zurich) Ltd. loans of CHF 0.9 million and CHF 1.5 million respectively, both subject to 2% interest. In addition, the City of Zurich has made the land required by MCH Swiss Exhibition (Zurich) Ltd. available with a building lease.
In the context of the financing concept for the “Messe Basel New Buildings” for CHF 350 million (including some CHF 40 million from the increase in share capital in 2011), the following transactions were made or have been prepared between MCH Swiss Exhibition (Basel) Ltd. and the public-sector entities. As the parent company, MCH Group Ltd. guarantees the fulfilment of the contracts (investment contributions and loans earmarked for a specific purpose) with the public-sector entities (the Cantons of Basel-Stadt, Basel-Landschaft and Zurich and also the City of Zurich) by means of an abstract payment guarantee. The financing concept additionally provides for a maximum dividend payment of 5% over the full financing term.
The Cantons of Basel-Stadt and Basel-Landschaft granted subordinated interest-free loans of CHF 60 million (CHF 30 million each) (see also 19. Loans taken up). This reduced the interest to be paid by MCH Swiss Exhibition (Basel) Ltd. in the 2019 financial year by CHF 1.1 million (previous year CHF 0.7 million), taking a reference interest rate of 1.75% (previous year 1.15%). As of 2020, these loans are to be amortised at a total of CHF 6 million each year (CHF 3 million per loan and canton). Repayment will be deferred if the equity ratio of MCH Group Ltd. falls below 30% or if no dividend is paid on account of the result.
In the 2012 business year, MCH Messe Schweiz (Basel) AG received a non-repayable loan, secured by a mortgage, of CHF 50.0 million from the Canton of Basel-Stadt, as a financing contribution à fonds perdu. This is to run for 20 years and incurs the obligation to continue operating the Congress Center Basel (CCB) for 20 years. This loan is reduced by a sum of CHF 2.5 million every year. The reduction in the corresponding interest to be paid is CHF 0.7 million (previous year CHF 0.5 million).
In 2019, MC2 had cash outflows to related parties for rental contracts equivalent to CHF 0.8 million. The future cash outflows for rental contracts amount to the equivalent of CHF 0.8 million each year, for a total of CHF 4.2 million (previous year CHF 1.7 million).
Masterpiece London had stand construction costs of CHF 2.6 million in 2019 that were paid to related parties. The contract was awarded on the basis of an ordinary tendering process.
The sale of Exhibition Hall 3 and the Musical Theater to the municipality of the City of Basel took place on 01.01.2020 for a sum in the low single-digit million range. This event after the balance sheet date led to the reversal of an impairment (see 8. Tangible fixed assets). Exhibition Hall 3 is being rented by MCH Messe Basel and will still be used for exhibition purposes up until the end of 2025. The rent is in the region of the previous ground rent.
20.2. Contingent liabilities
On 31.12.2019, MCH Swiss Exhibition (Zurich) Ltd. has contingent liabilities of CHF 0.7 million (previous year CHF 0.6 million) in respect of the Theater 11 and the renovation of exhibition restaurants.
By way of security for obligations taken on by MCH Live Marketing Solutions AG in the context of a work contract, MCH Group Ltd. provided guarantees totalling CHF 1.0 million as of 31.12.2019 (previous year CHF 3.0 million). Bank guarantees of CHF 1.1 million also still exist (previous year: none). By way of security for a rent guarantee for MC2, a guarantee of USD 2.5 million (previous year USD 2.5 million) was issued.
20.3. Exchange rates
20.4. Risk management
The MCH Group has implemented a risk management system. On the basis of a risk identification conducted by the Executive Board each year, the key risks for the group are rated according to the probability of their occurrence and their impact. These risks are avoided, reduced or passed on by means of appropriate measures decided on by the Board of Directors. The risks borne by the group itself are consistently monitored. The last risk assessment conducted by the Board of Directors was adopted on 28 November 2019. To allow the group to respond flexibly to changes in the risk environment, the Executive Board is entitled to commission in-depth risk clarifications on an ad-hoc basis.
20.5. Events subsequent to the balance sheet date
Over the past three months, the MCH Group’s business has been greatly affected by the coronavirus outbreak (COVID-19), forcing the company to cancel the Art Basel Hong Kong art show at the beginning of February already. In the meantime, the company has been forced to cancel or postpone further exhibitions on account of the latest developments.
On 11 March 2020, the WHO classified the rapid spread of the virus in more than 150 countries as a pandemic. The increasingly radical measures taken by the authorities in a large number of countries in a bid to slow the spread of the virus are having a massive impact on companies’ economic capacity to act, and particularly in our sector.
The accompanying uncertainty concerning the progression of the crisis and its economic consequences calls for continuous monitoring and reassessment of the situation on the part of the Board of Directors and the management of the MCH Group, together with the appropriate alignment of the resulting measures.
To permit an assessment of the negative economic consequences and the measures that the company needs to take, a detailed contingency plan has thus been compiled to cover all the company areas. The cost-cutting measures and measures to protect the health of employees derived from this have been initiated without delay.
Following a careful analysis of different scenarios, the management and the Board of Directors have come to the conclusion that sufficient reserves are available in respect of the liquidity and also the equity base of the holding company to guarantee continuity of the group beyond 2020. For contingency-planning purposes, we are assuming a relatively conservative scenario, in which the COVID-19 situation will extend until August 2020, meaning we can resume our exhibition activity in September.
As a result, the Board of Directors sees no relevant uncertainty for the future of the MCH Group and its group companies.
The MCH Group has been forced to cancel or postpone events and projects in 2020 due to the spread of the coronavirus following orders issued by the authorities and customer demands. Since all these decisions had to be taken during the first quarter, they have no impact on the recognition and measurement of assets and liabilities as per 31.12.2019 and may therefore simply be reported and not booked in the 2019 accounts.
From a group perspective and based on a conservative estimate, the potential effects of the crisis will impact the result and the cash flow for 2020 by a sum in the medium double-digit million range after contingency measures.
This essentially results from the cancellation of Art Basel Hong Kong, Giardina and Habitat Jardin, the postponement of Baselworld until January 2021, the expected loss of a number of projects in the LMS segment and a lower expected income from the exhibitions staged in the autumn.
For the Art Shows, and hence for Art Basel Hong Kong too, the group has insurance cover to protect its revenue in the event of an event being cancelled. As per the date of this report, MCH was in ongoing discussions with the insurance companies to find a solution.
The sale of Exhibition Hall 3 and the Musical Theater to the municipality of the City of Basel was completed retroactively as per 01.01.2020 for a sum in the low, single-digit million range. This transaction with related parties led to the reversal of an impairment (see under Point 8. Tangible fixed assets).
The Extraordinary General Meeting of 29.01.2020 rejected a motion submitted by a shareholder for the instigation of a special audit of the strategy. The shareholder is entitled, within a period of three months, to ask the judge to deploy a special auditor, which would entail a corresponding financial outlay.
20.6. Approval of the annual accounts
The Board of Directors of MCH Group Ltd. approved the consolidated annual accounts on 23 March 2020.
