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 31.12.2021 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.
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 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 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 revaluation is directly charged against or credited to the retained earnings as goodwill. Upon disposal of an investment, the goodwill previously recognized in equity is taken into account at the original cost for purposes of determining the gain or loss on the disposal of investments recognized in net income. This transaction is disclosed on a separate line in the equity statement. Transaction costs are recognized 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 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 recognized 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 borrowed capital 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 resulting currency translation differences are recognized 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 daily exchange rate on the balance sheet date. The effects of foreign currency adjustments are included in the income statement. Unrealized exchange gains are similarly recognized with an effect on net income.
Transactions in foreign currency are converted at the official average rate of the Swiss Federal Tax Administration for the month in question.
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 recognized 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 realizable value (value impairment). If an impairment can be demonstrated, the book value is reduced to the realizable value, with the impairment being charged to the result for the period in question.
1.5. Valuation and accounting principles
Income
MCH Group generates its sales with exhibitions, events and stand construction projects. The sales and associated expenditure for exhibitions and events are recognized, 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 recognized in net income at the time, 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.
In the case of canceled projects (construction and stand building), the cancelation date of the project is normally deemed to be the realization date, and the corresponding terms of contract must be taken into account. If, in exceptional cases, special repayment and cancelation terms are negotiated, the date of the agreement on/signature of the repayment and cancelation terms is deemed to be the date of realization.
In the case of canceled exhibitions, profit is recognized as follows:
- Canceled exhibitions without event cancelation insurance:
These are recognized in net income after agreement has been reached with the customers on the repayment and cancelation terms, unless the arrangements specified in the contract are applied. - Canceled exhibitions with event cancellation insurance:
Accrued costs are recognized in profit or loss under operating expenses at the time the exhibition is cancelled. Insurance benefits are recognized in profit or loss either after the insurance company has given a definitive payment commitment or if it can be assumed with virtual certainty that the insurance benefits will be provided.
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 %
Inventories and work in progress
- Inventories
Inventories are valued at the lower of acquisition or production cost and their net realizable 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 recognized 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 capitalized as work in progress. A long-term project is only recognized, affecting net income, when the delivery and performance risk has been transferred. Any losses are recognized immediately with an impact on net income. Advance payments received are recognized 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 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:
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 MCH Group, only acquired immaterial assets are capitalized, employing the following categories (including the estimated useful life):
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. For currency hedging purposes, use is made of cash flow hedges, in particular, 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 are 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 recognized as an asset. The capitalization 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 recognized 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 revaluated each year. The amount of the provision is determined through an analysis of the respective event which took place in the past, as well as on the basis of events that have occurred subsequent to the balance sheet date, insofar as these contribute towards clarifying the situation. Anticipated losses from exhibitions and events are recognized 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 capitalization and theoretical amortization on the goodwill and the equity is set out separately in the equity statement and in the notes. The goodwill is amortized 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 recognized in equity is taken into account at the original cost for purposes of determining the gain or loss to be recognized in profit or loss.
Taxes
In stating current and future income tax consequences, a distinction is made between the determination of 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 capitalized.
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 and recognized as other operating income.
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. On account of the Covid-19 pandemic, it is primarily services for Swissbau 2022 that were invoiced in advance. Under prepayments and accrued income, own work totaling CHF 1.9 million (previous year CHF 3.2 million) is included in the item for exhibitions and events.
6. Tangible fixed assets
In accordance with the decision of the Cantonal Parliament of 12.03.2008 relating to the financing concept for the new Messe Basel complex (formerly 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 assets under construction are the accrued project costs for the “Rosentalturm” in Basel. The project was sold as per 03.07.2021, resulting in a profit of CHF 0.8 million.
The disposals of built land and buildings relate to a building in Basel which is no longer required for operations and which was sold on 31.12.2021. This resulted in a profit of CHF 9.7 million.
Due to a warehouse fire, fully depreciated assets in the amount of CHF 18.1 million were derecognized (previous year 13.8 million).
MCH Group has no unbuilt land. The asset category “Built land” (previous year “Land”) includes only built land. The asset category “Buildings” (previous year “Buildings and fixed installations”) includes all buildings as well as installations permanently connected to the buildings. The designations of these two asset categories have been adjusted by comparison with the previous year so that their significance is clear from their designation already.
7. Financial assets
8. Intangible assets
The additions in the reporting year relate to investments in digitalization projects of the Community Platforms of CHF 4.2 million and general modernizations and expansions of CHF 1.5 million.
9. Financial liabilities
The net debt (short and long-term loans taken up minus cash and cash equivalents) increased to CHF 132.7 million (previous year CHF 124.7 million).
In the framework of the financing for 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%.
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 provision for the Theater 11 renovation fund each year. This fund is used to finance renovation 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 to said grantor.
In the year 2019, a provision was created for the expected costs of structural and organizational optimisation of 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. No provisions for restructuring existed as at 31.12.2021 (previous year CHF 2.0 million). As at 31.12.2021, there are no provisions for threatened losses from long-term contracts and for structural and organizational optimizations (previous year CHF 0.3 million).
The recoveries relate to provisions for tax risks of CHF 3.8 million (unchanged compared to the previous year) and warranty guarantees from the project business of the Experience Marketing business unit of CHF 1.5 million (previous year CHF 0.5 million). A provision for a contractual obligation of a supplier in the amount of CHF 1.3 million recognized in the previous year was appropriated in the reporting year.
Contractual risks include a provision for pending legal proceedings in the United States in the amount of CHF 1.2 million (previous year CHF 1.4 million). A provision of CHF 0.9 million set up in the previous year for rental obligations of discontinued business premises was partially utilized in the year under review. The unused portion was reversed in full.
The release of provisions no longer required amounting to CHF 3.4 million (previous year CHF 5.0 million) was recognized in the income statement under “Other operating expenses” and resulted in a positive balance.
11. Other operating income
In the reporting year, the item “Gain on sale of fixed assets” includes the sale of a building in Basel that is no longer required for operations (CHF 9.7 million) and the sale of the “Rosentalturm” project (CHF 0.8 million). In the previous year, these were the gains on sale of the Musical Theater and Hall 3 in Basel.
The Swiss companies were able to receive the following non-repayable amounts under the federal Covid-19 hardship programs: Canton Basel-Stadt CHF 0.8 million (no conditions, not subject to the federal Covid-19 hardship ordinance of 25.11.2020, as only the cantonal share was distributed) and Canton of Zurich CHF 9.8 million (subject to the federal Covid 19 hardship ordinance of 25.11.2020, and thus its Art. 6 on restriction of use). For the latter, the Board of Directors is of the opinion that the restrictions have been complied with. However, the final assessment of a possible reimbursement obligation by the authorities is currently still pending. A different final assessment by the authorities would result in the recognition of a corresponding liability.
In the United States, the Paycheck Protection Program (PPP) loans received last year, which were directly related to the coverage of operational costs incurred due to the Covid-19 pandemic, were unconditionally forgiven in the amount of USD 6.1 million (CHF 5.8 million) due to local regulations.
12. Income by divisions and geographical markets
The segment revenues and results of the business areas are stated prior to consolidation. The division “Community Platforms” comprises the revenues and results of the various physical, hybrid and digital platforms and the associated services of the units “Art & Art Related Industries”, “Watch/Jewelry/Gems” and “Swiss Events”. “Experience Marketing” includes strategy, creation and implementation of experience marketing services of the “Live Marketing Solutions” division with the brands MCH Global, Expomobilia and MC2. The division “Venues” business comprises the rental business (guest events, rental to own exhibitions) and general services (e.g. parking lot revenue) of the Basel and Zurich exhibition venues. “Corporate Functions & Consolidation” takes in Digital & Information, Corporate Finance, Corporate Services (Business Development & Innovation, Legal Department, Risk Management & Compliance, HR and Communications) and also the consolidation effects.
The segment results are being stated for the first time in the reporting year.
Operating income by geographical market is presented subsequent to consolidation and thus relates purely to third-party sales.
13. Staff and staff expenditure
As per 31.12.2021, an additional 8 employees (previous year 125 employees) are on furlough in the USA. They are still employed without remuneration and only their social security contributions are still being paid.
Expenditure on personnel includes compensation for short-time working of CHF 3.8 million (previous year CHF 8.9 million), which has all been collected (in the previous year, CHF 1.3 million had not yet been collected). Expenditure on personnel prior to compensation for short-time working was CHF 87.4 million (previous year CHF 90.9 million).
For the provision of various services, additional temporary staff are employed as cashiers, cloakroom attendants, guards and office workers, etc.
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
Deferred tax assets from losses carried forward were not capitalized as per 31.12.2021.
The calculation was based on the following assumptions:
Impact of the non-capitalization of losses carried forward. Shows how high the impact of tax losses carried forward would have been on income tax expenditure if these had been capitalized. The theoretical capitalization includes the formation and expiry of tax losses carried forward.
Impact from the use of non-capitalized losses carried forward: Shows how much higher income tax expenditure would have been if it had not been possible to claim any tax losses carried forward.
In the previous year, the calculation of the impact of changes in losses carried forward on income taxes was not correctly reported. The calculation has been reviewed and corrected in the reporting year. The previous year's figures have therefore been adjusted and restated. The values prior to adjustment were as follows: for income taxes prior to consideration of tax losses carried forward CHF -0.6 million, for the influence of the non-capitalization of losses carried forward CHF 0.3 million, and for the impact of the use of non-capitalized losses carried forward CHF 0.5 million.
16. Earnings per share
The undiluted earnings per share are calculated by dividing the consolidated result for the year attributable to the shareholders of the parent company, after taxes, by the weighted average number of shares outstanding.
In the reporting year, there are no outstanding share options, share subscription rights or convertible bonds that could result in a dilution of earnings per share (previous year: none).
In the previous year, the result per share was calculated on the basis of the total number of shares outstanding as per 31.12.2020 instead of on the basis of the average time-weighted number of outstanding shares in 2020. On account of this calculation, the result per share was stated at CHF -4.82 instead of CHF -11.39. In the reporting year, the previous year's figures have therefore been adjusted and restated.
17. Goodwill
In accordance with the consolidation principles, 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 covers the acquired companies Creative Management Services, Inc. (MC2 subgroup), Masterpiece London Ltd. and Digital Festival AG.
If the goodwill had been capitalized, assuming an amortization period of five years, the following values would have been obtained:
18. Employee pension funds
Pension funds Switzerland
The employee pension fund of 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 and MCH Beaulieu Lausanne SA. Members are entitled to benefits which include an old-age pension, disability pension and benefits in the event of death. Since 01.01.2012, the pension fund has operated as a defined contribution scheme.
The companies affiliated to the fund make an overall contribution amounting to 150% of the contributions paid by the members. Expenditure in the 2021 financial year totaled CHF 3.7 million (previous year CHF 4.5 million). An actuarial balance sheet is drawn up by an expert at least once every three years. This was prepared as of 01.01.2021 on the basis of the BVG 2015 technical principles, period tables and a technical interest rate of 1.50%. The actuarial reserve is calculated on an annual basis. As per 31.12.2021, the estimated funded status in respect of the pension fund’s net assets is 127.0% (previous year 128.0%). The total employer contribution reserve as per 31.12.2021 is CHF 0.7 million (previous year CHF 0.7 million).
Pension plans United States
MC2 contributes to collective pension plans which pay out retirement pensions.
The overall contribution was less than 5 % of the human resources expenditure in the 2021 financial year. Expenditure in the 2021 financial year was equivalent to CHF 0.4 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 table shows whether the FIP (financial Improvement plan) or the RP (rehabilitation plan) is pending or has already been implemented. The main pension plans are also visible from this.
Further details
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.
As per 31.12.2021, approximately 13 % (previous year 8 %) of the human resources expenditure is used for employees in a trade union, taking in 9 (previous year 9) collective agreements. These are in force from 2022 to 2026. By this point in time, the agreements will have been renewed or renegotiated.
No debts exist to the pension funds as per 31.12.2021 (previous year CHF 0 million).
19. Off-balance-sheet transactions
20. 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.
21. Investments in subsidiaries
Change in consolidation scope
On 1 June 2021, MCH Group wholly acquired Digital Festival AG in Zurich with its platforms “Digital Festival”, “HackZurich” and “HackZurich Talents” for a price of CHF 0.8 million (net of cash). The goodwill of CHF 0.8 million resulting from this was offset directly against the shareholders’ equity.
Further details
MCH Swiss Exhibition (Basel) Ltd. acquired 67.5% of the shares in Masterpiece London Ltd. on 30.11.2017 and, at the same time, took over control of the company. The minority shareholders of Masterpiece London Ltd. are entitled to sell their shares to MCH Swiss Exhibition (Basel) Ltd. following registration of the 2020 audited annual accounts. In return, MCH Swiss Exhibition (Basel) Ltd. is entitled to acquire the remaining shares in Masterpiece London Ltd. following registration of the 2023 audited annual accounts. Both options can be exercised up to 40 days following registration of the 2032 audited annual accounts. Since this is an equity transaction, the call/put agreement is not recognized in the balance sheet until the call or put option is exercised.
22. Further details
22.1. Capital increase 2020
Transaction costs from the capital increase in 2020 which had not been paid the previous year were paid during the 2021 financial year for an amount of CHF 2.1 million.
22.2. Transactions with related parties
In the financial year, MC2 had no further cash outflows to related parties for rental contracts (previous year the equivalent of CHF 0.8 million).
During the financial year, Masterpiece London Ltd. placed a stand construction order with a related company for the Masterpiece London show, for a value of a few thousand Swiss francs (previous year CHF 0.2 million). The contract was awarded on the basis of an ordinary tendering process.
22.3. Contingent liabilities and receivables
On 31.12.2021, MCH Swiss Exhibition (Zurich) Ltd. has contingent liabilities of CHF 0.5 million (previous year (C HF 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. on 31.12.2021 provided guarantees totaling CHF 0.9 million (previous year CHF 5.1 million). In addition, there are bank guarantees with the possibility of recourse amounting to CHF 0.4 million (previous year CHF 0.6 million). To secure a rent guarantee for MC2, a guarantee of CHF 2.3 million (USD 2.5 million) (previous year 2.2 million, USD 2.5 million) was issued.
In July 2020, a warehouse fire destroyed fixed assets of MCH Swiss Exhibition (Basel) Ltd. in an external warehouse. The warehouse operator's insurance company has acknowledged a right of claim for MCH Swiss Exhibition (Basel) Ltd., but has not yet quantified it. Since all the assets concerned had already been fully depreciated before the fire, no impairment was required.
22.4. Risk management
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 19.11.2021. 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.
22.5. Influence of the Covid-19 pandemic on the financial year
Review of 2021
As in the previous year, 2021 was strongly marked by the Covid-19 pandemic. In the 2021 financial year, the pandemic had a considerable negative impact on business activity and the financial results. The period from January to August 2021 was marked by the continuing measures imposed by governments and public authorities, with severe restrictions still imposed on freedom of travel and the holding of meetings and events, where these were permitted at all.
In the first eight months of 2021, business activity came virtually to a standstill, with the exception of a considerably smaller Art Basel in Hong Kong and a small number of activities in the Experience Marketing division. Numerous exhibitions planned for the first half of the year, including SWISS-MOTO, Giardina, Baselworld, IFAS and Powertage, had to be postponed or canceled. In summer 2021, the restrictions were relaxed in a large number of European countries, including in Switzerland, and MCH Group was able to successfully stage exhibitions in the autumn within the scope of the imposed conditions. Art Basel in Basel and Art Basel in Miami Beach in December were both held with a large number of galleries and visitors. A number of Swiss events, such as Ilmac, Smart Swiss, Digital Festival in Zurich, which had been newly acquired with its Hackathon in 2021, and the careers fairs in Zurich and Lausanne were staged with a record number of visitors in some cases. Igeho and the Wine Festival that had been planned for the autumn had to be canceled, however.
The business field Experience Marketing has also experienced a notable upswing in business activity since the summer, including with the World Expo that opened in Dubai in October, where the Live Marketing Solutions division was able to construct a number of country pavilions, and also with the preparations for a number of key exhibitions and events staged in the USA at the end of 2021 and the start of 2022. Positive Covid-19 case numbers unfortunately increased significantly again at the end of 2021, and renewed restrictions were imposed by governments and authorities in many countries. Since this only occurred after all the major events had been held, however, this development had no further negative impact on the 2021 financial year.
The Swiss companies were able to receive the following non-repayable amounts under the federal Covid 19 hardship programs: Canton of Basel-Stadt CHF 0.8 million (no conditions, not subject to the federal Covid-19 hardship ordinance of 25.11.2020, as only the cantonal share was distributed) and Canton of Zurich CHF 9.8 million (subject to the federal Covid-19 hardship ordinance of 25.11.2020, and thus its Art. 6 on restriction of use).
In the United States, the Paycheck Protection Program (PPP) loans received last year, which were directly related to the coverage of operational costs incurred due to the Covid-19 pandemic, were unconditionally forgiven in the amount of USD 6.1 million (CHF 5.8 million) due to local regulations.
Outlook for 2022 and following years
The high case numbers are unfortunately continuing at the beginning of 2022. Despite this, in the light of the latest developments MCH Group remains optimistic that the situation will gradually return to normal and that the exhibitions and events planned for 2022 will take place in most cases. A significant rise in the number of inquiries is also being recorded for the Live Marketing Solutions division. MCH Group will thus experience a pronounced increase in its business activity in 2022 and achieve an improvement in its operating results. Despite this, the situation must be continuously assessed for any negative developments and their corresponding impact on MCH Group.
Despite the strong negative impact of the pandemic, MCH Group has cash and cash equivalents of CHF 113 million gross at the end of 2021. Together with a return to normal of business activities, this forms the basis for the successful further development of the group.
On the basis of the strategy, which was revised by the Board of Directors in its new composition in 2021, and the medium-term plan for the group, the management and Board of Directors have concluded that the liquidity and also the equity base of MCH Group have sufficient reserves to ensure the company’s continued existence beyond 2022.
In May 2023, the refinancing of the outstanding CHF 100 million bond is due. The Board of Directors is in the process of examining all possible options for refinancing this bond. For the refinancing, the two anchor shareholders of the Canton of Basel-Stadt and Lupa Investment Holdings LP have an obligation to provide a backstop (refinancing obligation if refinancing of the bond is not or only partially possible). The focus is on strengthening the capital base with downstream renewal of debt financing. The Board of Directors will be taking these decisions in the first few months of 2022.
As a result, the Board of Directors sees no relevant uncertainty for the future of MCH Group and its group companies.
22.6. Canceled exhibitions with event cancelation insurance
MCH Group has taken out an overall cancelation insurance program for several events in the art sector, which covers certain risks in connection with possible losses of sales. The events canceled in the 2020 financial year (Art Basel in Hong Kong, Masterpiece in London, Art Basel in Basel and Art Basel in Miami Beach) were reported to the insurance company.
In the 2020 financial year, insurance benefits of CHF 22.0 million were recognized as other operating income, of which CHF 19.3 million were already received in the reporting year. In the 2021 financial year, further insurance benefits totaling CHF 15.0 million were received. At the end of the reporting year, the total insurance benefits of CHF 34.3 million had been received. No further payments will be made within the scope of this insurance limit.
22.7 Events subsequent to the balance sheet date
In December 2021, Messe Basel was informed by the Health Department of the Canton of Basel-Stadt that the authorization to hold Swissbau in January 2022 had been revoked. As a result, it was decided after consultation with the exhibitors that the trade fair would be postponed until May 2022. It was already clear at that time, however, that a number of exhibitors would not be able to participate at the later date or did not wish to do so. In January 2022, the decision thus had to be taken to stage Swissbau in a smaller and more compact format as “Swissbau Compact”.
The ultimate downsizing of Swissbau is a direct consequence of the corona pandemic and the revocation of the authorization granted by the Canton of Basel-Stadt for the trade fair to be held in January 2022. It thus constitutes an adjusting event for the present annual accounts. The expected loss of CHF 4.1 million (value adjustment of capitalized costs CHF 3.9 million, provisions CHF 0.2 million) resulting from the downsizing of the event has been taken into consideration.
Giardina in Zurich should have been staged in March 2022. After the trade fair had had to be cancelled in 2020 and 2021 already, Messe Zürich kept to its plan to hold the fair in 2022 for as long as possible. When the corona case numbers dramatically increased in December 2021, Messe Zürich received the first cancellations from major customers already. At that point in time, MCH Swiss Exhibition (Zurich) Ltd was still cautiously optimistic that it would be possible to hold Giardina 2022 after all. When the situation failed to improve in January and the Swiss government took the decision to provisionally extend the Covid measures up until the end of March 2022, Giardina 2022 had to be definitively canceled.
The ultimate cancellation of Giardina is a direct result of the deteriorating corona situation in December 2021. The decision to cancel Giardina thus constitutes an adjusting event for the present annual accounts; the expected loss of CHF 0.7 million (value adjustment of capitalized costs CHF 0.4 million, provisions CHF 0.3 million) incurred through the cancelation of the event has been taken into consideration.
No other significant events occurred after the balance sheet date and prior to the adoption of the annual accounts by the Board of Directors which could affect the information value of the 2021 financial account and are therefore required to be disclosed here.
22.8. Equal pay analysis
The revised Gender Equality Act, which came into force in Switzerland on 01.07.2020, obliges employers with more than 100 employees to conduct a formal review of pay equity for men and women. The MCH Group carried out a corresponding equal pay analysis for the companies MCH Live Marketing Solutions AG and MCH Swiss Exhibition (Basel) Ltd. in February 2021 and April 2021 respectively, in accordance with the requirements of the Confederation, and had it audited by KPMG AG. There are no significant pay differences between the genders within these companies.
22.9. Approval of the annual accounts
The Board of Directors of MCH Group Ltd. approved the consolidated annual accounts on 24.03.2022.
