Notes to the Annual Accounts

The present annual accounts of MCH Group Ltd. with head office in Basel have been drawn up in accordance with the Swiss commercial accounting and financial reporting legislation (Title 32 of the Swiss Code of Obligations). The main accounting and valuation principles applied that are not prescribed by law are described below.

Assets are valued at no more than acquisition cost. All assets and liabilities denoted in foreign currencies are translated at the exchange rates applicable on the balance sheet date. The resulting exchange rate differences are included on the income statement. Unrealized exchange gains are deferred and reported under the item “Accrued expenses and deferred income”. Income and expenses denominated in foreign currencies and all transactions in foreign currencies are translated at the exchange rates applicable on the individual transaction dates.

MCH Group Ltd. draws up group accounts in accordance with a recognized accounting standard (Swiss GAAP FER). In accordance with the statutory provisions, it has thus dispensed with the provision of details of interest-bearing liabilities and auditing fees and also with the presentation of a cash flow statement in the notes to the present annual accounts.

Treasury shares are recognized at cost at the time of acquisition and disclosed as a separate deduction in equity. There is no subsequent valuation. If treasury shares are sold, this is done at the moving average price. Any realized increase or decrease in value is credited or charged to capital reserves without affecting income.

A long-term incentive plan (LTIP) exists for members of the management team. At the beginning of the three-year plan period, the plan participants receive a defined number of performance share units (PSUs), which are distributed evenly over the three vesting periods. The expense is recognized as personnel expense in proportion to the duration of the vesting periods. At the end of the respective vesting period, a certain number of shares are transferred to the plan participants for each PSU granted, depending on target achievement. Between zero and 1.5 shares can be allocated per PSU.

The PSUs are valued at the beginning of the respective plan period at the closing share price of the MCH share on the allocation date. The recording of personnel expenses for the current plan periods is based in each case on the degree of target achievement, which is calculated on the basis of the current actual, budget, forecast and medium-term plan figures.

The indirect holdings are listed in the “Group Account” section of the Financial Report under “21. Investments in subsidiaries”
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The capital share corresponds to the voting share.

The other liabilities to participations include insurance compensation already received but not yet transferred to the participations for exhibition cancellations amounting to CHF 15.9 million (previous year 20.6 million). The event cancellation insurance was taken out by MCH Group Ltd. The insurance compensation is therefore collected in advance by MCH Group Ltd., which then transfers it to the participations that bear the losses resulting from the exhibition cancellations.

The long-term non-interest-bearing liabilities to stakeholders relate to the non-interest-bearing loan from the Canton of Basel-Stadt to MCH Basel Exhibition, which was transferred to MCH Group as part of the capital increase in 2020. As part of the subscription rights of third-party shareholders that were not exercised, this loan was converted into share capital accordingly. The remaining amount that could not be converted into share capital was continued as a loan. In the reporting year, this loan was fully waived by the Canton of Basel-Stadt as part of the 2022 capital increase.

The share capital is divided into 31,053,147 registered shares with a par value of CHF 1.00 each (previous year 14,869,351 registered shares with a par value of CHF 10.00 each).

Of the reported reserves from capital contributions of CHF 224.8 million, CHF 32.2 million have been confirmed by the tax authorities. The capital contributions from the capital reduction of CHF 133.8 million and capital contributions from the capital increase 2022 of CHF 58.4 million have been reported to the tax authorities, but the confirmation is still pending. The amount of CHF 0.4 million, which has not been confirmed since 2013, relates to issuing costs of the capital increase in 2011. A transfer within equity has not yet been made.

For the purpose of future remuneration for the management team, MCH Group Ltd. subscribed to 125,000 treasury shares in the year under review as part of the capital increase at an issue price of CHF 4.75 per share. The subscription rights to which MCH Group Ltd. is entitled were exercised in full.

In the previous year, 100,000 treasury shares were acquired for the same purpose. The purchase of treasury shares took place in the period from 09.07.2021 to 21.07.2021 at an average market price of CHF 14.71. The purchase price of the treasury shares was CHF 14.71. 

As of the balance sheet date December 31, 2022, no shares had been issued (previous year: none).

Following the pandemic-related losses in the past two years, a financial package of measures became necessary in the reporting year to secure the refinancing of the CHF 100 million bond due in May 2023 and the necessary investments for the growth of the company. The focus was on strengthening the capital base with a further capital increase with subscription rights for all shareholders.

In 2020, the Canton of Basel-Stadt (subject to the approval of the bodies responsible for this) and Lupa Systems had agreed to support the refinancing of the bond in equal parts if the company is unable to refinance it itself (so-called "backstop").

The Government Council of the Canton of Basel-Stadt therefore proposed to the Grand Council that it should participate in the planned capital increase in 2022 by acquiring new capital shares of up to CHF 34 million. This meant that the public-law corporations participating in MCH Group would continue to hold at least 33.34 % of the shares or voting rights. Lupa Systems had envisaged a maximum investment amount of CHF 75 million when it joined MCH Group in 2020 and had invested CHF 48 million as part of the capital increases in 2020. In the case of the 2022 capital increase, Lupa Systems was also prepared to invest up to CHF 34 million, analogous to the Canton of Basel-Stadt, and thus to go beyond the originally envisaged maximum investment amount if necessary.

In the capital increases in 2020, the Canton of Basel-Stadt had converted CHF 24.2 million of an existing interest-free loan of CHF 30 million into equity. As part of the capital increase in 2022, the government council of the Canton of Basel-Stadt requested the Grand Council that the repayment of the remaining loan of CHF 5.8 million not converted into equity in 2020 be waived. This was also already envisaged in 2020 and was also justified in the year under review by the fact that MCH Group was not entitled to Corona hardship funds from the Confederation on account of the state participation.

In June 2022, the Grand Council of the Canton of Basel-Stadt approved the proposals of the Government Council and the Economic and Tax Committee (WAK) for the Canton of Basel-Stadt to participate in the planned capital increase of MCH Group by acquiring new capital shares of up to CHF 34 million and to waive repayment of the residual loan of CHF 5.8 million that had not been converted into equity in 2020. The decision of the cantonal parliament was subject to a 42-day referendum period, which subsequently expired unused.

With a view to the planned capital increase, the Board of Directors wanted to create more flexibility by reducing the nominal value of the shares and thus reducing the capital. Before the reduction in the nominal value, the share capital of MCH Group Ltd. amounted to CHF 148.7 million. However, the shares of MCH Group Ltd. were trading below the nominal value of CHF 10 per share. At the General Meeting of May 23, 2022, the Board of Directors of MCH Group Ltd. proposed to the shareholders that the nominal value per share be reduced to CHF 1.00 and that the share capital be reduced to CHF 14,869,351. The amount of CHF 133,824,159 by which the share capital would be reduced should be transferred to capital contribution reserves. This requested reduction of the nominal value was a purely technical measure. The total equity base remained unchanged, as did the number of shares issued. The Annual General Meeting of May 23, 2022, approved the proposal of the Board of Directors by a large majority.

In July 2022, the Swiss Takeover Board approved the applications submitted by MCH Group Ltd. and its two main shareholders in connection with the planned capital increase, in particular concerning the granting of an exemption from the obligation to make an offer pursuant to Art. 136 para. 1 lit. e FinfraG (restructuring exemption).

The Board of Directors of MCH Group Ltd. proposed to the Extraordinary General Meeting of September 28, 2022 a capital increase of up to 18,586,688 registered shares with a nominal value of CHF 1.00 each at a subscription price of CHF 4.75 per new registered share, a subscription ratio of 4 to 5 and the safeguarding of the shareholders' subscription rights.

At the Extraordinary General Meeting of September 28, 2022, the shareholders of MCH Group Ltd. approved this proposal of the Board of Directors with over 91% votes in favor.

The subscription period started on Thursday, September 29, 2022 and lasted until Monday, October 10, 2022. A total of 16,183,796 new registered shares were placed in the rights offering, corresponding to around 87% of the registered shares offered. MCH Group received gross proceeds totaling CHF 76.9 million from the issue of the registered shares, including CHF 0.6 million from the exercise of MCH Group Ltd.'s own subscription rights, or CHF 76.3 million less CHF 0.6 million from the exercise of MCH Group Ltd.'s own subscription rights.

After completion of the capital increase, the number of issued registered shares increased to a total of 31,053,147 with a nominal value of CHF 1.00 each, corresponding to a share capital of CHF 31,053,147.00. The completion of the capital increase took place on October 12, 2022, the delivery and the first trading day of the new registered shares on October 13, 2022.

Even after the completion of this rights issue, MCH Group still has a stable, long-term anchor shareholder base: Lupa Systems holds 38.52% of the share capital, while the Canton of Basel-Stadt holds 37.52%. In addition, the Canton and the City of Zurich together hold 1.50%. MCH Group Ltd. exercised the subscription rights for its treasury shares and acquired 125,000 new registered shares in the rights issue, thus holding a total of 0.72% of the share capital. The other shareholders hold 21.74% of the share capital.

In connection with the restructuring of MCH Swiss Exhibition (Basel) Ltd. necessitated by Covid-19, a debt waiver on the asset loan of CHF 2.0 million and a subordination on the asset loan of CHF 20 million were granted in the year under review.

In connection with the necessary restructuring of Masterpiece London Ltd., a complete debt waiver of CHF 0.7 million was granted on the asset loan in the reporting year.

As part of the financing of MCH Group Ltd., a CHF 100 million new issue (bond) was raised in 2018 with a term from 16.05.2018 to 16.05.2023 (5 years) and a coupon of 1.875%. Until 31.12.2022 shares in the amount of CHF 0.4 million were repurchased prematurely. The fees relating to the issuance of the bond will be charged to the income statement on an accrual basis over the five-year term.

In June 2022, the Grand Council of the Canton of Basel-Stadt approved the proposals of the Government Council and the Economic and Tax Commission (WAK) that the Canton of Basel-Stadt waive repayment of the residual loan of CHF 5.8 million not converted to equity in 2020.

Due to Covid-19, no short-time work was requested from the state for the reporting year or the previous year.

Since the reporting year 2022, a Long Term Incentive Plan (LTIP) with a basic plan period of three years has been in place for members of the management team. For the LTIP 2022-2024, three vesting periods have been defined, each covering the fiscal year (2022, 2023 and 2024). At the beginning of the three-year plan period, plan participants receive a defined number of performance share units (PSUs), which are distributed evenly over the three vesting periods. At the end of each vesting period, a certain number of shares are transferred to the plan participants for each PSU granted, depending on target achievement. Between zero and 1.5 shares can be allocated per PSU. The plan defines target values for the growth of operating income (weighting one third) and EBITDA (weighting two thirds).

The shares are freely available to the plan participant after transfer and are not subject to any vesting period.

The PSUs are valued at the beginning of the respective plan period at the closing share price of the MCH share on the allocation date. The recording of personnel expenses for the current plan periods is based in each case on the degree of target achievement, which is calculated on the basis of the current actual, budget, forecast and medium-term plan figures.

The following personnel expenses, including social security benefits, were recognized for the current plan periods in 2022:

No shares were transferred in the reporting year 2022 as the plan was only introduced this year. The first transfer is planned for the coming reporting year.

The number of full-time employees averaged over the year was between 10 and 50 in both the reporting year and the previous year.

To secure contractual obligations of Arcual AG, MCH Group Ltd. has issued guarantees amounting to CHF 2.3 million (previous year none) as at 31.12.2022. A guarantee of CHF 0.69 million (USD 0.75 million) (previous year CHF 2.3 million, USD 2.5 million) was issued to secure a rental guarantee for MC².

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.

MCH Group Ltd. is jointly and severally liable with MCH Swiss Exhibition (Basel) Ltd. for a credit facility of CHF 40.0 million (previous year CHF 40.0 million), which was taken up for a sum of CHF 40.0 million (previous year CHF 40.0 million) by MCH Swiss Exhibition (Basel) Ltd. on the balance sheet date.

The financing concept with the public-sector entities (the Cantons of Basel-Stadt, Basel-Landschaft and Zurich and also the City of Zurich) provides for a maximum dividend payment of 5% over the full financing term.

At the end of 2022, 2,240 registered shareholders were entered in the share register (previous year 2,295).

Shareholding in excess of 0.5% as of 31.12.2022 (31.12.2021)

1) Without registered voting rights.

The members of the Board of Directors and related parties hold shares to the value of TCHF 55,712 (previous year TCHF 43,699). The taxable value per share is CHF 4.60 (previous year CHF 9.00).

The members of the Executive Board and related parties hold shares to the value of TCHF 92 (previous year TCHF 108). The taxable value per share is CHF 4.60 (previous year CHF 9.00).

The year 2022 was again impacted by the Covid-19 pandemic, but primarily in the first quarter of 2022. From the second quarter of 2022 onwards, business activities largely returned to normal as the regulatory restrictions were lifted. However, the restrictions in the first quarter of 2022 again had a significant negative impact on financial results. The period from January to March 2022 was characterized by the continuation of measures on the part of governments and authorities, in that the staging of exhibitions and events continued to be severely restricted or in some cases completely impossible. This affected MCH Group in Switzerland in particular, with cancellations of Swissbau in January 2022 and Giardina in March 2022, as well as a total loss of congresses and guest events. Swissbau was held in a much smaller format as Swissbau Compact in May. In Hong Kong, Art Basel Hong Kong was postponed to May and held again as a significantly smaller trade fair, as the official restrictions in Asia and in China and Hong Kong lasted much longer. Finally, customers in the USA were still more reluctant to attend the fairs at the beginning of 2022, with a corresponding loss of sales. In Asia, the restrictions continued throughout the rest of the year and led to further sales shortfalls. By contrast, business activity in the USA, Europe and Dubai picked up significantly from the second quarter onwards. The art fairs held in the further course of the year, Art Basel in Basel, the Paris+ par Art Basel organized by MCH for the first time, and Art Basel Miami Beach, were held very successfully without any restrictions. At Swiss Events, there was a strong autumn of exhibitions, as in the days before the pandemic. And the congress and guest events business also recovered very well. Finally, there was very high demand from customers in the area of experience marketing, both for events in 2022 and already with a view to events in 2023. This applies in particular to the USA, and to some extent also to Europe, while the restrictions in Asia are only gradually falling and business in Asia is therefore still at a lower level.

The refinancing of the outstanding CHF 100 million bond is due in May 2023. MCH Group therefore completed a capital increase in October 2022, which generated a net inflow of CHF 74 million, with the support of the two anchor shareholders Canton Basel-Stadt and Lupa Investment Holdings LP in the amount of CHF 34 million each, as well as a slightly higher-than-expected contribution from the public shareholders. With the capital increase, MCH Group will have cash and cash equivalents of CHF 152 million on December 31, 2022 and thus sufficient liquidity to repay the bond and to continue and further develop its business. The capital increase has also strengthened the capital base by reducing net debt to CHF 84.6 million and improving the equity ratio to 25.6 %.

MCH Group remains confident on the basis of the positive business development of recent months. A further increase in business activity and improvement in the financial results are expected for 2023. On this basis, the management and the Board of Directors have come to the conclusion that MCH Group's liquidity and equity base have sufficient reserves to ensure the group's continued existence beyond 2023. As a result, the Board of Directors does not recognise any relevant uncertainty for the future of MCH Group and its group companies.

No significant events have occurred after the balance sheet date and up to the adoption of the financial statements by the Board of Directors on March 24, 2023, which could affect the informative value of the 2022 financial statements and would therefore have to be disclosed here.