Notes to the Group Account
1. Consolidation and valuation principles
1.1. Consolidated financial statements
The consolidated financial statements of MCH Group are based on the individual financial statements of the group companies as at December 31, 2022, which have been drawn up in accordance with uniform guidelines and are presented in Swiss francs (CHF). They comply with the specialist recommendations on accounting and reporting (Swiss GAAP FER) and the provisions of Swiss law, and thus satisfy the guidelines of the Swiss stock exchange (SIX Swiss Exchange) in the "Swiss Reporting Standard" segment. They give a true and fair view of the financial position and performance of the Group and are prepared on a going concern basis. They are based on the principle of individual valuation for assets and liabilities and on historical cost.
1.2. Consolidation principles
The consolidated financial statements comprise the annual accounts of MCH Group Ltd. and all the group companies in compliance with the following criteria:
- Companies in which MCH Group Ltd. directly or indirectly holds more than half of the voting rights or which are controlled by MCH Group Ltd. in some other ways are fully consolidated. Even if MCH Group Ltd. holds less than half of the voting rights, control may still exist. In this case, 100 % of the assets, liabilities, income, and expenses are included.
- Companies in which MCH Group Ltd. directly or indirectly holds between 20 % and less than 50 % of the voting rights and which are not controlled by MCH Group Ltd. are included using the equity method. In this context, the share of equity is disclosed under the "Financial assets" item in the consolidated financial statements. The pro rata annual result is disclosed in the consolidated income statement under "Result from associated organizations".
- Companies in which MCH Group Ltd. directly or indirectly holds less than 20 % of the voting rights are recognized in the consolidated balance sheet at acquisition cost less any allowance necessary for business reasons.
Initial consolidation takes place on the date on which MCH Group acquires control. At the time of acquisition, the assets and liabilities of the acquired company are valued at current values. Any difference between the purchase price and the equity of the acquired company remaining after this revaluation is charged or credited directly to retained earnings as goodwill or negative goodwill, respectively. Upon disposal of an investment, goodwill previously offset against equity is included at original cost to determine the gain or loss on disposal of investments recognized in the income statement. In the statement of changes in equity, this transaction is presented in a separate line. Transaction costs are recognized as an expense.
In performing full consolidation, 100 % of the assets, liabilities, income, and expenses are included. Any minority interests in the equity and profit of the consolidated companies are disclosed separately in the consolidated balance sheet and the consolidated income statement. Intercompany assets and liabilities, and income and expenses arising from intercompany transactions and relationships, as well as intercompany profits arising from intercompany transactions, are eliminated. In the case of sales and purchases of shares to and from minority shareholders, the difference between the sales price and the sold pro rata carrying amount of the net assets is recognized through retained earnings.
1.3. Foreign currency conversion
Financial statements of consolidated companies in foreign currencies are translated as follows: Current assets, non-current assets, and liabilities at year-end rates (closing rate); equity at historical rates. The income statement and the cash flow statement are translated at average exchange rates for the year. The resulting currency translation differences are recognized directly in equity.
Items denominated in foreign currencies are translated using the closing rate method. All assets and liabilities are translated at the exchange rate prevailing on the balance sheet date. The effects of foreign currency adjustments are recognized in the income statement. Unrealized exchange rate gains are also recognized in the income statement.
Transactions in foreign currency are translated at the official average exchange rate of the Federal Tax Administration for the corresponding month.
1.4. Valuation and accounting principles
The consolidated financial statements are drawn up on an accrual basis. Accordingly, the effects of transactions and other events are recognized when they occur and not when cash or cash equivalents are received or paid. This means, inter alia, that expenses and income are recognized on an accrual basis.
For all assets, an assessment is made at year-end as to whether there is any indication that the carrying amount of the asset may exceed its recoverable amount (impairment). If an impairment exists, the carrying amount is reduced to the recoverable amount, with the impairment losses being charged to profit or loss for the period.
1.4.1. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, postal giro and bank accounts, and short-term time deposits (residual term less than 90 days). They are measured at nominal value.
1.4.2. Securities
Securities held for trading purposes are reported under current assets and are valued at current market value. If there is no current value, they are to be valued at no more than acquisition cost less any impairment. The adjustment is made through the income statement.
1.4.3. Trade accounts receivable and allowance for doubtful accounts
Trade receivables are measured at nominal value less any impairment losses (=allowance for doubtful accounts). Individual valuation allowances are first recognized for significant items. The remaining receivables are subject to a lump-sum allowance as follows, based on empirical values, without consideration of the country of origin:
1.4.4. Inventories
Inventories are measured at the lower of acquisition cost and net realizable value. Cost includes all directly attributable material and production costs as well as overheads incurred in bringing the inventories to their present location and condition. If the costs exceed the net fair value, an impairment loss (expense) is recognized in the amount of this difference. This value is determined by means of the current market price on the sales market. Discounts granted are deducted from the cost of goods as purchase price reductions. Subsequent measurement is based on the average cost method.
1.4.5. Work in progress
Work in progress is long-term and/or multi-period construction or stand construction contracts that are identified and measured using the "Completed Contract" method because the requirements for the "Percentage of Completion" method are not cumulatively met. Contract costs incurred are capitalized as work in progress during the construction period. Construction projects are recognized in profit or loss at the time of project acceptance or, in the absence thereof, at the time of delivery to the event or destination. The date of acceptance or the date of delivery is the date on which the risks and rewards pass to the customer. Stand construction projects are recognized in profit or loss at the time the event is held or, in the case of events lasting several days, on the last day of the event. Losses are recognized immediately in profit or loss. Advance payments received are recognized directly in the balance sheet. They are offset against the corresponding long-term contracts for which the advance payment was made, provided there is no right of recovery. Otherwise, they are recognized as a liability.
1.4.6. Other current receivables
Other receivables (including time deposits with a remaining term of more than 90 days) and loans receivable are measured at nominal value less any impairment losses.
1.4.7. Prepayments, accrued income, accrued expense and deferred income
Prepayments, accruals, and deferrals are measured in accordance with the principles applicable to receivables and payables, respectively.
Prepayments and accrued income include both third-party and internal services for trade fairs and events recognized in the reporting year (except for work in progress for both construction and stand construction) for the following year and sales not yet invoiced for the reporting year.
Accrued expense and deferred income include accruals and deferrals relating to income already invoiced for trade fairs and events in the following year, as well as outstanding supplier invoices for goods or services already received. In addition, the accruals for current income taxes are recognized under accrued expense and deferred income.
1.4.8. Tangible fixed assets
Tangible fixed assets are capitalized at acquisition or production cost and valued taking into account scheduled straight-line depreciation and any impairment in value. If the factors that led to an earlier impairment improve significantly, the impairment is reversed in part or in full by means of a reversal of an impairment loss.
Depreciation of tangible fixed assets begins from the first day of use. Assets under construction are accordingly not depreciated. The depreciation period corresponds to the useful economic life and is as follows for:
If it is determined that the useful life of the asset will change, in particular due to technical progress, the condition of the asset or the market, the residual carrying amount of the asset is depreciated over the newly envisaged remaining useful life.
Accompanying own work on investments in property, plant and equipment is generally not capitalized. Exceptions may arise due to major development projects.
Interest expense is capitalized as cost during the construction phase of a tangible fixed asset.
1.4.9. Intangible assets
Intangible assets are non-monetary and have no physical existence. Acquired intangible assets are accounted for using the following categories (incl. useful economic life):
Internally generated intangible assets (trade fairs, events, software, or other intangible assets) are generally not capitalized. Exceptions may arise due to major development projects.
1.4.10. Liabilities and loans payable
Liabilities and loans payable are recognized at their respective nominal values. A liability or a loan payable is current if it:
- is to be settled within 12 months after the balance sheet date, or
- is likely to result in a cash outflow from operating activities, or
- is held for trading purposes
All other liabilities are non-current.
1.4.11. Provisions
Provisions are recognized to cover all risks and obligations identifiable at the balance sheet date. Provisions are recognized when there is a probable obligation to a third party because of a past event (prior to the balance sheet date) and the amount of the obligation can be estimated. The amount of the provision is based on the expected outflow of funds to settle the obligation. This corresponding provision amount is reassessed each year.
The amount of the provision is determined on the basis of an analysis of the relevant event in the past and on the basis of events occurring after the balance sheet date, insofar as this helps to clarify the facts.
Impending losses from trade fairs and events are recognized immediately in profit or loss and the portion exceeding the allowance for capitalized costs is included in provisions.
An event that becomes obligatory after the balance sheet date has an impact on provisions if it becomes clear that the origin of the event occurred prior to the balance sheet date.
1.4.12. Goodwill
In the case of an acquisition, the net assets acquired are valued at current values. The excess of the cost of acquisition over the fair value of the net assets acquired represents goodwill. This is offset directly against equity at the time of acquisition. According to Swiss GAAP FER, this is permitted provided that the effects of theoretical capitalization and theoretical amortization on equity and goodwill are presented separately in the statement of changes in equity and in the notes. Goodwill is theoretically amortized over 5 years. If there is an impairment of goodwill, this is presented in the notes. On disposal of an investment, goodwill previously offset against equity is included at original cost to determine the gain or loss recognized in profit or loss.
1.4.13. Treasury shares
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.
1.4.14. Derivative financial instruments
A derivative is recognized in the balance sheet when it meets the definition of an asset or liability. The Group uses currency futures and swaps to hedge currency risks. In particular, cash flow hedges are used to reduce the currency risk of highly probable future cash flows from sales in foreign currencies. All open positions from cash flow hedges at the balance sheet date are disclosed in the notes and are recognized in equity through the hedging reserve.
1.4.15. Pension benefit obligations
The pension obligations of the Group companies for retirement, death or disability are based on the local regulations and practices applicable in the respective countries. Except for MC2, the most important companies are in Switzerland, where the pension plans are administered by a legally independent foundation. Only a few pension plans are operated abroad. The actual economic impact of all pension plans for the Group is calculated as of the balance sheet date.
Any benefit arising from employer contribution reserves (pension asset) is recognized as an asset. The capitalization of a further economic benefit (from an overfunding in the pension plan) is neither intended, nor are the prerequisites for this given. An economic obligation is recognized as a liability if the conditions for the formation of a provision are met.
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.
1.4.16. Share-based payments
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.
1.4.17. Operating income
MCH Group generates its sales from exhibitions, events, construction projects and stand construction projects.
Sales and the associated expenses for exhibitions and events are recognized in the income statement on the date on which the event is held. The decisive date for recognition in profit or loss is the last day of the exhibition or event.
Construction projects are recognized in profit or loss at the time of project acceptance or, in the absence thereof, at the time of delivery to the event or destination. The date of acceptance or the date of delivery is the point in time at which benefit and risk pass to the customer. Stand construction projects are recognized in profit or loss at the time the event is held.
Advance payments made by customers or to suppliers for projects in future financial years are accrued for exhibitions and events and are reported as work in progress and payables for construction and stand construction projects.
In the case of cancelled projects (construction and stand construction), as a rule, the cancellation date of the project is considered the realization date and the related contractual modalities must be considered. If, in exceptional cases, special repayment and cancellation modalities are negotiated, the date of agreement/signing of the repayment and cancellation modalities shall be considered the realization date.
In the case of cancelled exhibitions and events, profit is recognized as follows:
- Canceled exhibitions and events without event cancellation insurance:
Recognition in profit or loss takes place after agreement has been reached with the customers on the repayment and cancellation modalities unless the regulation according to the contract is applied. - Canceled exhibitions and events with event cancellation insurance:
The costs incurred are recognized in the income statement under operating expenses at the time the exhibition or event is cancelled. The insurance benefits are recognized in the income statement either after the insurance company's definitive commitment to pay or when it can be assumed with virtual certainty that the insurance benefits will be paid.
1.4.18. Current and deferred income tax
In accounting for current and future income tax effects, a distinction is made between the determination of current and deferred income tax.
Current income tax is calculated and expensed in accordance with local income tax regulations. The accrual of current income tax is made under deferred income.
Deferred tax arises from valuation differences between the Group's values and the values used for tax purposes and is accrued accordingly. The accrual of deferred income taxes is based on a balance sheet-oriented view and generally considers all future income tax effects. The calculation of deferred income taxes to be accrued is based on the actual expected tax rates. Deferred tax assets on temporary differences are only capitalized if it is probable that they can be offset against future taxable profits. Deferred tax assets based on tax loss carry forwards are not capitalized. Deferred tax assets are recognized in non-current assets, deferred tax liabilities in non-current provisions.
1.4.19. Government grants (Subsidies)
In the context of the "Neubau Messe Basel" project, various subsidies (including investment contributions à-fonds-perdu) were granted by the public authorities (Cantons of Basel-Stadt, Basel-Landschaft and Zurich, as well as the City of Zurich). In the 2012 financial year, MCH Messe Schweiz (Basel) AG received a non-repayable mortgage loan of CHF 50.0 million from the Canton of Basel-Stadt, as a financing contribution à-fonds-perdu, which was structured with a term of 20 years and the obligation to continue operation of the Congress Center Basel (CCB) for 20 years. Under buildings, an acquisition value in the same amount as the non-repayable mortgage loan was excluded. The corresponding part of the building is depreciated annually by CHF 2.5 million and at the same time the non-repayable mortgage loan is reduced by CHF 2.5 million and recognized as other operating income.
1.4.20. Transaction with related parties
Individuals or legal entities are deemed to be related parties if they have the ability, either directly or indirectly, to exert significant influence over an entity in making financial or operational decisions. Entities that are either directly or indirectly controlled by the same related parties are also deemed to be related.
MCH Group regards the following persons or organization as related parties:
- Members of the Board of Directors, members of the Executive Board or members of the Management Board.
- Organizations in which MCH Group has a significant holding.
- Shareholders of the reporting organization who directly or indirectly, alone, or together with others, exercise a share of voting rights exceeding 20 %.
- Organizations that are controlled by related parties.
- Pension plans.
The following persons or organizations are not considered to be related parties, unless further reasons indicate a significant influence:
- Two organizations, only because they have members of the board of directors or management in common
- Public authorities.
- Trade unions, public authorities, and public monopolies.
- Individual customers or suppliers with a close or dominant relationship.
- Insurance companies and banks in the normal course of business with customers.
Transactions with related parties considering the materiality principle are to be disclosed separately.
1.4.21. Contingent liabilities and receivables
The probability and amount of contingent liabilities and contingent assets are assessed at the balance sheet date, measured accordingly, and disclosed in the notes.
2. Cash and cash equivalents
3. Trade accounts receivable
4. Inventories and work in progress
5. Prepayments, accruals and deferrals
The amount of prepaid expenses and deferred income is mainly influenced by the exhibition cycle.
Costs amounting to CHF 9.5 million (previous year CHF 4.6 million) were capitalized under "Exhibitions and events". Of this amount, CHF 3.8 million were internal services (previous year CHF 1.9 million).
The item "Services invoiced in advance for exhibitions and events" includes in advance invoiced services for Giardina 2023 and Art exhibitions 2023.
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.
Due to a warehouse fire, fully depreciated assets in the amount of CHF 18.1 million were derecognized in the previous year.
MCH Group has no unbuilt land. The asset category “Built land” includes only built land. The asset category “Buildings” 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
In the United States, MC2 could capitalize deferred tax assets on temporary differences in the amount of CHF 8.1 million (previous year CHF 0.8 million) due to the positive business performance and the corresponding future prospects. The increase leads to a corresponding deferred tax income in the reporting year.
8. Intangible fixed assets
Additions in the year under review relate to investments in digitization projects of CHF 16.6 million (previous year 4.2 million) and general modernization and expansion of CHF 1.4 million (previous year 1.5 million).
In the reporting year, discontinued digitization projects in the amount of CHF 9.3 million were subject to extraordinary depreciation.
9. Financial liabilities
The net debt (short and long-term loans taken up minus cash and cash equivalents) decreased to CHF 84.6 million (previous year CHF 132.7 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%. Shares in the amount of CHF 0.4 million were repurchased prematurely by the reporting date of December 31, 2022.
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.
Potential reimbursement claims relate to provisions for tax risks of CHF 1.5 million (previous year CHF 3.8 million) and warranty guarantees from the project buisiness of the Experience Marketing business unit of CHF 0.6 million (previous year CHF 1.5 million). In the reporting year, provisions for tax risks in the amount of CHF 2.3 million and warranty guarantees in the amount of CHF 0.9 million were released.
Contractual risks include a provision for pending legal proceedings in the United States in the amount of CHF 1.2 million (unchanged from prior year). In the reporting period, provisions in the amount of CHF 0.3 million were recognized for pending legal proceedings in Switzerland and Germany.
In the previous year, provisions amounting to CHF 3.4 million that were no longer required were released in the income statement in "Other operating expenses". This resulted in a positive balance for this item.
11. Treasury shares
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.
As of the balance sheet date December 31, 2022, no shares had yet been issued (previous year: none).
12. Other operating income
Insurance compensation of CHF 10.8 million was received in connection with a fire incident in a warehouse in Switzerland.
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 waives repayment of the residual loan of CHF 5.8 million not converted to equity in 2020.
In the previous 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).
The Swiss companies were able to receive the following non-repayable amounts under the federal Covid-19 hardship programs in the previous year: Canton Basel-Stadt CHF 0.8 million (no conditions, not subject to the federal Covid-19 hardship ordinance, as only the cantonal share was distributed) and Canton of Zurich CHF 9.8 million (subject to the federal Covid-19 hardship ordinance, and its articles 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 0.3 million (CHF 0.3 million) (in the previous year USD 6.1 million, CHF 5.8 million) due to local regulations.
The positions "Loan waiver" (in the reporting year CHF 5.8 million) and "State Covid-19 Indemnities USA" (reporting year CHF 0.3 million, previous year CHF 5.8 million) are non-cash items. They are reported in the consolidated statement of cash flows in the position "Other non-cash transactions" in net cash flow from operating activities.
13. Segment reporting
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” 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.
Operating income by geographical market is presented subsequent to consolidation and thus relates purely to third-party sales.
14. Staff and staff expenditure
At the end of the previous year, an additional 8 employees in the USA were in the "furlough". These employees continued to be employed without remuneration and only social security contributions continued to be paid.
Personnel expenses include short-time compensation of CHF 0.3 million (previous year CHF 3.8 million), all of which was received. Personnel expenses before short-time compensation amounted to CHF 115.5 million (previous year CHF 87.4 million).
For the provision of various services, additional temporary staff are employed as cashiers, cloakroom attendants, guards and office workers, etc.
15. Share-based payments
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.
16. Financial result
Interest expense (interest on capital) relates to the financing costs for operating loans and various other interest expenses.
17. Taxes
In the United States, MC2 could capitalize deferred tax assets on temporary differences in the amount of CHF 8.1 million (previous year CHF 0.8 million) due to the positive business performance and the corresponding future prospects. The increase leads to a corresponding deferred tax income in the reporting year.
As of December 31, 2022, deferred tax assets from loss carry forwards were not capitalized.
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.
18. 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, an adjustment was made for the first time for the assumed exercise of share-based payments, which dilutes earnings per share (previous year no adjustment).
19. 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 carrying amount of goodwill comprises the acquired company Digital Festival AG.
If the goodwill had been capitalized, assuming an amortization period of five years, the following values would have been obtained:
20. Employee pension funds
20.1 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 affiliated companies pay a total contribution of 150% of the contribution amount attributable to the members. The expenses in the financial year 2022 amounted to CHF 4.1 million (previous year CHF 3.7 million). An actuarial balance sheet is prepared by an expert at least every three years. This was prepared as of 01.01.2021 on the technical basis BVG 2015, period tables and a technical interest rate of 1.50%. In the meantime, the bases have been changed to BVG 2020 (updated bases) and generation tables for the annual calculation of the actuarial reserve. The funding ratio estimated by means of extrapolation amounts to around 120.0% as of December 31, 2022 (previous year 127.0%). The total employer contribution reserve as of 31.12.2022 amounts to CHF 0.7 million (previous year CHF 0.7 million).
20.2 Pension plans United States
For non-union employees, MC2 has a 401(k) salary savings plan on a defined contribution basis. Under this plan, employees may contribute a portion of their taxable salary under U.S. federal guidelines for such plans. All participants must have completed at least one year of service to participate in this plan. In the reporting year 2022, the company made employer contributions totaling USD 0.5 million (previous year USD 0.4 million).
For unionized employees, MC2 contributes to multi-employer pension plans under collective bargaining agreements that provide retirement benefits for its members. MC2's contributions to these plans were less than 5% of the total contributions to each of these plans. MC2 obtains the current zone status ("Pension Protection Act zone status") for each plan from the respective employee benefit plans. It is confirmed annually by the actuarial advisor of the respective pension plan.
The table below provides information about the significant group pension plans in which MC2 participates:
Plans in the red zone are less than 65% funded, plans in the yellow zone less than 80% funded. Plans in the orange zone are also less than 80% funded, but are considered at risk. Plans in the green zone are at least 80% funded. The "FIP/RP Implementation Status" column indicates benefit plans for which a financial improvement plan or rehabilitation plan is either planned or has been implemented.
In multi-employer pension plans, the assets are available to also provide benefits for employees of other employers. Likewise, the employers are jointly and severally liable for unfunded obligations. In addition, the company may be liable for unfunded vested benefits in the event of termination or withdrawal.
As of December 31, 2022, approximately 14.6% (prior year 13.0%) of MC2's personnel expenses were used for a unionized workforce, which includes 9 (prior year 9) collective bargaining agreements. These are valid from 2024 to 2026. By this time, the contracts have been renewed or renegotiated.
There are no obligations to pension plans as of December 31, 2022 (previous year: none).
21. Off-balance-sheet transactions
22. 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.
23. Investments in subsidiaries
23.1 Investments
23.2 Change in consolidation scope
MCH Swiss Exhibition (Zurich) Ltd. has absorbed its sister company Digital Festival AG with retroactive effect from January 1, 2022.
MCH Swiss Exhibition (Basel) Ltd. acquired a minority shareholding of 15% in Art Events Singapore Pte. Ltd. as per January 17, 2022 at a price of USD 0.3 million.
On March 16, 2022, MCH Group Ltd. founded the company MCH Digital Ventures AG with its registered office in Zurich. The company was renamed Arcual AG on August 30, 2022. On the balance sheet date of December 31, 2022, MCH Group Ltd. held 67.5% of the participation rights.
MCH Swiss Exhibition (Basel) Ltd. founded the company MCH Group France SAS, based in Paris, France, on March 30, 2022. MCH Swiss Exhibition (Basel) Ltd. holds 100% of the participation rights.
On June 23, 2022, MCH Swiss Exhibition (Basel) Ltd. acquired further shares in Masterpiece London Ltd. amounting to 31.5% at a price of GBP 59. As of this date, Swiss Exhibition (Basel) Ltd. holds 99% of the participation rights in Masterpiece London Ltd.
Arcual AG founded the company Arcual GmbH with registered office in Berlin, Germany, on October 12, 2022. Arcual AG holds 100% of the participation rights.
Arcual AG founded the company Arcual GmbH with registered office in Berlin, Germany, on October 12, 2022. Arcual AG holds 100% of the participation rights.
23.3 Further details
MCH Swiss Exhibition (Basel) Ltd. had acquired 67.5 % of the shares in Masterpiece London Ltd. on November 30, 2017 and assumed control of the company on the same date. As per June 23, 2022, MCH Swiss Exhibition (Basel) Ltd. acquired a further 31.5 % and, after the balance sheet date, the remaining 1 % as per February 2, 2023. There were no longer any put/call agreements as at the balance sheet date 2022.
MCH Swiss Exhibition (Basel) Ltd. acquired a minority shareholding of 15% in Art Events Singapore Pte. Ltd. as of January 17, 2022. By acquiring the shares, MCH Swiss Exhibition (Basel) Ltd. also acquired the right to sell back its shareholding in 2024 if the event cannot be staged at all or cannot be staged with economic success.
24. Further details
24.1. Capital increase 2022
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.
Capital reduction through par value reduction
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.
Exception to the obligation to make an offer
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).
Capital increase
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.
24.2. Transactions with related parties
In the previous year, Masterpiece London Ltd. awarded the stand construction contract, worth a few thousand Swiss francs, for Masterpiece London to a related company. The contract was awarded on the basis of an ordinary tender procedure.
24.3. Contingent liabilities and receivables
The contingent assets are prospective payments to MC2 under the "Employment Retention Credit" program (ERC) in the United States The ERC is a refundable tax credit for companies that continued to pay their employees during the shutdown due to the Covid-19 pandemic.
To secure contractual obligations of Arcual AG, MCH Group Ltd. has issued a guarantee amounting to CHF 2.3 million (USD 2.5 million) as at 31.12.2022 (previous year none). To secure a rent guarantee of MC2, MCH Group Ltd. has issued a guarantee which amounts to CHF 0.7 million (USD 0.8 million) as per 31.12.2022 (previous year CHF 2.3 million, USD 2.5 million). To secure the contractual obligations of MCH Live Marketing Solutions AG, MCH Group Ltd. issued guarantees in the previous year amounting to CHF 0.9 million as at 31.12.2021 (none in the year under review). In the previous year, there were also bank guarantees with the possibility of recourse amounting to CHF 0.4 million.
MCH Swiss Exhibition (Zurich) Ltd. has contingent liabilities of CHF 0.4 million (previous year CHF 0.5 million) in connection with Theater 11 and the renovation of exhibition restaurants as at 31.12.2022.
24.4. 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 16.12.2022. 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.
24.5. Influence of the Covid-19 pandemic on the financial year
Review 2022 - impact of Covid-19 pandemic in first quarter of 2022 and largely normalization of business activity from second quarter of 2022 onwards
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 losses. 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.
Capital increase 2022 and outlook 2023 and following years
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.
24.6 Events subsequent to the balance sheet date
On January 6 , MCH Group informed that the Masterpiece London exhibition, which was to have taken place from June 28 to July 5 , 2023, would be cancelled. The rising costs and declining number of international exhibitors meant that it would not have been economically viable to stage the event in 2023. The costs of CHF 0.7 million incurred for the 2023 exhibition were charged to the 2022 reporting year.
MCH Swiss Exhibition (Basel) Ltd. acquired further shares in the company Masterpiece London Ltd. amounting to 1% at a price of GBP 2 on February 2, 2023. From this date, Swiss Exhibition (Basel) Ltd. holds 100% of the participation rights in Masterpiece London Ltd.
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 2022 financial account and are therefore required to be disclosed here.
24.7. Approval of the annual accounts
The Board of Directors of MCH Group Ltd. approved the consolidated annual accounts on March 24, 2023.
