23 Business combinations

General

Business combinations are accounted for using the acquisition method. Acquisition costs comprise the consideration paid, including the fair value of deferred and contingent consideration. Transaction costs are recognized as operating expenses. Businesses acquired in the reporting year are included in the Group’s consolidated financial statements from the date on which the Group obtained control of the business.

Net assets acquired comprise identifiable assets, liabilities, and contingent liabilities, and are recognized at fair value. Identifiable intangible assets mainly consist of maintenance portfolios. The difference between the acquisition costs and the fair value of the net assets acquired is recognized as goodwill. Goodwill is allocated to those cash-generating units that are expected to benefit from the acquisition and to generate future cash flows. Non-controlling interests are generally recognized according to their proportionate share of the fair value of the net assets acquired.

It is common practice for the Group to acquire call options for interests that were not acquired, and to write put options.

Step acquisitions

If the Group obtains control of an associate, the previously held interests are measured at fair value at the acquisition date. Any gain or loss resulting from the remeasurement is recognized in other income. Items previously recognized in OCI are reclassified to the income statement.

In the reporting year and in the previous year, Schindler acquired the business activities or the shares of various smaller companies that sell, install, modernize, and maintain elevators and escalators. Viewed individually, the impact of the business combinations that took place in the reporting year is not material, nor would it have been material had the business combinations have occurred on January 1, 2021. The business combinations enable the Group to strengthen its market position and regional coverage.

Furthermore, in the previous year, the Group obtained control of Volkslift-Schindler Elevator Co. Ltd. and consolidated the entity for the first time, with an interest of 49%. Non-controlling interests of 51% were recognized upon consolidation of the company. As a result of the business combination, the previously held 49% investment was revalued to its fair value of CHF 90 million.

Volkslift-Schindler Elevator Co. Ltd. contributed CHF 80 million to the Group’s revenue in the previous year, with no material impact on the Group’s operating profit. The impact of all other business combinations that took place in the previous year was not material, nor would it have been material had the business combinations have occurred on January 1, 2020.

The fair values of the net assets acquired through all business combinations are as follows:

In CHF million	2021	2020
Assets
Cash and cash equivalents	6	21
Current financial assets	–	46
Accounts receivable	6	41
Other current assets	3	6
Property, plant, and equipment	1	35
Maintenance portfolio	97	93
Other intangible assets	–	6
Deferred tax assets	1	3
Other non-current assets	–	4
Liabilities
Accounts payable	7	43
Contract liabilities	3	40
Other current liabilities	2	49
Deferred tax liabilities	13	6
Other non-current liabilities	3	1
Net assets acquired	86	116
Non-controlling interests	–	–11
Goodwill	64	138
Total acquisition costs	150	243

Gross trade accounts receivable total CHF 7 million and the related bad debt allowances total CHF 1 million (previous year: gross amount of CHF 62 million and allowances of CHF 21 million).

The Group assumes that CHF 33 million of goodwill is tax-deductible (previous year: CHF 31 million).

Cash flows

A reconciliation of the net cash outflow for all business combinations is provided in the following table:

In CHF million	2021	2020
Cash and cash equivalents paid	114	102
Deferred purchase consideration	36	51
Total acquisition costs	150	153
Cash and cash equivalents acquired	–6	–21
Deferred purchase consideration	–36	–51
Paid deferred purchase consideration	33	42
Net cash outflow	141	123