2 Operating Assets and Liabilities

Trade receivables are initially recognized at the transaction price. Belimo holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost. Loss allowances are always measured at an amount equal to lifetime expected credit losses. The Group uses a provision matrix to determine the expected credit loss. The loss rates are based on actual credit loss experience during recent years, amended by current conditions and the Group’s view of economic conditions. Individual allowances are recognized for specifically identified trade receivables with objective default evidence. The gross carrying amount of trade receivable assets is written off when the Group has no reasonable expectations of recovering financial assets in their entirety or a portion thereof.

Inventories are measured at the lower of cost and net realizable value. The costs comprise all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition. The net realizable value is the expected average selling price less the expected costs of completion and the estimated costs necessary to make the sale.

Purchased inventories are measured at acquisition cost, internally generated products at cost of production. These latter costs include direct material and production costs, and directly attributable overhead expenses. The overhead production expenses are calculated on the basis of normal capacity of production facilities. Based on a range analysis, items with a slow rate of turnover are written down by 20% to 100%.

Other assets and liabilities, excluding derivatives, are measured at amortized cost. Derivative financial instruments are measured at fair value through profit and loss with any changes therein recognized in the financial result. Other assets are subject to the impairment requirements of IFRS 9.

Man­age­ment estimates the useful economic lives and residual values of buildings, tools and machinery as well as furniture, fixtures, and movable equipment on the basis of the anticipated period over which economic benefits will accrue to the Company from the use of the assets. Useful economic lives are reviewed annually on the basis of historical data and forecast ex­pec­ta­tions concerning future tech­no­log­i­cal de­vel­op­ments, economic and legal changes, as well as further external factors.

Owned property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment losses. Significant parts of an item of property, plant and equipment with different useful lives are accounted for separately. Subsequent expenditure is capitalized if it is probable that the future economic benefits associated with the expenditure will flow to the Group. Expenditure for maintenance and repair is recognized in the income statement. Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, or over the shorter lease term.

The estimated useful lives applied by the Group are as follows:

The expected residual value, if not immaterial, is reviewed annually. If there is any impairment indication at the reporting date, the recoverable amount is estimated. The recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use. To determine the value in use, the estimated future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. An impairment loss is recognized in the income statement, if the carrying amount of an asset or of the cash-generating unit to which the asset belongs exceeds the recoverable amount.

Belimo assesses whether a contract is or contains a lease at the inception of the contract. The Group recognizes a right-of-use asset and a lease liability at the lease commencement date.

Right-of-use assets are measured at cost, including the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs, any restoration costs, and less any incentives received. Lease liabilities are initially measured at the present value of the lease payments, discounted by using the incremental borrowing rate.

The incremental borrowing rates used for the measurement of the right-of-use asset and the lease liability have been defined, based on a base rate depending on the currency and maturity of the underlying lease contract, as well as on a risk premium, taking into account the Company and asset-specific risks.

In accordance with IFRS 16, Belimo does not recognize short-term leases with a lease period of 12 months or less and leases of low-value assets on the balance sheet.

The right-of-use assets are depreciated from the commencement dates to the earlier of the end of the useful lives or the end of the lease terms.

Land and buildings: The Group leases land and buildings for its office and warehouse space. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Typically, leases are made for a fixed period of 1 - 10 years and may include extension options. 

Furniture, fixtures, movables equipment: The major part refers to leased cars as well as to office equipment, with a contract duration of 3 years on average.

Management Judgement: Management judgment is required to define if an extension option is reasonably certain to be exercised.

Man­age­ment estimates the useful economic lives  of intangible assets based on the anticipated period over which economic benefits will accrue to the Company from the use of the assets. Useful economic lives are reviewed annually based on historical and forecast ex­pec­ta­tions concerning future tech­no­log­i­cal de­vel­op­ments, economic and legal changes as well as further external factors.

The Group’s intangible assets comprise acquired software, non-contractual customer relationships, internally generated intangible assets, patents, trademarks, technology, and other rights. Intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. They are amortized on a straight-line basis over their estimated useful lives from the time at which they become available for use.

The estimated useful lives applied by the Group are as follows:

If there is any impairment indication at the reporting date, the recoverable amount is estimated. The recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use. To determine the value in use, the estimated future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. An impairment loss is recognized in the income statement if the carrying amount of an asset or of the cash-generating unit to which the asset belongs exceeds the recoverable amount.

Internally generated intangible assets include capitalized development costs. Development costs incurred to obtain new or substantially improved products and processes are capitalized if the resulting products and processes are technically and commercially feasible and if it is probable that they will generate future economic benefits. In addition, the Group must intend and have sufficient resources available to complete the development and to use or sell the asset. Development costs previously recognized as expenses are not recognized as assets in subsequent periods. Capitalized development costs of projects that have not yet been completed are not amortized but subject to an annual impairment test. Research costs incurred to gain new basic or technological knowledge and understanding are recognized in the income statement.

Subsequent expenditure in intangible assets is capitalized if it increases the future economic benefits embodied in the specific asset to which it relates. All other expenses are recognized in the income statement when they are incurred.

In the course of its ordinary operating activities, Belimo provides warranties to its customers for which a provision is recognized. The amount recognized as provision is the best estimate required to settle the present obligation at the reporting date. This measurement involves various management assumptions and estimates. The assessment is challenged annually and may change in the following year depending on the future changes in warranty processes. 

Provisions are recognized when the Group has a present obligation because of a past event, an outflow of resources embodying economic benefits is probable, and the amount of the obligation can be reliably estimated. They are discounted if the effect is material. Provisions are measured at the reporting date, based on the best estimate of the future outflow of economic benefits. Depending on the development and outcome of the events, claims may arise that are lower or higher than the recognized provision. The actual payments may therefore differ from the provisions.