24 Financial risk management (IFRS 7)

24.1 Introduction

The Group’s activities expose it to a variety of financial risks: credit risk, market risk (including interest rate risk and foreign currency risk) and liquidity risk. The Group’s risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to economically hedge certain risk exposures.

Financial risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board of Directors (Treasury Policy). Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The ‘Treasury Policy’ provides principles for specific areas, such as credit risk, interest rate risk, foreign currency risk, use of derivative financial instruments and investment of excess liquidity.

This note presents information about the Group’s exposure to each of the risks arising from financial instruments and the Group’s objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements.

24.2 Carrying amounts of financial instruments by category

The following table shows the carrying amounts of financial instruments by category at the end of December:

CHF 1,000

2013

2014

Financial assets held for trading

 

 

Derivatives

 3,360 

 1,839 

 

 

 

Loans and receivables

 

 

Cash and cash equivalents

 150,377 

 128,715 

Trade accounts receivable1

 74,384 

 96,183 

Other accounts receivable1

 1,414 

 809 

Non-current financial assets

728

 777 

Balance at December 31

 226,903 

 226,484 

 

 

 

Financial liabilities held for trading

 

 

Derivatives

691

9,188

 

 

 

Financial liabilities measured at amortized cost

 

 

Bank liabilities and loans

6,910

 6,012 

Trade accounts payable 

 10,292 

 12,941 

Other accounts payable1

9

 56 

Accrued expenses

 32,967 

 35,224 

Balance at December 31

 50,178 

 54,233 

1 Excluding receivables and payables arising from POC, VAT/other non-income taxes and social security

24.3 Credit risks

Credit risk is the risk of financial loss to the Group if a customer or counterparty to financial instruments fails to meet its contractual obligations, and arises principally from cash and cash equivalents, time deposits and trade accounts receivable.

All domestic and international bank relationships are selected by CFO and Group Treasury. Only banks and financial institutions that are ranked in the top class of the respective country are accepted.

The credit risk with trade accounts receivable (see note 14) is limited, as the Group has numerous clients located in various geographical regions. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. For the purpose of risk control, the customers are grouped as follows (risk groups): governmental organizations, listed public limited companies and other customers. Credit limits are established for each customer, whereby the credit limit represents the maximum open amount without requiring payments in advance or letters of credit; these limits are reviewed regularly (credit check).

The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet. There are no commitments that could increase this exposure to more than the carrying amounts.

24.4 Market risks

Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and other prices will affect the Group’s result or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

24.4.1 Interest rate risk

At the reporting date the Group had the following interest-bearing financial instruments: cash and cash equivalents, time deposits, rent deposits and bank liabilities. All cash and cash equivalents mature or reprise in the short-term, no longer than three months.

Borrowings mainly bear interest at fixed rates. Cash and cash equivalents and borrowings issued at variable rates expose the Group to cash flow interest rate risk. For the interest rate profile of the Group’s interest-bearing financial liabilities refer to note 19.

The Group does not account for any fixed rate borrowings at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.

The Group Treasury manages the interest rate risk in order to reduce the volatility of the financial result as a consequence of interest rate movements. For the decision whether new borrowings shall be arranged at a variable or fixed interest rate, the Group Treasury focuses on an internal long-term benchmark interest rate and considers the amount of cash and cash equivalents held at a variable interest rate. Currently the interest rate exposure is not hedged.

At December 31, 2014, if interest rates had been 50 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been CHF 0.5 million (2013: CHF 0.6 million) higher/lower, mainly as a result of cash positions held at variable rates.

24.4.2 Foreign currency risks

The Group incurs foreign currency risks on sales, purchases and borrowings denominated in a currency other than the functional currency of the respective Group companies. On a consolidated basis, the Group is also exposed to currency fluctuations between the Swiss franc (CHF) and the functional currencies of its Group companies. The two major currencies giving rise to currency risks are euro (EUR) and US dollar (USD).

The Group centralizes its foreign currency exposure in a few locations only. The hedging policy of the Group is to cover the foreign currency exposure to a certain percentage of the operating activities (forecast sales and purchases). The Group uses forward exchange contracts, currency options and swaps to hedge its foreign currency risk on specific future foreign currency cash flows. These contracts have maturities of up to 18 months.

The Group does not hedge its net investment in foreign entities and the related foreign currency translation of local earnings.

The Group’s exposure to foreign currency risk arising on financial instruments denominated in a currency different from the functional currency of the entity holding the instruments was as follows:

 

2013

2014

CHF 1,000

CHF

EUR

USD

Other

CHF

EUR

USD

Other

Cash and cash equivalents

 406 

 8,111 

 14,765 

 3,733 

 239 

 11,635 

 15,548 

 2,372 

Trade accounts receivable1

 3,262 

 1,074 

 929 

 99 

 3,215 

 1,046 

 4,703 

 1,970 

Other accounts receivable1

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

Non-current financial assets

 – 

 30 

 – 

 – 

 – 

 42 

 – 

 – 

Current bank liabilities 

 – 

 – 

 – 

 (1,997) 

 – 

 – 

 – 

 (2,690) 

Trade accounts payable

 (12) 

 (1,892) 

 (769) 

 (53) 

 – 

 (3,053) 

 (850) 

 (31) 

Other accounts payable1

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

Accrued expenses 

 – 

 – 

 – 

 (23) 

 – 

 – 

 (60) 

 (21) 

Non-current bank liabilities

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 

 

 

 

 

 

 

 

 

Foreign currency forwards

 – 

 – 

 2,739 

 – 

 – 

 – 

 (6,354) 

 (66) 

Foreign currency options

 – 

 (70) 

 – 

 – 

 – 

 – 

 (928) 

 – 

 

 

 

 

 

 

 

 

 

Net exposure to currency at December 31

 3,656 

 7,253 

 17,664 

 1,759 

 3,454 

 9,670 

 12,059 

 1,534 

1 Excluding receivables and payables arising from POC, VAT/other non-income taxes and social security

At the end of December, if the CHF had moved against the USD and EUR with all other variables held constant, post-tax profit for the year would have been:

CHF 1,000

2013 
higher/(lower) 

2014 
higher/(lower) 

If CHF had weakened against EUR by 10 %

 (9) 

 736 

If CHF had strengthened against EUR by 10 %

(386)

 (736) 

If CHF had weakened against USD by 10 %

 (3,588) 

 (6,544) 

If CHF had strengthened against USD by 10 %

 3,593 

 5,641 

Foreign currency risks from financial instruments primarily relate to CHF/EUR and CHF/USD forwards and options.

The derivative financial instruments used as economic hedges of foreign currencies are summarized in the table below: 

 

Fair value

Contract value

CHF 1,000

Positive

Negative

Total

Due within

 

 

 

 

Between 1 
and 90 days

Between 91 
and 360 days

Between 1 
and 2 years

Foreign currency forwards

 

 

 

 

 

 

 Sell USD

 3,350 

 (54) 

 85,718 

 13,393 

 42,859 

 29,466 

 Buy USD

 10 

 (567) 

 (25,001) 

 (13,393) 

 (11,608) 

 – 

 

 

 

 

 

 

 

Foreign currency options

 

 

 

 

 

 

 Call short EUR

 – 

 (70) 

 6,137 

 6,137 

 – 

 – 

 

 

 

 

 

 

 

Balance at December 31, 2013

 3,360 

 (691) 

 66,854 

 6,137 

 31,251 

 29,466 

 

Fair value

Contract value

CHF 1,000

Positive

Negative

Total

Due within

 

 

 

 

Between 1 
and 90 days

Between 91 
and 360 days

Between 1 
and 2 years

Foreign currency forwards

 

 

 

 

 

 

 Sell USD

 – 

 (8,109) 

 103,407 

 19,886 

 47,726 

 35,795 

 Buy USD

 1,754 

 – 

 (32,812) 

 (19,886) 

 (12,926) 

 – 

 Sell CNY

 – 

 (66) 

 3,510 

 3,510 

 – 

 – 

 

 

 

 

 

 

 

Foreign currency options

 

 

 

 

 

 

 Call short with knockout USD

 – 

 (1,013) 

 28,384 

 5,773 

 17,319 

 5,292 

 Put long with knockout USD

 85 

 – 

 14,193 

 2,887 

 8,660 

 2,646 

 

 

 

 

 

 

 

Balance at December 31, 2014

 1,839 

 (9,188) 

 116,682 

 12,170 

 60,779 

 43,733 

24.5 Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Group Treasury manages the Group’s liquidity to ensure sufficient liquidity to meet all liabilities when due, under both normal and stressed conditions, without facing unacceptable losses or risking damage to the Group’s reputation.

It is the Group’s target to have a cash reserve or committed credit line in the amount of 10% of its annual sales third budget centralized at Tecan Group Ltd. and Tecan Trading AG. Changes to this target are subject to the Board of Directors’ approval. All cash in Tecan Group Ltd. and Tecan Trading AG which does not count against such a cash reserve is considered as excess liquidity. Excess liquidity can be invested in instruments such as time deposits, government and corporate bonds, shares of publicly listed companies and capital protected instruments.

The following are the contractual maturities of financial liabilities, including interest payments:

CHF 1,000

Carrying amount

Contractual 
cash flows

Between 1 
and 90 days

Between 91 
and 360 days

Between 1 
and 2 years

Over 2 years

Non-derivative financial liabilities

 

 

 

 

 

 

Current bank liabilities 

 4,908 

 4,951 

 2,087 

 2,864 

 – 

 – 

Trade accounts payable 

 10,292 

 10,292 

 10,069 

 223 

 – 

 – 

Other accounts payable1

 9 

 9 

 9 

 – 

 – 

 – 

Accrued expenses 

 32,967 

 32,967 

 19,704 

 13,263 

 – 

 – 

Non-current bank liabilities

 2,002 

 2,051 

 – 

 18 

 2,033 

 – 

 

 

 

 

 

 

 

Derivative financial liabilities 

 

 

 

 

 

 

Foreign currency forwards

 621 

 

 

 

 

 

 Outflow

 

 20,115 

 13,860 

 4,469 

 1,786 

 – 

 Inflow 

 

 (19,575) 

 (13,394) 

 (4,418) 

 (1,763) 

 – 

Foreign currency options

 70 

 

 

 

 

 

 Outflow

 

 6,137 

 – 

 6,137 

 – 

 – 

 Inflow 

 

 (6,121) 

 – 

 (6,121) 

 – 

 – 

 

 

 

 

 

 

 

Balance at December 31, 2013

 50,869 

 50,826 

 32,335 

 16,435 

 2,056 

 – 

1 Excluding payables arising from VAT/other non-income taxes and social security

CHF 1,000

Carrying amount

Contractual 
cash flows

Between 1 
and 90 days

Between 91 
and 360 days

Between 1 
and 2 years

Over 2 years

Non-derivative financial liabilities

 

 

 

 

 

 

Current bank liabilities 

 2,691 

 2,695 

 2,695 

 – 

 – 

 – 

Trade accounts payable 

 12,941 

 12,941 

 12,884 

 57 

 – 

 – 

Other accounts payable1

 56 

 56 

 56 

 – 

 – 

 – 

Accrued expenses 

 35,224 

 35,224 

 17,106 

 18,118 

 – 

 – 

Non-current bank liabilities

 3,321 

 3,372 

 – 

 28 

 3,344 

 – 

 

 

 

 

 

 

 

Derivative financial liabilities 

 

 

 

 

 

 

Foreign currency forwards

 8,175 

 

 

 

 

 

 Outflow

 

 106,917 

 23,396 

 47,726 

 35,795 

 – 

 Inflow 

 

 (97,953) 

 (21,879) 

 (42,520) 

 (33,554) 

 – 

Foreign currency options

 1,013 

 

 

 

 

 

 Outflow

 

 23,465 

 4,772 

 14,318 

 4,375 

 – 

 Inflow

 

 (22,793) 

 (4,634) 

 (13,903) 

 (4,256) 

 – 

 

 

 

 

 

 

 

Balance at December 31, 2014

 63,421 

 63,924 

 34,396 

 23,824 

 5,704 

 – 

1 Excluding payables arising from VAT/other non-income taxes and social security

Unused lines of credit amounting to CHF 40.0 million were available to the Group at December 31, 2014 (2013: CHF 43.0 million).