Chart

25  Financial risk management (IFRS 7)

 

25.1  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.

 

25.2  Classes of financial instruments

 

 

 

Cash and cash equivalents

Current derivatives

Trade and other receivables

(Restated)

Non-current financial assets

Total 

assets

31.12.2017

Current financial liabilities

Trade and other payables/accrued expenses

Non-current financial liabilities

Total 

liabilities

31.12.2017

CHF 1,000

 

 

 

 

 

 

 

 

 

Financial instruments 

  measured at fair value 

  through P&L (FVTPL)

 

 

 

 

 

 

 

 

 

Currency forwards

 – 

1,017 

 – 

157 

1,174 

 (949) 

 – 

 (334) 

 (1,283) 

Contingent consideration

 – 

 – 

 – 

 – 

 – 

 (4,872) 

 – 

 (6,767) 

 (11,639) 

 

 

 

 

 

 

 

 

 

 

Financial instruments 

  measured at amortized costs

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

309,412 

 – 

 – 

 – 

309,412 

 – 

 – 

 – 

 – 

Receivables

 – 

 – 

112,382 

 – 

112,382 

 – 

 – 

 – 

 – 

Rent and other deposits

 – 

 – 

433 

674 

1,107 

 – 

 – 

 – 

 – 

Current bank liabilities

 – 

 – 

 – 

 – 

 – 

 (4,329) 

 – 

 – 

 (4,329) 

Bank loans

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 (1,229) 

 (1,229) 

Payables and accrued expenses

 – 

 – 

 – 

 – 

 – 

 – 

(58,904)

 – 

(58,904)

 

 

 

 

 

 

 

 

 

 

Total financial instruments

309,412 

1,017 

112,815 

831 

424,075 

 (10,150) 

(58,904)

 (8,330) 

 (77,384) 

 

 

 

 

 

 

 

 

 

 

Reconciling items1

 – 

 – 

10,364

 – 

10,364

 – 

(16,597)

 – 

 (16,597) 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

309,412 

1,017 

123,179

831 

434,439

 (10,150) 

(75,501)

 (8,330) 

(93,981)

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

 

 

 

Cash and cash equivalents

Current derivatives

Trade and other receivables

Non-current financial assets

Total 

assets

31.12.2018

Current financial liabilities

Trade and other payables/accrued expenses

Non-current financial liabilities

Total 

liabilities

31.12.2018

CHF 1,000

 

 

 

 

 

 

 

 

 

Financial instruments 

  measured at fair value 

  through P&L (FVTPL)

 

 

 

 

 

 

 

 

 

Currency forwards and options

 – 

977

 – 

90

1,067

(3,900)

 – 

(406)

(4,306)

Contingent consideration

 – 

 – 

 – 

 – 

 – 

(4,916)

 – 

(4,916)

 

 

 

 

 

 

 

 

 

 

Financial instruments 

  at fair value through OCI

  (FVOCI)

 

 

 

 

 

 

 

 

 

Unquoted equity investment

 –

 –

 –

4,000

4,000

 –

 –

 –

 –

 

 

 

 

 

 

 

 

 

 

Financial instruments 

  measured at amortized costs

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

296,845

 – 

 – 

 – 

296,845

 – 

 – 

 – 

 – 

Receivables

 – 

 – 

105,811

 – 

105,811

 – 

 – 

 – 

 – 

Rent and other deposits

 – 

 – 

473

1,015

1,488

 – 

 – 

 – 

 – 

Current bank liabilities

 – 

 – 

 – 

 – 

 – 

(1,129)

 – 

 – 

(1,129)

Bank loans

 – 

 – 

 – 

 – 

 – 

 – 

 – 

(1,182)

(1,182)

Payables and accrued expenses

 – 

 – 

 – 

 – 

 – 

 – 

(66,700)

 – 

(66,700)

 

 

 

 

 

 

 

 

 

 

Total financial instruments

296,845

977

106,284

5,105

409,211

(9,945)

(66,700)

(1,588)

(78,233)

 

 

 

 

 

 

 

 

 

 

Reconciling items1

 – 

 – 

12,463

 – 

12,463

 – 

(14,648)

 – 

(14,648)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

296,845

977

118,747

5,105

421,674

(9,945)

(81,348)

(1,588)

(92,881)

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

 

25.3  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, derivatives and trade accounts receivable.

 

All domestic and international bank relationships are selected by the 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 15) 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.

25.4  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.

 

25.4.1  Interest rate risks

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 20.

 

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, 2018, 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 1.0 million (2017: CHF 1.2 million) higher/lower, mainly as a result of cash positions held at variable rates.

 

25.4.2  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 the Euro (EUR) and the 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: 

 

 

31.12.2017

31.12.2018

 

CHF

EUR

USD

Other

CHF

EUR

USD

Other

CHF 1,000

 

 

 

 

 

 

 

 

Derivatives

 – 

 – 

 (79) 

 (30) 

 – 

 – 

(3,276)

37

Contingent consideration

 – 

 (2,090) 

 – 

 – 

 – 

 – 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

568 

9,336 

2,009 

687 

821

2,300

3,133

3,682

Receivables

717 

1,670 

2,411 

2,584 

83

1,213

2,045

2,120

Rent and other deposits

 – 

42 

 – 

 – 

 – 

42 

 – 

 – 

Current bank liabilities 

 – 

 – 

 – 

 (4,322) 

 – 

 – 

 – 

(1,120)

Bank loans

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

Payables and accrued expenses

 (115) 

 (3,849) 

 (1,278) 

 (231) 

(100)

(5,452)

(2,286)

(569)

 

 

 

 

 

 

 

 

 

Total net exposure to currency

1,170 

5,109 

3,063 

 (1,312) 

804

(1,897)

(384)

4,150

 

At December 31, 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:

 

 

31.12.2017

higher/(lower)

31.12.2018

higher/(lower)

CHF 1,000

 

 

If CHF had weakened against EUR by 10 %

373

If CHF had strengthened against EUR by 10 %

 (373) 

If CHF had weakened against USD by 10 %

 (8,131) 

(13,381)

If CHF had strengthened against USD by 10 %

8,194 

12,097

 

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 

 

Positive

Negative

Total

Due within

 

 

 

 

1 and 90 days

91 and 360 days

1 and 2 years

CHF 1,000

 

 

 

 

 

 

Foreign currency forwards

 

 

 

 

 

 

  Sell USD

760 

 (1,099) 

134,941 

49,202 

50,177 

35,562 

  Buy USD

413 

 (152) 

 (35,562) 

 (20,460) 

 (15,102) 

 – 

  Sell CNY

 – 

 (32) 

7,315 

7,315 

 – 

 – 

  Buy CNY

 – 

 (3,112) 

 (3,112) 

 – 

 – 

 

 

 

 

 

 

 

Balance at December 31, 2017

1,174 

 (1,283) 

103,582 

32,945 

35,075 

35,562 

 

 

Fair value

Contract value 

 

Positive

Negative

Total

Due within

 

 

 

 

1 and 90 days

91 and 360 days

1 and 2 years

CHF 1,000

 

 

 

 

 

 

Foreign currency forwards

 

 

 

 

 

 

  Sell USD

392

(3,920)

162,937

64,196

65,566

33,175

  Buy USD

332

(192)

(47,266)

(23,780)

(17,908)

(5,578)

  Sell CNY

37

13,625

13,625

Foreign currency options

 

 

 

 

 

 

  Sell USD

306

6,654

1,174

4,893

587

  Buy USD

(194)

(16,636)

(2,935)

(12,233)

(1,468)

 

 

 

 

 

 

 

Balance at December 31, 2018

1,067

(4,306)

119,314

52,280

40,318

26,716

 

25.5  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 lines in the amount of 10% of its annual sales 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:

 

 

Carrying amount

Contractual cash flows

Between 1 
and 90 days

Between 91 and 360 days

Between 1 
and 2 years

Over 2 years

CHF 1,000

 

 

 

 

 

 

Derivative financial liabilities 

 

 

 

 

 

 

Foreign currency forwards

1,283 

 

 

 

 

 

  Outflow

 

77,465 

27,776 

29,229 

20,460 

 – 

  Inflow 

 

 (74,939) 

 (27,108) 

 (28,386) 

 (19,445) 

 – 

 

 

 

 

 

 

 

Non-derivative financial liabilities

 

 

 

 

 

 

Current bank liabilities 

4,329 

4,329 

4,329 

 – 

 – 

 – 

Payables and accrued expenses1

58,904

58,904 

36,257 

22,647 

 – 

 – 

Bank loans

1,229 

1,275 

19 

22 

1,231 

Contingent consideration

11,639 

12,040

4,850 

 – 

7,190 

 – 

 

 

 

 

 

 

 

Balance at December 31, 2017

77,384 

79,074

46,107 

23,509 

8,227 

1,231 

  1. Excluding reconciling items (see note 25.2)

 

 

Carrying amount

Contractual cash flows

Between 1 
and 90 days

Between 91 and 360 days

Between 1 
and 2 years

Over 2 years

CHF 1,000

 

 

 

 

 

 

Derivative financial liabilities 

 

 

 

 

 

 

Foreign currency forwards

4,112

 

 

 

 

 

  Outflow

 

134,475

32,279

83,514

18,682

  Inflow 

 

(128,924)

(30,983)

(79,953)

(17,988)

Foreign currency options

194

 

 

 

 

 

  Outflow

 

  Inflow

 

 

 

 

 

 

 

 

Non-derivative financial liabilities

 

 

 

 

 

 

Current bank liabilities 

1,129

1,129

1,129

Payables and accrued expenses1

66,700

66,700

45,346

21,354

Bank loans

1,182

1,193

9

1,184

Contingent consideration

4,916

4,916

4,916

 – 

 

 

 

 

 

 

 

Balance at December 31, 2018

78,233

79,489

52,687

24,924

1,878

  1. Excluding reconciling items (see note 25.2)

Unused lines of credit amounting to CHF 143.9 million were available to the Group at December 31, 2018 (2017: CHF 140.7 million). In addition, the Group had uncommitted lines of credit amounting to CHF 90.0 million for the purpose of financing possible future business combinations.