3.2 Financial Risk Management
Due to the nature of its activities, Belimo is exposed to several financial risks such as credit risk, liquidity risk, foreign currency risk, and interest rate risk.
Risk management policies are established to identify and to analyze the risks to which the Group is exposed, to define appropriate limits, to establish controls, and to monitor the risks and compliance. Risk management policies and processes are reviewed regularly to reflect changes in market conditions and in the Group’s activities. The identified risks and measures to minimize them are presented below:
Risk |
|
Source |
|
Risk mitigation |
|
|
|
|
|
Credit risk |
|
Through its operational business, Belimo is exposed to the risk of financial loss if a customer or a counterparty fails to meet its contractual obligations. The credit risk mainly arises from cash and cash equivalents, trade receivables, term deposits, and derivative financial instruments. |
|
High standards on financial institutes to cooperate with, as well as analyzing the credit worthiness of counterparties taking into account a variety of factors such as credit ratings or payment history. |
Liquidity risk |
|
Liquidity risks result from difficulties in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. |
|
Aim to always have sufficient liquidity and unused credit lines available. Centrally managed liquidity by Group Treasury and various principles to ensure adequate liquidity for subsidiaries on short notice. |
Foreign currency risk |
|
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a foreign currency) and the Group’s net investments in foreign subsidiaries. |
|
Achieve natural hedging by matching cash inflows and outflows in a specific currency as far as possible as well as facilitating risk management by using forward contracts. |
Interest rate risk |
|
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. |
|
Belimo has no material exposure to the interest rate risk. |
Credit Risk
Belimo invests its cash and cash equivalents worldwide in deposit accounts held mainly with major, creditworthy financial institutions headquartered in Switzerland, Germany, and the United Kingdom. These deposits generally have terms of less than three months. Term deposits that have a maturity of more than three months from the date of acquisition are only held with major, creditworthy financial institutions headquartered in Switzerland and Germany. Transactions involving derivative financial instruments are traded with a limited number of major financial institutions.
The credit risk from trade receivables is limited, since the Group’s customer base is broad and spread over a variety of geographical areas. Credit risk is mainly influenced by the specific characteristics of each individual customer. The risk assessment includes an analysis of the creditworthiness, taking into account a variety of factors such as credit ratings or payment history. Credit limits are set according to regional aspects. Certain new customers are supplied only against payment in advance. The maximum default risk is the carrying amount of the individual assets as at the reporting date (see table in chapter Categories of Financial Instruments below). There are no guarantees or similar obligations that could lead to an increase in risk beyond the carrying amounts.
Liquidity Risk
At the reporting date, the contractual maturities of the undiscounted financial liabilities were as follows:
in CHF 1'000 |
|
Less than 1 year |
|
1–5 years |
|
More than 5 years |
|
Total |
|
|
|
|
|
|
|
|
|
As at December 31, 2023 |
|
|
|
|
|
|
|
|
Trade payables |
|
21'635 |
|
- |
|
- |
|
21'635 |
Bank loans |
|
276 |
|
1'830 |
|
1'861 |
|
3'966 |
Lease liabilities |
|
3'463 |
|
6'670 |
|
1'204 |
|
11'337 |
Other financial liabilities |
|
- |
|
138 |
|
- |
|
138 |
Other liabilities qualifying as financial instruments |
|
36'739 |
|
- |
|
- |
|
36'739 |
Derivative financial instruments |
|
112 |
|
- |
|
- |
|
112 |
Total |
|
62'225 |
|
8'637 |
|
3'065 |
|
73'927 |
|
|
|
|
|
|
|
|
|
As at December 31, 2022 |
|
|
|
|
|
|
|
|
Trade payables |
|
26'390 |
|
- |
|
- |
|
26'390 |
Bank loans |
|
290 |
|
819 |
|
- |
|
1'109 |
Lease liabilities |
|
3'265 |
|
5'507 |
|
1'591 |
|
10'363 |
Other financial liabilities |
|
- |
|
688 |
|
- |
|
688 |
Other liabilities qualifying as financial instruments |
|
38'732 |
|
- |
|
- |
|
38'732 |
Derivative financial instruments |
|
231 |
|
- |
|
- |
|
231 |
Total |
|
68'909 |
|
7'014 |
|
1'591 |
|
77'514 |
Liquidity is centrally managed and controlled by Group Treasury. The subsidiaries are adequately financed by intercompany loans to meet their ongoing commitments.
Belimo can draw down loans at fixed or floating rates for various terms, based on its short and medium-term liquidity needs. Belimo aims to preserve maximum flexibility in its liquidity planning through flexible use of the general credit lines and by staggering the maturity dates of the individual amounts. Belimo has CHF 100.0 million of committed credit lines (not used as at December 31, 2023). In the previous year, the total amount of CHF 100.0 million of committed credit lines and CHF 20.0 million of uncommitted credit lines were available (not used as at December 31, 2022).
Foreign Currency Risk
The following table shows the main foreign exchange risk exposure for financial instruments with a currency that differs from the functional currency of the Group company holding them.
|
|
December 31, 2023 |
|
December 31, 2022 |
||||||||
in CHF 1'000 |
|
Assets |
|
Liabilities |
|
Net |
|
Assets |
|
Liabilities |
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD |
|
6'332 |
|
-251 |
|
6'081 |
|
6'907 |
|
-290 |
|
6'616 |
CHF |
|
852 |
|
-11'353 |
|
-10'501 |
|
456 |
|
-12'687 |
|
-12'231 |
EUR |
|
28'470 |
|
-16'728 |
|
11'742 |
|
27'493 |
|
-17'402 |
|
10'090 |
GBP |
|
3'180 |
|
-178 |
|
3'002 |
|
1'943 |
|
-101 |
|
1'841 |
PLN |
|
4'510 |
|
-27 |
|
4'483 |
|
6'626 |
|
-44 |
|
6'582 |
USD |
|
47'711 |
|
-7'017 |
|
40'694 |
|
61'402 |
|
-6'387 |
|
55'015 |
Other |
|
13'967 |
|
-906 |
|
13'061 |
|
16'814 |
|
-577 |
|
16'237 |
Total |
|
105'021 |
|
-36'460 |
|
68'561 |
|
121'640 |
|
-37'489 |
|
84'151 |
The currency-related sensitivity of these financial instruments is shown in the following table:
|
|
December 31, 2023 |
|
December 31, 2022 |
||||||||
|
|
Exchange |
|
Exchange |
||||||||
in CHF 1'000 |
|
|
|
gain |
|
loss |
|
|
|
gain |
|
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD |
|
-/+ 5% |
|
197 |
|
-197 |
|
-/+ 5% |
|
177 |
|
-177 |
CHF |
|
-/+ 5% |
|
525 |
|
-525 |
|
-/+ 5% |
|
612 |
|
-612 |
EUR |
|
+/- 5% |
|
328 |
|
-328 |
|
+/- 5% |
|
505 |
|
-505 |
GBP |
|
-/+ 5% |
|
35 |
|
-35 |
|
-/+ 5% |
|
107 |
|
-107 |
PLN |
|
-/+ 5% |
|
50 |
|
-50 |
|
+/- 5% |
|
80 |
|
-80 |
USD |
|
-/+ 5% |
|
232 |
|
-232 |
|
+/- 5% |
|
1'375 |
|
-1'375 |
Other |
|
+/- 5% |
|
407 |
|
-407 |
|
+/- 5% |
|
551 |
|
-551 |
Total |
|
|
|
1'774 |
|
-1'774 |
|
|
|
3'406 |
|
-3'406 |
This analysis assumes that all other variables are held constant and takes into account hedging transactions. The same assumptions were applied in the previous year.
At the reporting date, the following currency forward instruments were held, whereas foreign currency forward contracts selling foreign currencies are disclosed as positive figures and contracts buying foreign currencies as negative figures:
in CHF 1'000 |
|
December 31, 2023 |
|
December 31, 2022 |
|
|
|
|
|
Face values |
|
|
|
|
in CAD |
|
10'283 |
|
10'447 |
in EUR |
|
5'279 |
|
- |
in GBP |
|
3'804 |
|
4'014 |
in PLN |
|
5'496 |
|
4'833 |
in USD |
|
46'934 |
|
28'396 |
Other |
|
4'931 |
|
5'254 |
Total |
|
76'727 |
|
52'944 |
|
|
|
|
|
Fair values |
|
|
|
|
positive |
|
1'914 |
|
1'305 |
negative |
|
-112 |
|
-231 |
Total |
|
1'802 |
|
1'074 |
In order to limit the foreign exchange risk, Belimo primarily aims to achieve natural hedging by matching cash inflows and outflows in a specific currency as far as possible. Belimo has centralized its foreign exchange management in Switzerland. Within EMEA, invoices between Group companies are mainly denominated in the currency of the company receiving the invoice. Other subsidiaries of Belimo hedge their currency risk through other intercompany transactions, thus ensuring efficient risk management as currency flows can be offset within the Group as far as possible. Its net currency positions are hedged on a rolling basis by the Swiss companies, usually by entering into forward contracts.
Interest Rate Risk
The interest-bearing financial assets and liabilities held by the Group mainly relate to cash, cash equivalents, term deposits, and lease liabilities. Belimo therefore has no material exposure to an interest rate risk.
Categories of Financial Instruments
The following tables summarize all financial instruments classified by categories according to IFRS 9:
|
|
Carrying amounts |
||
in CHF 1'000 |
|
December 31, 2023 |
|
December 31, 2022 |
|
|
|
|
|
Financial assets held to collect measured at amortized cost |
|
|
|
|
Cash and cash equivalents |
|
110'833 |
|
86'780 |
Term deposits |
|
- |
|
25'000 |
Trade receivables |
|
111'015 |
|
110'418 |
Other receivables |
|
1'575 |
|
860 |
Other financial assets |
|
1'312 |
|
1'626 |
Total |
|
224'736 |
|
224'684 |
|
|
|
|
|
Financial assets measured at fair value through OCI |
|
|
|
|
Investments 1) 3) |
|
2'524 |
|
2'774 |
Total |
|
2'524 |
|
2'774 |
|
|
|
|
|
Financial assets measured at fair value through profit and loss |
|
|
|
|
Investments 1) 3) |
|
2'095 |
|
2'401 |
Derivative financial instruments 2) |
|
1'914 |
|
1'305 |
Total |
|
4'009 |
|
3'705 |
|
|
|
|
|
Financial liabilities measured at amortized cost |
|
|
|
|
Trade payables |
|
21'635 |
|
26'390 |
Bank loans |
|
3'966 |
|
1'109 |
Lease liabilities |
|
10'606 |
|
9'675 |
Other financial liabilities |
|
138 |
|
688 |
Other liabilities and accrued expenses qualifying as financial instruments |
|
36'739 |
|
38'732 |
Total |
|
73'084 |
|
76'595 |
|
|
|
|
|
Financial liabilities measured at fair value through profit and loss |
|
|
|
|
Derivative financial instruments 2) |
|
112 |
|
231 |
Total |
|
112 |
|
231 |
1) Measured at fair values that are calculated based on factors that are not observable market data (level 3).
2) Measured at fair values that are calculated based on observable market data (level 2).
3) Investments are presented within "non-current financial assets" in the primary statement.
The derivative financial instruments as at December 31, 2023, mature in 179 days or less (2022: 179 days or less).
The unquoted equity instrument measured at fair value through OCI is allocated to level 3 and relates to an immaterial investment in an innovative start-up in the heating, ventilation, and air-conditioning systems sector. It was designated as investment at fair value through OCI because this equity instrument represents an investment that the Group intends to hold over the long term for strategic purposes.
The investment measured at fair value through profit and loss allocated to level 3 belongs to a simple agreement for future equity in a start-up in the heating, ventilation, and air-conditioning systems sector.
In 2023 and 2022, there were no transfers between the fair value hierarchical levels.
The Group did not perform any quantitative sensitivity analysis as at December 31, 2023 and 2022 for the financial instruments measured at fair value, as they are considered to be immaterial.
For financial assets and financial liabilities not measured at fair value in the table above (excluding lease liabilities), the carrying amount is a reasonable approximation of fair value. In accordance with IFRS Accounting Standards, the fair value of the lease liabilities is neither calculated nor disclosed.
Fair values are allocated to one of the following three hierarchical levels:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
- Level 2: inputs other than level 1 quoted prices that are directly or indirectly observable
- Level 3: factors that are not based on observable market data
The fair value of derivatives financial instruments is determined based on input factors observed directly or indirectly on the market (level 2). The fair value of these instruments is based on forward exchange rates; the positive fair values are included in current financial assets, the negative fair values in current financial liabilities. The changes in fair values recognized in the income statement are included in the financial result.
The fair value measurement of investments in start-up entities are based on non-observable market data, therefore allocated to hierarchy level 3.
Capital Management
Belimo aims to maintain an equity ratio that is in line with its strategy and that will remain stable over time to secure the confidence of investors, creditors, and other market players, and to strengthen the future development of its business activities. This entails refinancing that is adapted to the asset structure, and an equity-to-liability ratio that is adequate to the level of risk.
The Board of Directors monitors the shareholder structure and the return on equity. Belimo strives for a diversified and international shareholder base. The return on equity was 26.0% as at December 31, 2023 (2022: 23.8%). The Board of Directors strives to pay a stable or increasing dividend per share, but it may diverge from this policy depending on business development, corporate financing needs, general economic conditions as well as legal and contractual constraints. The Board of Directors of BELIMO Holding AG will propose a dividend of CHF 8.50 at the Annual General Meeting 2024, which results in a pay-out ratio of 76.3% (2022: 85.1%).
Belimo can buy or sell treasury shares on the market. Its current holdings of treasury shares are not earmarked for any specific purpose and can be sold on the market at any time.
The Alternative Performance Measures are described here.