3. Capital and financial risk management

3. Capital and financial risk management

This section sets out the policies and procedures applied to manage the capital structure and the financial risks. The total capital is defined as equity and net debt. GF manages its capital structure in order to maximize shareholders’ return, maintain optimal cost of capital and provide flexibility for strategic investments. 

3.1 Interest-bearing financial liabilities and pledged or assigned assets

3. Capital and financial risk management

This section sets out the policies and procedures applied to manage the capital structure and the financial risks. The total capital is defined as equity and net debt. GF manages its capital structure in order to maximize shareholders’ return, maintain optimal cost of capital and provide flexibility for strategic investments. 

3.1 Interest-bearing financial liabilities and pledged or assigned assets

3.1.1 Interest-bearing financial liabilities

CHF million

 

Within 1 year

 

Up to 5 years

 

Maturity over 5 years

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Bonds (at fixed interest rates)

 

 

 

149

 

425

 

574

 

524

Other financial liabilities (at fixed interest rates) 1

 

46

 

56

 

 

 

102

 

136

Other financial liabilities (at variable interest rates)

 

98

 

2

 

 

 

100

 

128

Loans from pension fund institutions

 

4

 

 

 

 

 

4

 

28

Total

 

148

 

207

 

425

 

780

 

816

1 This category comprises other financial liabilities with a fixed interest period of more than three months.

Net debt, which is calculated as the difference between interest-bearing liabilities and cash and cash equivalents and marketable securities, increased by CHF 55 million to CHF 238 million in the year under review (previous year: CHF 183 million). The reason for this increase was primarily the use of the free cash flow before acquisitions (CHF 147 million) for acquisitions and the payout of a dividend of CHF 94 million to the shareholders. A counter effect of CHF 69 million stems from the deconsolidation of loans in the course of the divestment of the two iron foundries in Singen and Mettmann (Germany).

In the year under review the maturity profile was improved by the placement of a CHF 200 million bond with a maturity of 10 years.


The following table shows in detail the various categories of other financial liabilities by currency and interest rate:

CHF million

 

Issuing currency

 

Range interest rate %

 

2018

 

Issuing currency

 

Range interest rate %

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds (at fixed interest rates)

 

 

 

 

 

574

 

 

 

 

 

524

 

 

 

 

 

 

 

 

 

 

 

 

 

Bond (Georg Fischer Finanz AG) 1.5% 2013-2018 (12 September) Nominal value: CHF 150 million

 

 

 

 

 

 

 

CHF

 

1.6

 

150

Bond (Georg Fischer Finanz AG) 2.5% 2013-2022 (12 September) Nominal value: CHF 150 million

 

CHF

 

2.6

 

149

 

CHF

 

2.6

 

149

Bond (Georg Fischer Finanz AG) 0.875% 2016-2026 (12 May) Nominal value: CHF 225 million

 

CHF

 

0.9

 

225

 

CHF

 

0.9

 

225

Bond (Georg Fischer AG) 1.05% 2018-2028 (12 April) Nominal value: CHF 200 million

 

CHF

 

1.06

 

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other financial liabilities (at fixed interest rates) 1

 

 

 

 

 

102

 

 

 

 

 

136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

5.0

 

46

 

USD

 

5.0–7.2

 

25

 

 

CHF

 

1.1–1.5

 

29

 

CHF

 

1.1–1.5

 

21

 

 

EUR

 

1.9–5.0

 

17

 

EUR

 

2.5–5.0

 

72

 

 

CNY

 

6.1–7.6

 

7

 

CNY

 

6.1–7.6

 

11

 

 

Other

 

5.0

 

3

 

Other

 

5.0–13.3

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

Other financial liabilities (at variable interest rates)

 

 

 

 

 

100

 

 

 

 

 

128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CNY

 

3.9–4.8

 

58

 

CNY

 

3.9–4.6

 

70

 

 

EUR

 

1.5–1.6

 

27

 

EUR

 

1.0–2.0

 

28

 

 

TRY

 

25.0

 

6

 

TRY

 

13.5–13.9

 

8

 

 

Other

 

0.0–4.3

 

9

 

Other

 

0.0–4.6

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans from pension fund institutions

 

 

 

 

 

4

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHF

 

1.0

 

4

 

CHF

 

1.0

 

2

 

 

EUR

 

 

 

 

EUR

 

6.0

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

780

 

 

 

 

 

816

1 This category comprises other financial liabilities with a fixed interest period of more than three months.

GF has the following syndicated credit line:

Debtors

 

Term

 

Credit

 

Thereof utilized

Georg Fischer Ltd/Georg Fischer Finanz AG

 

2015–2020

 

CHF 250 million

 

CHF 0 million

The syndicated credit line provides the Corporation with the necessary financial flexibility to swiftly act as for instance in the case of acquisitions and was not drawn at the end of the year. In addition to other terms, the syndicated credit line is subject to covenants with respect to the net debt ratio (ratio of net debt to EBITDA), the interest-coverage ratio (ratio of EBITDA to net interest expense), and the equity ratio (ratio of equity to total assets). The conditions of the syndicated credit line are considered to represent standard conditions for such types of arrangements.

The bonds placed on the market as well as the syndicated credit line are subject to standard cross-default clauses, whereby the outstanding amounts may all become due if early repayment of another loan is demanded of the company or one of its main GF Corporate Companies owing to a failure to meet the credit terms. As of the balance sheet date, the effective credit terms had been met.

The interest-bearing financial liabilities also include loans payable to employee benefit plans in the amount of CHF 4 million (previous year: CHF 28 million). The decrease stems from the deconsolidation of loans payable to employee benefit plans in the course of the divestment of the two iron casting plants in Singen and Mettmann (CHF 26 million).

Accounting principles

Financial liabilities comprise bank loans, mortgages, and bonds. They are recognized at their amortized cost. Borrowing costs are recognized in the income statement using the effective interest method. Borrowing costs that can be allocated directly to the construction, build-up, or purchase of a qualifying asset are capitalized as part of the acquisition or manufacturing costs of the asset.

3.1.2 Pledged or assigned assets

Assets pledged or restricted on title in part or whole amounted to CHF 16 million (previous year: CHF 36 million).

In the year under review, CHF 8 million (previous year: CHF 28 million) of pledged assets related to land and buildings.The decrease of CHF 20 million mainly arose from Hakan Plastik AS and Urecon Ltd in the GF Piping Systems division. Both companies adjusted their financing structures.

CHF 2 million related to machinery and equipment (previous year: CHF 3 million), while CHF 6 million related to accounts receivable (previous year: CHF 5 million). There are no pledged or assigned inventories.

The assets are pledged or restricted on title as collateral for bank loans.

3.2 Financial result

3.2 Financial result

CHF million

 

2018

 

2017

 

 

 

 

 

Interest income

 

2

 

2

Financial income

 

2

 

2

 

 

 

 

 

Interest expenses

 

31

 

28

Net losses on financial instruments at market value recognized in income statement

 

3

 

3

Other financial expenses

 

3

 

2

Financial expenses

 

37

 

33

3.3 Leasing

3.3 Leasing

CHF million

 

2018

 

2017

 

 

 

 

 

Leasing obligations up to 1 year

 

20

 

18

Leasing obligations 1 to 5 years

 

58

 

42

Leasing obligations over 5 years

 

11

 

10

Operating leases (nominal values)

 

89

 

70

Liabilities relating to financial lease contracts in the amount of CHF 14 million (previous year: CHF 8 million) were mainly due to the leasing of the machines by GF Piping Systems and GF Casting Solutions. The leasing obligations are included in “Other financial liabilities at fixed interest rates” and are disclosed in note 3.1 (3.1.1 Interest-bearing financial liabilities).

Accounting principles

The present value of finance leases is recognized in the non-current assets and in the other financial liabilities on the balance sheet when most of the contractual risks and rewards have been transferred to the GF Corporate Company. Lease installments are divided into an interest and a repayment component based on the annuity method. Assets held under such finance leases are depreciated over the shorter of their estimated useful life and lease term. Operating lease installments are reported in the income statement under operating expenses.

3.4 Share capital/capital management

3.4 Share capital/capital management

Share capital

As of 31 December 2018, the share capital comprised 4’100’898 registered shares with a par value of CHF 1 each. Total dividend-bearing nominal capital amounted to CHF 4’100’898.

Capital management

The capital managed by the Corporation consists of the consolidated equity. The ratios are shown in the following table:

CHF million

 

2018

 

2017

 

 

 

 

 

Equity attributable to shareholders of Georg Fischer Ltd

 

1’382

 

1’317

Non-controlling interests

 

46

 

52

Equity

 

1’428

 

1’369

 

 

 

 

 

Total assets

 

3’444

 

3’610

Equity ratio as %

 

41.5

 

37.9

 

 

 

 

 

Theoretical equity incl. net value of goodwill

 

1’557

 

1’467

Theoretical equity ratio incl. net value of goodwill as %, total assets incl. goodwill

 

43.6

 

39.6

 

 

 

 

 

Average reported equity

 

1’399

 

1’284

Net profit

 

279

 

258

Return on average reported equity as %

 

19.9

 

20.1

The Corporation has set the following goals for the management of its capital:

  • maintain a healthy and sound balance sheet structure based on going concern values
  • ensure the necessary financial scope in order to make investments and acquisitions in the future
  • realize a return for investors commensurate with the risk

The Corporation uses two ratios to monitor equity: the equity ratio and the return on equity. The equity ratio represents equity as a percentage of total assets. Return on equity is net profit expressed as a percentage of average equity. These ratios are reported to the Executive Committee and the Board of Directors at regular intervals through the internal financial reporting. While the total equity increased the balance sheet total was reduced in the financial year, resulting in an increased equity ratio of 41.5% as of 31 December 2018.

As an industrial group, GF strives to maintain a strong balance sheet with a high portion of equity. In the medium term, the Corporation aims to achieve an equity ratio of 35% to 40%. The medium-term target for return on equity is above 15%.

The Corporation does not have any financial covenants with minimal capital requirements (absolute CHF measure). There is one financial covenant concerning the equity ratio (relative measure).

The Board of Directors presents a proposal for the appropriation of retained earnings to the Annual Shareholders’ Meeting of GF. GF pursues a results-oriented dividend policy and usually distributes about 30% to 40% of the Corporation’s consolidated net profit to shareholders. The payment is distributed out of the retained earnings. The Board of Directors is proposing to the Annual Shareholders’ Meeting a dividend payment out of the retained earnings of CHF 25 in total per registered share for the fiscal year 2018 (previous year: CHF 23 in total per registered share). As of 31 December 2018, the par value of the Georg Fischer registered share amounts to CHF 1.

The authorized capital and the conditional capital consists of a maximum of 600’000 shares. The maximum amount of the authorized or conditional capital is reduced by the amount that authorized or conditional capital is created through the issue of bonds or similar debt instruments or new shares.

By no later than 17 April 2020, the maximum authorized share capital will be CHF 600’000 divided into no more than 600’000 registered shares each with a par value of CHF 1.

The reserves which are not disposable respectively distributable amount to CHF 90 million as of 31 December 2018 (previous year: CHF 84 million).

3.5 Treasury shares

3.5 Treasury shares

 

 

 

 

 

 

2018

 

 

 

 

 

2017

 

 

Quantity

 

Transaction price (Ø) in CHF

 

Purchase cost (Ø) in CHF million

 

Quantity

 

Transaction price (Ø) in CHF

 

Purchase cost (Ø) in CHF million

 

 

 

 

 

 

 

 

 

 

 

 

 

As of 31 December

 

7’586

 

1’145.92

 

9

 

6’984

 

1’114.63

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

10’460

 

1’185.02

 

12

 

19’020

 

967.68

 

18

Disposals

 

–2’629

 

1’302.79

 

–3

 

–16’959

 

908.08

 

–15

Transfers (share-based compensation)

 

–7’229

 

1’161.47

 

–8

 

–7’415

 

920.16

 

–7

Changes in share price

 

 

 

 

 

 

 

 

 

 

2

As of 1 January

 

6’984

 

1’114.63

 

8

 

12’338

 

834.00

 

10

As of year-end 2018, GF held 7’586 treasury shares (previous year: 6’984 registered shares) with a par value of CHF 1. In the year under review, 10’460 treasury shares were purchased on the stock market at an average transaction price of CHF 1’185.02, and 2’629 treasury shares were sold on the stock market at an average transaction price of CHF 1’302.79.

According to the compensation model for the Board of Directors, members receive a fixed number of Georg Fischer registered shares. In accordance with the long-term incentive plan, members of the Executive Committee are entitled to a number of Georg Fischer performance shares (PS). The vesting of the performance shares (PS) is based on assumptions of Earnings per Share (EPS) and relative Total Shareholder Return (rTSR) – values over prospective three years. Based on a plan defined by the Board of Directors, a fixed number of Georg Fischer registered shares are granted to members of the Senior Management as a long-term financial incentive see Compensation Report.

7’136 registered shares are estimated to be required for share-based compensation for Executive Committee and members of the Senior Management.

The allocation for the share-based compensation is based on the relevant plan regulations. The share-based compensation for members of the Board of Directors, for the Executive Committee as well as the registered shares for the members of the Senior Management are stated at fair value and recognized as an expense at the allocation date. Such compensation is recorded under “Operating expenses” see note 1.3 (1.3.1 Operating expenses) for the Board of Directors and under “Personnel expenses” see note 1.3 (1.3.2 Personnel expenses) for the Executive Committee and the Senior Management. The total expense for the share-based compensation plans is CHF 7 million (previous year: CHF 11 million).

Accounting principles

Treasury shares are stated at cost as a separate negative position in equity. Gains or losses arising from the disposal of treasury shares are respectively credited to or deducted from the corresponding capital reserves.

3.6 Risk management

3.6 Risk management

Enterprise risk management as a fully integrated risk management process was systematically applied in 2018 at all levels of the Corporation. The three Divisions, the Corporate Staff, and all significant Corporate Companies prepared a risk map in May and November of the key risks with regard to strategy, markets, operations, management and resources, financials as well as sustainability. The likelihood of the risk occurring was classified into four categories. Where possible and appropriate, the identified risks were subject to a quantifiable assessment, taking into consideration any measures already implemented. Alternatively, a qualitative assessment of the risk exposure was applied.


The Risk Council, consisting of representatives of the Divisions and the Corporate Staff and headed by the Chief Risk Officer, held two meetings. The topics of these meetings were the optimization of the risk reporting of sustainability risks, the reporting and valuation of IT risks as well as the analysis of the risk maps.


In accordance with the semi-annual risk reporting process, the Executive Committee and the management of the Divisions discussed the risk maps twice during the year under review. They defined at the appropriate level the key risks of the Corporation, the Divisions and the GF Corporate Companies, and determined adequate measures to mitigate those risks. The Board of Directors tabled the topic of enterprise risk management in September 2018 to analyze the corporate and divisional risk maps as well as to define the key risks and the risk mitigation measures.


The multi-stage procedure, including workshops at division management, Executive Committee and Board of Directors level, has proven to be effective, as has having Internal Audit assess the risk maps prepared by the GF Corporate Companies.



Key risks were identified as follows: slow-down of the economic growth in China, political and economic uncertainties due to the trade dispute between the US and China, and the insufficient profitability of some GF Casting Solutions plants in Europe. Measures to reduce these and other risks were defined and are being implemented in line with the strategic targets of the Corporation and the three divisions.

Financial risk management

Financial risks overview

 

Risk source

 

Risk management

 

 

 

 

 

a) Credit risk

 

default of a counterparty: from trade accounts receivable or from bank deposits

 

diversification and credit assessments

b) Market risk

 

 

 

 

– Currency risk

 

sales and purchases as well as financing Corporate Companies in foreign currencies

 

selling and producing in functional currency (“congruency” rule) and hedging by means of forward exchange contracts

– Interest rate risk

 

insignificant

 

not necessary

– Price risk

 

insignificant

 

not necessary

c) Liquidity risk

 

not enough liquidity to pay due liabilities

 

constant monitoring of liquidity, liquidity reserves and unused credit lines

The Board of Directors bears ultimate responsibility for financial risk management. The Board of Directors has tasked the Audit Committee with monitoring the development and implementation of the risk management principles. The Audit Committee reports regularly to the Board of Directors on this matter.

The risk management principles are geared to identifying and analyzing the risks to which the Corporation is exposed and to establishing the appropriate control mechanisms. The principles of risk management and the processes applied are regularly reviewed, taking due regard of changes in the market and in the Corporation’s activities. The ultimate goal is to develop controls, based on the existing training and management guidelines and processes, that ensure a disciplined and conscious approach to risks. The Audit Committee is supported by the Head of Finance & Controlling in this task.

Owing to its business activities, GF is exposed to various financial risks such as credit risk, market risk (including currency risk, interest rate risk, and price risk), and liquidity risk. The following sections provide an overview of the extent of the individual risks as well as the goals, principles, and processes employed for measuring, monitoring, and hedging the financial risks.

Credit risk

The maximum credit risk as of the balance sheet date was as follows:

CHF million

 

2018

 

2017

 

 

 

 

 

Trade accounts receivable

 

697

 

754

Cash and cash equivalents

 

533

 

624

Other accounts receivable 1

 

32

 

31

Accrued income

 

15

 

16

Other financial assets 2

 

91

 

12

Derivative financial instruments

 

3

 

5

Total

 

1’371

 

1’442

1 Without tax credits.

2 Relates to loans to third parties, security deposit and long-term invested securities for the settlement of pension liabilities.

GF invests its cash worldwide and predominantly as deposits in leading Swiss and German banks with at least a BBB– rating. In accordance with the investment policy of GF, these transactions are entered into only with creditworthy commercial institutions. Generally, the investments have a maturity of less than three months. In addition, GF Corporate Companies have current bank accounts. Cash is allocated to several banks to limit counterparty risk. The maximum amount per bank is defined in relation to the ratings of the respective banks. 

Transactions involving derivative financial instruments are also entered into only with major counterparties with at least a BBB– rating. The purpose of such transactions is to hedge against currency risks and price fluctuations for the purchase of raw materials and electric power for the Corporation.

The danger of cluster risks on trade accounts receivable is limited due to the large number and wide geographic spread of customers. The extent of the credit risk is determined mainly by the individual characteristics of each customer. Assessment of this risk involves a review of a customer’s creditworthiness based on its financial situation and past experience. In monitoring default risk, customers are classified according to relevant factors, such as geographic location, sector, and past financial difficulties.

The maximum credit risk on financial instruments corresponds to the carrying amounts of the relevant financial assets. GF has not entered into appreciable guarantees or similar obligations that would increase the risk over and above the carrying amounts.

Currency risk

Foreign exchange rates

 

 

 

Average rates

 

Spot rates

CHF

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

1

AED

 

0.267

 

0.268

 

0.268

 

0.265

1

ARS

 

0.037

 

0.060

 

0.026

 

0.052

1

AUD

 

0.731

 

0.755

 

0.695

 

0.763

1

BRL

 

0.269

 

0.309

 

0.254

 

0.295

1

CAD

 

0.755

 

0.759

 

0.722

 

0.778

1

CNY

 

0.148

 

0.146

 

0.143

 

0.150

1

EUR

 

1.155

 

1.112

 

1.127

 

1.170

1

GBP

 

1.306

 

1.268

 

1.260

 

1.319

1

HKD

 

0.125

 

0.126

 

0.126

 

0.125

1

INR

 

0.014

 

0.015

 

0.014

 

0.015

1

MXN

 

0.051

 

0.052

 

0.050

 

0.050

1

MYR

 

0.243

 

0.229

 

0.238

 

0.241

1

NZD

 

0.677

 

0.700

 

0.661

 

0.695

1

RON

 

0.248

 

0.251

 

0.242

 

0.251

1

SGD

 

0.725

 

0.713

 

0.723

 

0.730

1

TRY

 

0.208

 

0.270

 

0.186

 

0.257

1

USD

 

0.979

 

0.985

 

0.984

 

0.976

100

CZK

 

4.504

 

4.227

 

4.381

 

4.583

100

DKK

 

15.496

 

14.944

 

15.091

 

15.718

100

JPY

 

0.886

 

0.878

 

0.895

 

0.867

100

KRW

 

0.089

 

0.087

 

0.088

 

0.092

100

NOK

 

12.036

 

11.920

 

11.328

 

11.892

100

PLN

 

27.111

 

26.122

 

26.198

 

28.015

100

SEK

 

11.264

 

11.537

 

10.989

 

11.888

100

THB

 

3.027

 

2.903

 

3.041

 

2.991

100

TWD

 

3.245

 

3.236

 

3.217

 

3.293

The table below shows the contract values and market values of the foreign exchange contracts (net) as of the balance sheet date:

CHF million

 

Fair value hedges

 

Cash flow hedges

 

2018

 

2017

 

 

 

 

 

 

 

 

 

Net value

 

394

 

68

 

462

 

472

Market value 1

 

2

 

–1

 

1

 

2

Contract value

 

396

 

67

 

463

 

474

Corresponds to the carrying amount recognized as marketable securities or other liabilities.

Owing to its international activities, GF is exposed to currency risks. These financial risks occur in connection with transactions (in particular the purchase and sale of goods) which are effected in currencies different from the functional currency of the company in question. Such transactions are effected mainly in euros and US dollars. Currency risks can be reduced by purchasing and producing goods in the functional currency (“congruency” rule). In some cases, the remaining currency risks are hedged, generally for a maximum of twelve months, by means of forward exchange contracts.

The fair value hedges include foreign exchange contracts that serve to hedge loans to GF Corporate Companies in foreign currencies. Unrealized gains and losses from changes to the fair value are reported for these contracts in the financial result. The fair value hedges also include foreign exchange contracts that serve to hedge currency risks on receivables and liabilities. Like the currency effects on the underlying balance sheet item, gains and losses from changes to the fair value of these contracts are recognized in “Other operating income”.

The cash flow hedges mainly serve to hedge currency risks on future sales in foreign currencies. The volume of the foreign exchange contracts is limited to a maximum 75% of the expected sales. This results in a fully effective hedge. In individual cases, a higher ratio of the cash flows is hedged, e.g. for certain orders. Unrealized gains and losses from changes to the fair value are recognized directly in equity. They are transferred to the income statement when the service is performed and invoiced; as a result, the foreign exchange contracts become fair value hedges. To a lesser extent, currency risks with respect to future inventory purchases were also hedged during the reporting period.

The fair value hedges cover not only US dollar contracts but also contracts for the euro, the Turkish lira, the British pound, and the other currencies. All open foreign exchange contracts fall due and have an effect on liquidity and the income statement within twelve months of the balance sheet date. Assuming unchanged exchange rates, a cash outflow of CHF 462 million (gross) would be offset by a cash inflow of CHF 463 million (gross), giving a positive market value of CHF 1 million. Cash flow hedges account for cash outflows of CHF 68 million (gross) and cash inflows of CHF 67 million (gross).

Contract values, net by currencies

CHF million

 

2018

 

2017

 

 

 

 

 

USD/CHF

 

360

 

330

EUR/CHF

 

27

 

81

TRY/USD

 

13

 

10

GBP/EUR

 

4

 

10

CNY/USD

 

 

9

USD/SEK

 

9

 

7

SEK/CHF

 

7

 

7

GBP/CHF

 

4

 

7

JPY/CHF

 

7

 

6

SGD/CHF

 

8

 

4

EUR/TRY

 

5

 

Other

 

19

 

3

Total

 

463

 

474

Accounting principles

Derivative financial instruments used to hedge such balance sheet items are stated at fair value. In hedging contractually agreed future cash flows (hedge accounting), the effective portion of changes in the derivative financial instruments’ fair value is recognized in equity with no effect on the income statement. Any ineffective portion is recognized immediately in the income statement. As soon as an asset or liability results from the hedged underlying transaction, the gains and losses previously recognized in equity are derecognized and transferred to the income statement along with the valuation effect from the hedged underlying transaction.

Interest rate risk

The interest rate risk may involve either changes in future interest payments owing to fluctuations in market interest rates or the risk of a change in market value, i.e. the risk that the market value of a financial instrument will change owing to fluctuations in market interest rates.

Market value sensitivity analysis for interest-bearing financial instruments with a fixed interest rate: Market value fluctuations of fixed-interest financial instruments are not recognized in the Corporation’s income statement. Therefore, a change in interest rates would not have any effect on the income statement. Hedge accounting was not applied for interest rate hedging.

Cash flow sensitivity analysis for financial instruments with variable interest rates: a one-percentage-point increase in interest rates would have increased net income by CHF 4.2 million (previous year: CHF 5.0 million). A reduction in the interest rate by the same percentage would have reduced net income by the same amount. The underlying assumption for this analysis is that all other variables remain unchanged.

Price risk

The securities held for trading in the amount of CHF 6 million are exposed to price risks (on the stock market). Since the value of the securities held for trading is modest, there is no great sensitivity to changes in share prices. The securities held are mainly shares in Swiss blue chip companies.

Liquidity risk

The following table shows the contractual maturities (including interest rates) of the financial liabilities held by GF:

CHF million

 

Carrying amount

 

Contractual cash flows

 

Up to 1 year

 

1 to 5 years

 

More than 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

498

 

498

 

498

 

 

 

 

Bonds

 

574

 

631

 

8

 

181

 

442

Other financial liabilities

 

202

 

227

 

155

 

72

 

Accrued liabilities and deferred income

 

253

 

253

 

253

 

 

 

 

Other liabilities current/non-current 1

 

95

 

95

 

56

 

35

 

4

Total

 

1’622

 

1’704

 

970

 

288

 

446

1 For more details, see note 2.3 (2.3.1 Other liabilities).

The liquidity risk is the risk that GF is unable to meet its obligations when they fall due.

Liquidity is constantly monitored to ensure that it remains adequate. Liquidity reserves are held in order to offset the usual fluctuations in liquidity requirements. At the same time, the Corporation has unused credit lines in case more serious fluctuations occur. The total amount of unused credit lines as of 31 December 2018 was CHF 591 million (previous year: CHF 577 million). The credit lines are spread over several banks so that there is no excessive dependence on any one institution.