3. Capital and financial risk management

Total capital is defined as total equity and net debt. The GF Corporation manages its capital structure in order to safeguard its ability to continue as a going concern, maintain an optimal cost of capital and optimize the long-term returns to its shareholders as well as provide financial flexibility with regard to future strategic investments.

The GF Corporation is exposed to a number of financial risks, and this section further outlines the key financial risks and how they are managed.

3.1Interest-bearing financial liabilities and pledged or assigned assets

3.1.1 Interest-bearing financial liabilities

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CHF million

Within 1 year

Up to 5 years

Maturity over 5 years

2020

2019

 

 

 

 

 

 

Bonds (at fixed interest rates)

 

150

625

775

574

Other financial liabilities (at fixed interest rates) 1

21

90

 

111

96

Other financial liabilities (at variable interest rates)

69

 

 

69

91

Loans from pension fund institutions

3

 

 

3

1

Total

93

240

625

958

762

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, decreased by CHF 115 million to CHF 117 million in the year under review (previous year: CHF 232 million). The reason for this decrease was primarily related to the free cash flow (CHF 224 million) minus the dividend payments to GF shareholders and minority shareholders amounting to CHF 115 million.  

In the year under review, the financial flexibility and maturity profile were improved by the placement of a CHF 200 million bond with a maturity of 9.5 years. The following table shows in detail the various categories of other financial liabilities by currency and interest rate:

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CHF million

Issuing currency

Range interest rate %

2020

Issuing currency

Range interest rate %

2019

 

 

 

 

 

 

 

Bonds (at fixed interest rates)

 

 

775

 

 

574

 

 

 

 

 

 

 

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

CHF

2.6

150

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

CHF

1.06

200

Bond (Georg Fischer AG) 0.95% 2020–2030 (25 March) Nominal value: CHF 200 million

CHF

0.96

200

 

 

 

 

 

 

 

 

 

 

Other financial liabilities (at fixed interest rates) 1

 

 

111

 

 

96

 

 

 

 

 

 

 

 

USD

3.5

85

USD

5.0

73

 

EUR

0.8–2.0

17

EUR

1.0–1.4

15

 

CHF

1.5–4.3

8

CHF

1.5–4.3

7

 

Other

2.5

1

Other

2.5

1

 

 

 

 

 

 

 

Other financial liabilities (at variable interest rates)

 

 

69

 

 

91

 

 

 

 

 

 

 

 

CNY

3.4–4.4

41

CNY

3.9–4.6

55

 

EUR

0.8–1.6

17

EUR

1.5–1.6

22

 

TRY

8.5–17.5

10

TRY

10.3–13.5

13

 

Other

2.1

1

Other

3.1

1

 

 

 

 

 

 

 

Loans from pension fund institutions

 

 

3

 

 

1

 

 

 

 

 

 

 

 

CHF

1.0

3

CHF

1.0

1

 

 

 

 

 

 

 

Total

 

 

958

 

 

762

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

The term of the syndicated loan concluded in the previous year was extended by one year to 2025 during the year under review:

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Debtors

Minimum Term

Credit

Thereof utilized

Georg Fischer Ltd/Georg Fischer Finanz AG

2019–2025

CHF 400 million

CHF 0 million

The syndicated credit line provides the GF Corporation with the financial flexibility to swiftly act, for instance in the case of acquisitions, and was not drawn as of the end of the year. In addition to other terms, the syndicated credit line is subject to a covenants with respect to the net debt ratio (ratio of net debt to EBITDA). The conditions of the syndicated credit line are considered to represent standard conditions for such types of arrangements. As of 31 December 2020, the financial covenants were not breached.

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 included loans payable to employee benefit plans in the amount of CHF 3 million (previous year: CHF 1 million). 

Accounting principles

Financial liabilities comprise loans, bonds and finance lease contracts. 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 9 million (previous year: CHF 12 million). They essentially contain CHF 5 million (previous year: CHF 5 million) of pledged assets related to accounts receivable and CHF 3 million (previous year: CHF 3 million) related to liquid assets.

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

3.2Financial result

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CHF million

2020

2019

 

 

 

Interest income

5

5

Financial income

5

5

 

 

 

Interest expenses

24

26

Share of results of associates 1

7

13

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

 

1

Other financial expenses

 

3

Financial expenses

31

43

1 The result of associates includes a negative impact on the application of the equity accounting of CHF 4 million (previous year: CHF 3 million), additional value adjustments of CHF 4 million (previous year: CHF 7 million) on the non-current loans to associates as well as gains from the sale of the remaining investments in associates. In previous year, additional impairments of CHF 3 million on the equity accounted investments are included. See also [note 5.2].

3.3Leasing

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CHF million

2020

2019

 

 

 

Leasing obligations up to 1 year

20

19

Leasing obligations 1 to 5 years

50

54

Leasing obligations over 5 years

6

7

Operating leases (nominal values)

76

80

Liabilities relating to financial lease contracts in the amount of CHF 10 million (previous year: CHF 11 million) were mainly due to the leasing of 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.

3.4Equity

Share capital

As of 31 December 2020, 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.

Equity ratios

The changes in the main equity ratios are illustrated in the following table:

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CHF million

2020

2019

 

 

 

Equity attributable to shareholders of Georg Fischer Ltd

1’353

1’396

Non-controlling interests

36

42

Equity

1’389

1’438

 

 

 

Total assets

3’445

3’344

Equity ratio as %

40.3

43.0

 

 

 

Theoretical equity incl. net value of goodwill

1’430

1’538

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

41.0

44.7

 

 

 

Average reported equity

1’414

1’433

Net profit

112

172

Return on average reported equity as %

7.9

12.0

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 on a regular basis. Although total equity declined, total assets increased, so that the equity ratio fell to 40.3% (previous year: 43.0%).

GF strives to maintain a strong balance sheet with an equity ratio of 35% to 40%. The target for return on equity is above 15%.

The Board of Directors presents a proposal for the appropriation of retained earnings to the Annual Shareholders’ Meeting. Over the medium term, the target is to distribute between 30% and 40% of the consolidated net profit to shareholders. 

For the financial year 2020 the Board of Directors is proposing to the Annual Shareholders’ Meeting a total dividend payment out of the retained earnings of CHF 15 per registered share (previous year: CHF 25 in total per registered share).

Until 14 April 2022, the maximum authorized share capital is CHF 400’000 divided into  400’000 registered shares, each with a par value of CHF 1. The conditional capital consists of a maximum of 400’000 shares divided into 400’000 registered shares, each with a par value of CHF 1.

The maximum amount of the authorized or conditional capital is reduced by the amount of authorized or conditional capital created through the issue of bonds or similar debt instruments or new shares.

As of 31 December 2020, reserves that cannot be distributed to the shareholders amounted to CHF 82 million (previous year: CHF 83 million).

3.5Treasury shares

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2020

2019

 

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

7’682

929.31

7

7’173

918.00

7

 

 

 

 

 

 

 

Purchases

8’065

926.20

7

10’280

924.27

10

Transfers (share-based compensation)

–7’556

915.30

–7

–10’693

1’085.69

–12

As of 1 January

7’173

918.00

7

7’586

1’145.92

9

The GF Corporation purchases treasury shares to meet its obligation under the different share-based compensation models offered to the Board of Directors, the Executive Management and the Senior Management. For further information on share-based compensation for the Board of Directors and the Executive Management see Compensation Report and note 4.3.

Accounting principles

Treasury shares are recorded at average acquisition cost as a negative position in equity. Gains or losses arising from the disposal of treasury shares are added to or deducted from the capital reserves.

3.6Risk management

Enterprise risk management as a fully integrated risk management process was systematically applied in 2020 at all levels of the GF Corporation. A risk map was prepared in May and November for the Corporation, the three divisions and all significant GF Corporate Companies, including the key risks in the areas of strategy, markets, operations, management and resources, financial 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 main content of the discussions were the improvement of the risk management process and the evaluation of a new risk management reporting software. In addition, the divisional risk maps were closely analyzed.

In accordance with the semi-annual risk reporting process, the Executive Committee and the management of the divisions discussed the risk maps twice. They defined, at the appropriate level, the key risks of the GF Corporation, the divisions and the Corporate Companies, and determined adequate measures to mitigate those risks. The outcome of these workshops was included in the risk reports for 2019 and 2020, which were approved by the Board of Directors in February and in December 2020 respectively. In addition, the Board held a risk management workshop in September 2020 with the aim to define all corporate-relevant risks from a Board viewpoint and compare the findings with the risk assessment of the Executive Committee. The result of this workshop as well as the determined measures in order to mitigate or control the risks defined were included in the 2020 risk report.

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

The following key risks were identified: the negative economic impact of the COVID-19 pandemic crisis and the uncertain commercial relationship between the US and China as well as cyber risks. 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

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Financial risks overview

Risk source

Risk management

 

 

 

a) Credit risk

default of a counterparty affecting the recoverability of trade accounts receivable or bank deposits

diversification and regular assessments of creditworthiness

b) Market risk

 

 

- Currency risk

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

selling and producing in functional currency (congruency principle) and hedging by means of currency forward contracts

- Interest rate risk

deemed insignificant

not deemed necessary

- Price risk

deemed insignificant

not deemed necessary

c) Liquidity risk

insufficient liquidity to pay liabilities due

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 mandated 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 Audit Committee is supported by the Head of Corporate Controlling and Investor Relations in this task.

The financial risk management principles are designed to identify and analyze the risks to which the Corporation is exposed and to establish appropriate control mechanisms. The principles of financial risk management are regularly reviewed, taking into consideration changes in the relevant financial markets and in the Corporation’s activities.

Through its different business activities, the GF Corporation 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, mitigating and managing the risks.

Credit risk

As of the balance sheet date, the maximum amount of credit risk including off-balance sheet commitments was as follows:

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CHF million

2020

2019

 

 

 

On-balance sheet

 

 

Cash and cash equivalents

834

521

Trade accounts receivable

550

597

Other accounts receivable 1

30

25

Accrued income

16

19

Other financial assets 2

98

109

Derivative financial instruments

2

5

Total on-balance sheet

1’530

1’276

 

 

 

Off-balance sheet

 

 

Guarantees to third-parties 3

90

81

Total off-balance sheet

90

81

1 Without tax credits.

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

3 Thereof used CHF 89 million (previous year: CHF 70 million).

Cash is predominantly deposited with leading Swiss, German, US and Chinese banks with a credit rating of at least BBB– (Standard & Poor’s). Furthermore and in accordance with the investment policy, all financial transactions are only entered into with counterparties deemed creditworthy. In addition, cash holdings are allocated to different banks in order to limit the counterparty risk. The maximum amount of cash to deposit with a bank is defined in relation to its credit rating. Cash deposits, current accounts and cash investments have a maturity of less than three months.

Transactions involving derivative financial instruments are only entered into with counterparties with a credit rating of at least BBB– (Standard & Poor’s). The purpose of such transactions is to hedge against currency risks.

The risk of concentrated credit risks on trade accounts receivable is limited due to the large number of customers and their wide diversification across industries and regions. The extent of credit risk is determined by individual characteristics of the customers and in order to assess this risk, the creditworthiness of customers is assessed on a regular basis.

The maximum credit risk on financial instruments corresponds to their carrying amounts. No additional arrangements have been entered into that would increase the risk above the carrying amounts.

Currency risk

Foreign exchange rates

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Average rates

Spot rates

CHF

 

2020

2019

2020

2019

 

 

 

 

 

 

1

ARS

0.013

0.021

0.011

0.016

1

AUD

0.648

0.691

0.680

0.679

1

BRL

0.184

0.252

0.170

0.240

1

CAD

0.700

0.749

0.691

0.744

1

CNY

0.136

0.144

0.135

0.139

1

EUR

1.071

1.112

1.080

1.085

1

GBP

1.204

1.268

1.202

1.276

1

HKD

0.121

0.127

0.114

0.124

1

INR

0.013

0.014

0.012

0.014

1

MXN

0.044

0.052

0.044

0.051

1

NZD

0.610

0.655

0.636

0.652

1

RON

0.221

0.234

0.222

0.227

1

SGD

0.680

0.728

0.666

0.718

1

TRY

0.135

0.175

0.119

0.162

1

USD

0.938

0.994

0.880

0.966

100

CZK

4.050

4.334

4.116

4.272

100

DKK

14.362

14.900

14.517

14.527

100

JPY

0.879

0.912

0.854

0.890

100

KRW

0.080

0.085

0.081

0.084

100

NOK

10.002

11.299

10.317

11.004

100

PLN

24.108

25.888

23.690

25.498

100

SEK

10.217

10.509

10.765

10.390

100

THB

3.000

3.202

2.941

3.248

100

TWD

3.187

3.215

3.132

3.232

The table below shows the foreign currency forward nominal and market values of the foreign currency contracts used to mitigate currency risk:

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CHF million

Fair value hedges

Cash flow hedges

2020

2019

 

 

 

 

 

Nominal value

232

59

291

443

Market value (net; positive and negative) 1

1

–1

0

4

Net nominal value

233

58

291

447

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

Given its international activities, the GF Corporation is exposed to currency risk. Currency risk occurs in connection with transactions (in particular the purchase and sale of goods) which are effected in currencies that differ from the functional currencies. Through such transactions the Corporation is mainly exposed to changes in the euro and US dollar exchange rates. These currency risks can be reduced by purchasing and producing goods in the functional currencies (congruency principle) or by entering into foreign currency forwards (cash flow hedges), usually for a maximum of 12 months.

The fair value hedges include foreign currency forward contracts that are used to hedge loans to GF Corporate Companies in foreign currencies. Unrealized gains and losses from changes in the fair value are reported in the financial result. These fair value hedges are mainly in US dollar, euro, Canadian dollar and Romanian leu and expire no later than 12 months from the balance sheet date. 

The fair value hedges also include foreign currency forward contracts that serve to hedge currency risks on receivables and payables. 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”. These fair value hedges are mainly in US dollar and euro and expire no later than 12 months from the balance sheet date.

Assuming unchanged exchange rates, a cash outflow of CHF 291 million (gross) (previous year: CHF 443 million) would be offset by a cash inflow of CHF 291 million (gross) (previous year: CHF 447 million), giving a market value of CHF 0 million (previous year: positive market value of CHF 4 million).

Contract values, net by currencies

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CHF million

2020

2019

 

 

 

EUR/CHF

114

184

USD/CHF

92

191

CNY/USD

11

2

TRY/USD

6

4

BRL/CHF

24

0

CAD/CHF

18

16

RON/CHF

11

15

JPY/CHF

6

4

TRY/EUR

1

0

SGD/CHF

4

4

SEK/CHF

3

7

GBP/CHF

1

1

GBP/EUR

0

8

USD/SEK

0

7

Total

291

443

Accounting principles

Derivative financial instruments used to hedge balance sheet items (fair value hedges) are accounted for at market values through the income statement. Hedging transactions on probable future cash flows (cash flow hedges) are initially accounted for at market values through equity. Later, when an asset or a liability results from the hedged underlying transaction, the gains and losses previously recognized in equity are transferred to the income statement. In the case of cash flow hedges, the volume of the foreign currency forward contracts is limited to maximum 75% of the probable future cash flows.

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 the fair value of interest bearing liabilities.

As fair value accounting is not applied for interest bearing liabilities, changes in market interest rates are not expected to have a material impact on the income statement.

However, variable interest rate instruments may impact on the cash flows. It is expected that a one-percentage-point increase in the general level of interest rates would increase the ordinary result by CHF 8 million (previous year: CHF 4 million). A one-percentage-point decrease in the interest rate is expected to reduce the ordinary result by the same amount.

Price risk

Listed securities of CHF 5 million (previous year: CHF 4 million) are exposed to price risk. Since the value of these securities is low compared to the total assets, no significant impact on the income statement is expected from price fluctuations.

Liquidity risk

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

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CHF million

Carrying amount

Contractual cash flows

Up to 1 year

1 to 5 years

More than 5 years

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

445

445

445

 

 

Bonds

775

830

9

178

643

Other financial liabilities

180

189

95

94

 

Accrued liabilities and deferred income

239

239

239

 

 

Other liabilities current/non-current 1

75

75

54

21

 

Total 2020

1’714

1’778

842

293

643

Total 2019

1’546

1’608

880

287

441

1 For more details, see [note 2.3.1] Other liabilities.

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 is adequate. Liquidity reserves are held in order to offset the usual fluctuations in 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 2020 was CHF 732 million (previous year: CHF 768 million). The credit lines are maintained with different banks in order to ensure swift and adequate access to these credit lines.

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