Enterprise risk management as a fully integrated risk management process was systematically applied in 2022 at all levels of the GF Corporation. A risk map was prepared for the GF Corporation, the three divisions, and all significant GF Corporate Companies and sales regions, including the key risks in the areas of strategy, markets, operations, management and resources, finance as well as sustainability. Unchanged to previous year, 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 Corporate Risk Council, consisting of representatives of the divisions and the Corporate Staff and headed by the Chief Risk Officer, held its meeting in June 2022. The main content of the discussions was the analysis of the adapted risk management process and the evaluation of a new risk management reporting software. In addition, the divisional risk maps were analyzed in depth.

In accordance with the annual risk reporting process, the Executive Committee and divisional management discussed the risk maps in June/July and in November of the reporting year. They defined, at the appropriate level, the key risks of the GF Corporation, the divisions and the GF Corporate Companies and sales regions, and determined adequate measures to mitigate those risks. The Board of Directors held a risk management workshop in December 2022 with the aim to define all relevant risks from a Board of Directors’ viewpoint and compare the findings with the risk assessment of the Executive Committee. The result of the risk workshop of the Board of Directors and the workshops of the Executive Committee as well as the determined measures in order to mitigate or control the risks defined, will be included in the risk report 2022, which was provided to the Board of Directors for approval in February 2023.

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

The following key risks were identified: geopolitical risks related to China, cyber risks, negative impacts of violent conflicts and war, tensions between the US and China. Measures to reduce these and other risks were defined and are being implemented in line with the strategic targets of the GF Corporation and the three divisions.

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 these financial risks.

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 financial risk management principles are designed to identify and analyze the risks to which the GF 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 activities of the GF Corporation.

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

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, 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 on fixed-term deposits in general 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. In order to assess this risk, a review of creditworthiness based on the customer’s financial situation and historical experience is performed 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 occurs in connection with transactions (in particular the purchase and sale of goods) that are effected in currencies that differ from the functional currencies. Through such transactions, the GF Corporation is mainly exposed to changes in the euro, US dollar, Chinese yuan, and Turkish lira exchange rates. These currency risks can be reduced by purchasing, producing, and selling 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 table below shows the foreign currency forward contract and actual values of the foreign currency contracts used to mitigate currency risk:

The balance sheet 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 hedges are mainly in euro, US dollars, Canadian dollars, and Romanian leus, and expire usually no later than twelve months from the balance sheet date.

The balance sheet 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 actual value of these contracts are recognized in "Other operating income". These balance sheet hedges are mainly in US dollars and expire no later than twelve months from the balance sheet date.

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, changes in market interest rates may affect the valuation of assets as a result of an impairment test.

Liquidity risk is the risk that the GF Corporation is unable to meet its financial 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 GF Corporation has unused credit lines in case more serious fluctuations occur. The total amount of unused credit lines as of 31 December 2022 was CHF 774 million (previous year: CHF 772 million). The credit lines are maintained with different banks in order to ensure swift and adequate access to these credit lines.