Financial report  >  Consolidated financial statements Geberit Group

Notes to the Consolidated Financial Statements

  1. 1. Basis of preparation

  2. 2. Changes in Group organization

  3. 3. Summary of significant accounting policies

  4. 4. Risk assessment and management

    General

    The Geberit Group runs a risk-management system that has been approved by the Board of Directors.

    The policy defines a structured process according to which the business risks are systematically managed. In this process, risks are identified, analyzed concerning the likelihood of occurrence and magnitude, evaluated, and risk-control measurements are determined. Each member of the management is responsible for the implementation of the risk-management measures in his area of responsibility. The Board of Directors are periodically informed about the major changes in the risk assessment and about risk-management actions taken. The permanent observation and control of the risks is a management objective. For risks concerning accounting and financial reporting, a special assessment is carried out as part of the risk control process. The Geberit-internal control system for the financial reporting defines control measures, which reduce the related risks.

    Financial risks are monitored by the Treasury department of the Geberit Group, which acts in line with the directives of the treasury policy issued by the Group. Risk management focuses on recognizing, analyzing and hedging foreign exchange rate, interest rate, liquidity and counterparty risks, with the aim of limiting their effect on cashflow and net income. The Group measures its risks with the value-at-risk method for foreign exchange rate risks and the cashflow-at-risk method for interest rate risks.

    Management of counterparty risks from treasury activities

    The counterparties for investments in financial instruments must have a rating of at least A (S&P) or A2 (Moody’s) in principle. Management believes that the risk of loss from the existing contracts is remote.

    Investments of cash generally mature within three months. Part of the liquid assets is invested in government bonds (usually with a term to maturity of less than 12 months). The Group has not incurred any losses in this regard. To avoid a concentration of risk, deposits with one counterparty are limited to a total amount of MCHF 70. In addition, investments with the same counterparty may not exceed half of the Group’s total deposits.

    Management of foreign exchange rate risk

    The Geberit Group generates sales and profits in Switzerland and abroad in foreign currencies. Therefore, exchange rate changes have an impact on the consolidated results. In order to limit such risks, the concept of “natural hedging” is considered as the primary hedging strategy. Hereby, the foreign exchange rate risk of cash inflows in a certain currency is neutralized with cash outflows of the same currency. For the most important currencies EUR (approx. 70% of sales) and USD (approx. 5% of sales), in principle, the relative portion of sales and costs is almost equal. Therefore, currency fluctuations influence the profit margin of the Group only to a marginal extent, i.e. the Group is exposed to a relatively small transaction risk. The translation risk however results from the translation of profits generated abroad can still substantially influence the consolidated results depending on the level of currency fluctuation despite of the effective “natural hedging”. The Group does not hedge translation risks.

    Any remaining currency risk is measured with the value-at-risk (VaR) method. By using statistical methods, the effect of probable changes in foreign exchange rates on the fair value of foreign currency positions and therefore on the financial result of the Group is evaluated. The risk is controlled with the key figure (VaR +/- unrealized gains/losses from foreign exchange positions)/equity. Based on internal limits, it is decided whether any hedging measures have to be taken. Normally, forward exchange contracts are used as hedging instruments. The key figure’s limit is determined annually and amounts to 0.5% (PY: 0.5%) of equity for the reporting period.

    The following parameters have been used for the calculation of the value-at-risk (VaR):

    Model Method Confidence
    level
    Holding
    period
    J. P. Morgan Variance-covariance approach 95% 30 days

    Foreign exchange rate risk as of December, 31:

      2012 2011
      MCHF MCHF
    Value-at-risk +/- unrealized gains/losses 2.1 5.5
    Equity 1,431.3 1,419.5
    (Value-at-risk +/- unrealized gains/losses)/equity 0.1% 0.4%

    Management of interest rate risk

    Basically, there are two types of interest rate risks:

    a) the fair market value risk for financial positions bearing fixed interest rates
    b) the interest rate risk for financial positions bearing variable interest rates

    The fair market value risk does not have a direct impact on the cashflows and results of the Group. Therefore, it is not measured. The refinancing risk of positions with fixed interest rates is taken into account with the integration of financial positions bearing fixed interest rates with a maturity under 12 months in the measurement of the interest rate risk.

    The interest rate risk is measured using the cashflow-at-risk (CfaR) method for the interest balance (including financial positions bearing fixed interest rates with a maturity under 12 months). By using statistical methods, the effect of probable interest rate changes on the cashflow of a financial position is evaluated. The calculation of the CfaR is based on the same model as the calculation of the value-at-risk regarding the foreign exchange rate risk.

    The Group’s risk is controlled with the key figure EBITDA/(financial result, net, for the coming 12 months + CfaR). Based on an internally determined limit, it is decided if hedging activities have to be taken. The limit is reviewed annually and amounts to a minimum of 20 for the reporting period (PY: 20).

    Interest rate risk as of December, 31:

      2012 2011
      MCHF MCHF
    EBITDA 542.4 532.0
    Financial result, net + CfaR 1.8 5.7
    EBITDA/(Financial result, net + CfaR) 301x 93x

    The considerable increase of this key figure was due to the fact that no interest expenses are expected for the next 12 months.

    Combined foreign exchange rate and interest rate risk

    The following table shows the combined foreign exchange rate and interest rate risk according to the calculation method of the value-at-risk model and includes all foreign exchange rate risk and interest rate risk positions and instruments described above. Foreign exchange rate risks and interest rate risks are monitored with the key figures as previously mentioned.

      2012 2011
      MCHF MCHF
    Combined foreign exchange rate and interest rate risk 4.2 11.4

    Management of liquidity risk

    Liquid funds (including the committed unused credit lines) must be available in order to cover future cash drains in due time amounting to a certain liquidity reserve. This reserve considers interest and amortization payments as well as capital expenditures and investments in net working capital. At the balance sheet date, the liquid funds including the committed unused credit lines exceeded the defined liquidity reserve by MCHF 399.7 (PY: MCHF 515.7).

    Management of credit risk

    The Group sells a broad range of products throughout the world, but primarily within continental Europe. Major credit risks mainly result from such selling transactions (debtor risk). Ongoing evaluations of customers’ financial situation are performed and, generally, no further collateral is required. Concentrations of debtors’ risk with respect to trade receivables are limited due to the large number of customers of the Group. The Group records allowances for potential credit losses. Such losses, in aggregate, have not exceeded management’s expectations in the past.

    The maximum credit risk resulting from receivables and other financial assets basically corresponds to the net carrying amount of the asset. The balance of receivables at year-end is not representative because of the low sales volume in December. In 2012, the average balance of receivables is about 150% of the amount at year-end.

    Summary

    The Group uses several instruments and procedures to manage and control the different financial risks. These instruments are regularly reviewed in order to make sure that they meet the requirements of financial markets, changes in the Group organization and regulatory obligations. Regarding the compliance with the defined limits, management is informed on a regular basis with key figures and reports. At the balance sheet date, the relevant risks, controlled with statistical and other methods, and the corresponding key figures are as follows:

    Type of risk Key figure 2012 2011
    Foreign exchange rate risk (VaR +/- unrealized gains/losses)/equity 0.1% 0.4%
    Interest rate risk EBITDA/(financial result, net + CfaR) 301x 93x
    Liquidity risk (Deficit)/excess of liquidity reserve MCHF 399.7 MCHF 515.7


  5. 5. Management of capital

  6. 6. Marketable securities

  7. 7. Trade accounts receivable

  8. 8. Other current assets and current financial assets

  9. 9. Inventories

  10. 10. Property, plant and equipment

  11. 11. Other non-current assets and non-current financial assets

  12. 12. Goodwill and intangible assets

  13. 13. Short-term debt

  14. 14. Other current provisions and liabilities

  15. 15. Long-term debt

  16. 16. Derivative financial instruments

  17. 17. Retirement benefit plans

  18. 18. Participation plans

  19. 19. Deferred tax assets and liabilities

  20. 20. Other non-current provisions and liabilities

  21. 21. Contingencies

  22. 22. Capital stock and treasury shares

  23. 23. Earnings per share

  24. 24. Cash discounts and customer bonuses

  25. 25. Other operating expenses, net

  26. 26. Financial result, net

  27. 27. Income tax expenses

  28. 28. Cashflow figures

  29. 29. Segment reporting

  30. 30. Related party transactions

  31. 31. Foreign exchange rates

  32. 32. Subsequent events

  33. 33. Additional disclosures on financial instruments

  34. 34. Group companies as of December 31, 2012