Annual Report 2009 - Von Roll

Financial Reporting 2009 – Consolidated Financial Statements 51(a) Market riskForeign exchange riskVon Roll operates internationally and is exposed to foreign exchange risk arising from various currency exposures,primarily with respect to the euro, US dollar, Israeli shekel and Indian rupee, and other currencies to a lesser extent.Foreign exchange risk arises from sales carried out in foreign currencies and similar transactions as well as fromrecognised assets and liabilities and investments carried out in foreign currencies.To manage its foreign exchange risk, Von Roll uses, wherever necessary, forward contracts. These are exclusivelyfair value hedges from which a loss of TCHF 61 was incurred in the reporting period. Foreign exchange risk ariseswhen commercial transactions of an operation are not denominated in the presentation currency CHF, but insteadin another currency. There are significant currency risks with respect to the euro and US dollar, to the amount ofCHF 37.8 million and CHF 35.7 million respectively. Taken together all other currencies account for a foreign exchangerisk of CHF 37.7 million. A change in all foreign currency exchange rates of 1 % would impact the pre-tax resultof the Group by around CHF 1.1 million, while a change in all foreign currency exchange rates of 5 % would have animpact of approximately CHF 11.6 million on the equity. This impact results from positions in cash and cash equivalents,accounts receivable, financial liabilities and accounts payable.Von Roll has investments in foreign operations whose net assets are exposed to foreign currency transaction risk.The risks of foreign currency translation differences associated with subsidiaries are not hedged.Von Roll holds up to USD 100 of million derivative financial instruments as open foreign currency items which areautomatically closed in the event of depreciation of more than 4 %. Von Roll has granted a restraint on disposal oncash and cash equivalents to safeguard a derivative financial instrument.Price riskVon Roll is exposed to commodity risk relating to copper. To minimise this risk, the determination of sales prices isbased on prevailing copper prices at the time of the transaction. Copper in stock, for which there are no client orders,is also hedged in significant cases by means of derivatives. These are exclusively fair value hedges from whicha loss of TCHF 577 was incurred in the reporting period. This compared with profits of TCHF 514 from revaluation ofunderlying transactions.Interest rate riskVon Roll is exposed to interest rate risk on cash and cash equivalents and financial liabilities.(b) Credit riskVon Roll has no significant concentrations of credit risk. Management establishes policies to ensure that sales ofproducts are made to customers with an appropriate credit history. Management defines credit limits for each customerthat are continually monitored and adjusted. Additionally, the outstanding balances of certain customers arecovered by credit insurance facilities. The nominal value of accounts receivable less valuation allowances is seen asan approximation of their fair value. Von Roll takes account of the risk of default by a counterparty by only investingwith financial institutions whose credit rating is outstanding.(c) Liquidity riskLiquidity risk is limited by maintaining sufficient cash and cash equivalents, investments with a maturity of 90 daysor less and the availability of funding through an adequate number of credit facilities.The following tables detail the Group’s remaining contractual maturities for its financial liabilities. The tables havebeen drawn up on the basis of undiscounted cash flows of financial liabilities based on the earliest date on whichthe Group can be required to pay. The tables solely include repayments because Von Roll is currently not drawingthe long-term loans at its disposal because of its positive net liquidity and to optimise its financing structure. Futureinterest payments are expected to be immaterial.