Investors - Poised for sustainable success
Group risk management
Risk management at Group level is an integral part of business practice and supports the strategic decision-making process. The assessment of risk is derived from both “top-down” and “bottom-up” and covers corporate, all business segments, and all consolidated Group companies. This approach allows for the Group to examine all types of risk exposures caused by internal and external impacts and events, from financial, operational processes, customer and products, management and staff. The risk exposures are managed by specific risk mitigating initiatives, frequent re-evaluations, communication, risk consolidation and prioritization.
The responsibility for the process of risk assessment and monitoring is allocated to the corporate risk function. The Management Board, in addition to Group companies and functional managers, support the annual risk assessment and are responsible for the management of the risk mitigating initiatives. The Board of Directors discusses and analyzes the Group’s risks at least once a year in the context of a strategy meeting.
Financial risk management
Due to Sonova Group’s worldwide activities, the Group is exposed to a variety of financial risks such as market risks, credit risks and liquidity risks. Financial risk management aims to limit these risks and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses selected financial instruments for this purpose. They are exclusively used as hedging instruments for cash in- and outflows and not for speculative positions.
The fundamentals of Sonova Group’s financial risk policy are periodically reviewed by the Audit Committee and carried out by the Group finance department. Group finance is responsible for implementing the policy and for ongoing financial risk management.
- Market risk
Exchange rate risk
The Group operates globally and is therefore exposed to foreign currency fluctuations, mainly with respect to the US dollar and the Euro. As the Group uses Swiss francs as presentation currency and holds investments in different functional currencies, net assets are exposed to foreign currency translation risk. Additionally, a foreign currency transaction risk exists in relation to future commercial transactions which are denominated in a currency other than the functional currency.
To minimize foreign currency exchange risks, forward currency contracts are entered into.
Interest rate risk
The Group has only limited exposure to interest rate changes. The most substantial interest exposure on assets relates to cash and cash equivalents with an average interest-bearing amount for the 2016/ 17 financial year of CHF 236 million. On liabilities the most significant risk relates to the two year variable rate bond.
Other market risks
Risk of price changes of raw materials or components used for production is limited. A change in those prices would not result in financial effects being above the Group’s risk management tolerance level.
- Credit risk
Financial assets which could expose the Group to a potential concentration in credit risk are principally cash and bank balances, receivables from customers and loans. Core banking relations are maintained with at least “BBB+” rated (S&P) financial institutions. As of March 31, 2017, the largest balance with a single counterparty amounted to 19% (previous year 32%) of total cash and cash equivalents.
The Group performs continuous credit checks on its receivables. Due to the customer diversity there is no single credit limit for all customers, however the Group assesses its customers taking into account their financial position, past experience, and other factors. Due to the fragmented customer base (no single customer balance is greater than 10% of total trade accounts receivable), the Group is not exposed to any significant concentration risk. The same applies to loans to third and related parties. The Group does not expect any significant losses either from receivables or from other financial assets.
- Liquidity risk
Group finance is responsible for centrally managing the net cash/debt position and to ensure that the Group’s obligations can be settled on time. The Group aims to grow further and wants to remain flexible in making time-sensitive investment decisions. This overall objective is included in the asset allocation strategy. A rolling forecast based on the expected cash flows is conducted and updated regularly to monitor and control liquidity.
Capital risk management
It is the Group’s policy to maintain a strong equity base and to secure a continuous “investment grade” rating. The Group’s strong balance sheet and earnings tracking provides for additional debt capacity.
The company aims to return excess cash to shareholders as far as not required for organic and acquisition related growth, and amortization of debt.
For more information please refer to: Sonova Annual Report - 25. Risk management and financial instruments