8.5 Financial risk management
Financial risk factors
As a result of its worldwide activities, Rieter is exposed to various financial risks, such as market risks (fluctuations in exchange rates and interest rates as well as other price risks), credit risks, and liquidity risks. Rieter’s financial risk management aims to minimize the potential adverse impact of developments on the financial markets on the Group’s financial position and to secure its financial stability. Respective measures include the use of derivative financial instruments in order to hedge certain risk exposures.
Rieter’s financial risk management is essentially centralized in accordance with directives issued by the Board of Directors and the Group Executive Committee. Financial risks are identified centrally by the treasury department, evaluated, and hedged in close cooperation with the Group’s operating units.
Foreign exchange risk
Foreign exchange risks arise from net investments in foreign group companies (translation risk) and when future business transactions or assets and liabilities recognized on the balance sheet are denominated in a currency other than the functional currency of the respective group company (transaction risk). In order to hedge such transaction risks, subsidiaries use foreign currency contracts with corporate headquarters as counterparty, if permitted by legislation. The central treasury department manages these positions by entering into foreign currency spot, forward, and swap contracts with financial institutions.
Rieter’s risk management policy is to minimize the effects of fluctuations in currency exchange rates on committed or highly probable transactions. For this purpose, the main objective is to minimize transaction risks arising from firm sales and purchase commitments in non-functional currencies of the respective group companies associated with large machinery and systems sales orders in order to secure the profit margin as negotiated at contract inception. In addition, the transaction risks for bulk business and other operating type transactions are hedged for significant group companies. Foreign currency gains and losses resulting from loans to/from group companies, which form part of the net investment in a foreign operation, are recognized in other comprehensive income directly in equity until Rieter’s control over the respective entity ceases. Other significant intercompany loans and loans from third parties are hedged and changes in the fair values of the respective derivative financial instruments are recognized in the income statement.
Hedge accounting is applied to significant firm sales and purchase commitments associated with machinery and systems sales orders to avoid a temporary distortion of the operating result due to fair value gains and losses resulting from derivative financial instruments. The hedge accounting policy is included in the other material accounting policies (see note 8.8). Rieter aims to achieve a hedge ratio of between 80 and 100 percent. The hedge ratio is defined as the nominal value of the foreign currency forward contract (hedging instrument) divided by the value of the unrecognized firm commitment (hedged transaction/item).
Hedged transactions may be subject to changes (e.g. changes in volumes and/or in the timing of committed transactions). Depending on the nature of the change, the hedging relationship may be adjusted by entering into additional foreign currency forward and/or swap contracts in order to ensure that the hedge ratio remains within the target range of 80 to 100 percent and/or that the timing of the hedging instrument continues to match the hedged transaction. Ineffectiveness may occur if the value of the hedged sale or purchase transaction decreases to a level below the nominal value of the hedging instrument.
Rieter is primarily exposed to foreign exchange risks versus the Chinese renminbi, the Czech crown, and the euro. The table below shows the impact of a five percent change in the respective exchange rates against the Swiss franc on profit before taxes, based on the assumption that all other variables remained constant:
CHF million | Change | Impact 2023 | Impact 2024 |
|---|---|---|---|
CNY/CHF | + 5% | 1.8 | 0.6 |
CNY/CHF | – 5% | – 1.8 | – 0.6 |
CZK/CHF | + 5% | 1.9 | 1.0 |
CZK/CHF | – 5% | – 1.9 | – 1.0 |
EUR/CHF | + 5% | 3.2 | 6.7 |
EUR/CHF | – 5% | – 3.2 | – 6.7 |
These impacts would mainly be due to foreign exchange gains/losses on cash and cash equivalents and accounts receivable/payable balances. The table only shows sensitivity in relation to risks arising from the revaluation of financial assets and liabilities in a currency other than the functional currency at year-end spot rates. Translation effects, which are recognized as other comprehensive income, are not taken into account.
Effects of hedge accounting
The tables below present the impact of derivative financial instruments designated as hedging instruments in a hedging relationship on the consolidated balance sheet at December 31, 2024, and 2023:
December 31, 2024 | Carrying amount of the hedging instruments | |||
|---|---|---|---|---|
CHF million | Derivative financial instruments (positive fair values) | Derivative financial instruments (negative fair values) | Nominal amount | Change in the fair value of the hedging instrument used as a basis for recognizing hedge ineffectiveness |
Foreign exchange risks | ||||
Current foreign currency forward and swap contracts (maturity date within twelve months)1 | 1.4 | 0.8 | 129.7 | – 4.5 |
1Fair values are recognized in other current receivables/liabilities.
December 31, 2023 | Carrying amount of the hedging instruments | |||
|---|---|---|---|---|
CHF million | Derivative financial instruments (positive fair values) | Derivative financial instruments (negative fair values) | Nominal amount | Change in the fair value of the hedging instrument used as a basis for recognizing hedge ineffectiveness |
Foreign exchange risks | ||||
Current foreign currency forward and swap contracts (maturity date within twelve months)1 | 2.8 | 11.1 | 293.7 | 0.3 |
1Fair values are recognized in other current receivables/liabilities.
The change in value of the hedged transactions used as a basis for recognizing hedge ineffectiveness amounted to CHF -4.5 million in 2024 (2023: CHF 0.3 million).
The following hedging relationships affected the consolidated income statement and the consolidated statement of comprehensive income 2024 and 2023:
CHF million | 2023 | 2024 |
|---|---|---|
Foreign exchange risks | ||
Hedging gains/losses recognized in other comprehensive income | 3.7 | 6.3 |
Hedge ineffectiveness recognized in the income statement1 | – 0.1 | – 0.5 |
Hedged future transactions no longer expected to occur1 | 0.1 | – 0.2 |
Amount reclassified from the hedge reserve into the income statement1 | 0.2 | 0.7 |
1Included in other income or other expenses in the consolidated income statement.
The following table provides a summary of the development of the hedge reserve in 2024 and 2023:
CHF million | 2023 | 2024 |
|---|---|---|
Foreign exchange risks | ||
Hedge reserve at January 1 | – 9.5 | – 6.4 |
Hedging gains/losses recognized in other comprehensive income1 | 3.7 | 6.3 |
Hedge ineffectiveness recognized in the income statement1 | – 0.1 | – 0.5 |
Hedged future transactions no longer expected to occur1 | 0.1 | – 0.2 |
Amount reclassified from the hedge reserve into the income statement1 | 0.2 | 0.7 |
Income taxes | – 0.8 | – 1.2 |
Hedge reserve at December 31 | – 6.4 | – 1.3 |
1Included in cash flow hedges in the consolidated statement of comprehensive income.
The hedge reserve includes the spot and the forward element of the fair values of foreign currency forward and swap contracts not yet matured (effective portion) as well as realized gains/losses from foreign currency contracts, where the respective hedged transaction has not yet been accounted for (effective portion).
The following tables provide information about the nominal amounts, the maturity as well as average forward exchange rates of foreign currency forward and swap contracts designated as hedging instruments at December 31, 2024, and 2023:
December 31, 2024 | Period of maturity | Total | ||||
2025 long1 | 2025 short2 | 2026 and later long1 | 2026 and later short2 | Total long1 | Total short2 | |
Foreign exchange risks | ||||||
CNY exposure hedged by group companies whose functional currency is CHF | ||||||
- Nominal amount (CHF million, long +/short -) | 39.9 | – | – | – | 39.9 | – |
- Average forward foreign exchange rate (CNY 100/CHF) | 12.06 | 12.06 | ||||
EUR exposure hedged by group companies whose functional currency is CHF | ||||||
- Nominal amount (CHF million, long +/short -) | 58.6 | – 26.9 | – | – | 58.6 | – 26.9 |
- Average forward foreign exchange rate (EUR/CHF) | 0.94 | 0.93 | 0.94 | 0.93 | ||
USD exposure hedged by group companies whose functional currency is CHF | ||||||
- Nominal amount (CHF million, long +/short -) | – | – 4.3 | – | – | – | – 4.3 |
- Average forward foreign exchange rate (USD/CHF) | 0.84 | 0.84 | ||||
1“long” is a position owned in a transaction.
2“short” is a position owed in a transaction.
December 31, 2023 | Period of maturity | Total | ||||
|---|---|---|---|---|---|---|
2024 long1 | 2024 short2 | 2025 and later long1 | 2025 and later short2 | Total long1 | Total short2 | |
Foreign exchange risks | ||||||
CNY exposure hedged by group companies whose functional currency is CHF | ||||||
- Nominal amount (CHF million, long +/short -) | 83.2 | – | – | – | 83.2 | – |
- Average forward foreign exchange rate (CNY 100/CHF) | 12.51 | 12.51 | ||||
EUR exposure hedged by group companies whose functional currency is CHF | ||||||
- Nominal amount (CHF million, long +/short -) | 145.5 | – 59.2 | – | – | 145.5 | – 59.2 |
- Average forward foreign exchange rate (EUR/CHF) | 0.96 | 0.96 | 0.96 | 0.96 | ||
USD exposure hedged by group companies whose functional currency is CHF | ||||||
- Nominal amount (CHF million, long +/short -) | – | – 5.8 | – | – | – | – 5.8 |
- Average forward foreign exchange rate (USD/CHF) | 0.88 | 0.88 | ||||
1“long” is a position owned in a transaction.
2“short” is a position owed in a transaction.
Interest rate risk
With the exception of cash, time deposits, and long-term receivables from customers, Rieter held no material interest-bearing assets during 2024 and 2023, thus both income and cash flow from operations are largely unaffected by changes in market interest rates.
Interest rate risks can arise from interest-bearing financial debt. Financial debt with variable interest rates exposes the Group to interest-rate related cash flow risks, while fixed-rate financial liabilities may represent a fair value interest rate risk. However, Rieter measures financial liabilities at amortized cost and hence is not exposed to fair value risks.
Cash flow sensitivity analysis: A one percentage point increase in interest rates would have an impact on profit before taxes of CHF -1.0 million in 2024 (2023: CHF -1.9 million).
Price risk
Holding marketable financial assets exposes Rieter to a risk of price fluctuation. The Group’s balance of marketable financial assets was not significant at the end of 2024 and 2023.
Credit risk
Rieter is exposed to credit risks if counterparties fail to make payments as they fall due. Credit risks arise mainly from financial assets held with financial institutions, such as cash and time deposits (see note 5.2), as well as from trade receivables (see note 4.1). Recovery of these receivables is monitored on a regular basis and respective credit risks are considered to be low. Credit risks related to the remaining financial assets are expected to be insignificant.
Financial institutions
Relationships with financial institutions are mainly entered into with counterparties that have an investment grade rating. In order to limit a concentration of risk, Rieter uses various banks that operate on an international scale and have a sound rating. The central treasury department monitors counterparty exposure (e.g. based on the rating of the respective financial institutions).
Trade receivables
Rieter aims to secure the credit risk exposure arising from larger individual customer receivables by means of advance payment, irrevocable letter of credit, bank guarantee, credit insurance, or other instruments. This is mainly relevant for the Division Machines & Systems as well as for larger sales orders in the other two divisions. For the remaining business, credit risk is limited due to the large number of customers with individually smaller open balances and the wide geographical spread of these customers. As a result, management is of the opinion that there is no concentration of credit risk. At December 31, 2024, no open unsecured receivable balance from individual customers exceeded 10 percent of total trade receivables (December 31, 2023: none).
For open receivable balances secured by accepted instruments, no loss allowance is recognized unless there are indications that the instrument securing the open balance may be subject to failure. For trade receivables that are not secured and not overdue by more than 90 days, expected credit losses are determined by using publicly available credit default probabilities for the textile industry per country. These default probabilities incorporate forward-looking information. If at this stage information indicating a higher collection risk for individual customers is available, individual allowances are recognized for the respective balances. The risk of a credit loss increases significantly for open trade receivable balances that are overdue for more than 90 days. Unless the open balance is negligible, an individual assessment is performed to estimate expected credit losses. Individual assessments incorporate forward-looking information such as macroeconomic forecasts and external credit ratings where available.
The following tables show the average expected loss rate for trade receivables per age category at December 31, 2024, and 2023:
December 31, 2024 CHF million | Not due | No more than 90 days overdue | 91 to 180 days overdue | 181 days to one year overdue | More than 1 year overdue | Total |
|---|---|---|---|---|---|---|
Expected loss rate | 1.6% | 1.6% | 23.8% | 55.6% | 91.7% | 3.4% |
Trade receivables (gross) | 87.6 | 18.4 | 2.1 | 0.9 | 1.2 | 110.2 |
Allowance for trade receivables | 1.4 | 0.3 | 0.5 | 0.5 | 1.1 | 3.8 |
December 31, 2023 CHF million | Not due | No more than 90 days overdue | 91 to 180 days overdue | 181 days to one year overdue | More than 1 year overdue | Total |
|---|---|---|---|---|---|---|
Expected loss rate | 0.3% | 0.6% | 24.4% | 88.9% | 91.7% | 2.4% |
Trade receivables (gross) | 102.3 | 33.7 | 4.1 | 0.9 | 1.2 | 142.2 |
Allowance for trade receivables | 0.3 | 0.2 | 1.0 | 0.8 | 1.1 | 3.4 |
The following table summarizes the movement in the allowance for trade receivables in 2024 and 2023:
CHF million | 2023 | 2024 |
|---|---|---|
Allowance for trade receivables at January 1 | – 5.6 | – 3.4 |
Acquisitions1 | – | – 0.1 |
Changes to expected credit losses on trade receivables | – 1.1 | – 2.0 |
Write-off of trade receivables/reversal of unused amount | 3.1 | 1.7 |
Currency translation differences | 0.2 | 0.0 |
Allowance for trade receivables at December 31 | – 3.4 | – 3.8 |
1See note 2.1.
Trade receivables are written off when there is no reasonable expectation of recovery.
The following table provides a summary of the credit risk exposure at December 31, 2024, and 2023:
CHF million | December 31, 2023 | December 31, 2024 |
|---|---|---|
Trade receivables | 142.2 | 110.2 |
Comprising: | ||
- Trade receivables secured by letters of credit or similar instruments | 84.6 | 45.5 |
- Trade receivables unsecured | 57.6 | 64.7 |
Allowance for trade receivables | – 3.4 | – 3.8 |
Trade receivables | 138.8 | 106.4 |
Customers provide letters of credit from local and international banks as security. Rieter monitors credit risks related to the respective banks (e.g. by using official ratings). Where the ratings are unsatisfactory, management may seek additional security. At December 31, 2024, and 2023, no loss allowances were recorded for secured trade receivables.
Liquidity risk
Rieter’s liquidity risk management includes holding adequate reserves of liquid funds and time deposits, the option of financing via an appropriate level of committed and uncommitted credit lines, and the ability to place issues on the capital market. In light of the dynamic nature of the business environment in which Rieter operates, the goal is to ensure financial stability and retain the necessary flexibility by financing operations with adequate free cash flow and maintaining unutilized credit lines. For this purpose, Rieter transferred the bilaterally committed credit facilities negotiated with several banks into a Revolving Credit Facility (RCF) with a maturity on October 30, 2026. The total amount of CHF 250 million of the RCF has not been utilized at December 31, 2024.
The following tables show the contractual maturities of the Group’s financial liabilities (including interest) at December 31, 2024, and 2023:
December 31, 2024 | Carrying amount | Contractual cash flows | |||
|---|---|---|---|---|---|
CHF million | Within 1 year | In 1 to 5 years | In 5 or more years | Total cash flows | |
Non-derivatives | |||||
Trade payables | 102.4 | 102.4 | 0.0 | 0.0 | 102.4 |
Other current liabilities | 67.0 | 67.0 | 0.0 | 0.0 | 67.0 |
Fixed-rate bonds | 169.5 | 3.9 | 186.5 | 0.0 | 190.4 |
Bank debt | 92.5 | 92.5 | 0.0 | 0.0 | 92.5 |
Lease liabilities | 62.0 | 10.8 | 36.0 | 36.2 | 83.0 |
Other financial debt | 9.7 | 3.7 | 6.0 | 0.0 | 9.7 |
Total non-derivatives | 503.1 | 280.3 | 228.5 | 36.2 | 545.0 |
Derivatives | |||||
Foreign currency forward and swap contracts | 2.4 | 42.4 | 0.0 | 0.0 | 42.4 |
Total derivatives | 2.4 | 42.4 | 0.0 | 0.0 | 42.4 |
Total | 505.5 | 322.7 | 228.5 | 36.2 | 587.4 |
December 31, 2023 | Carrying amount | Contractual cash flows | |||
|---|---|---|---|---|---|
CHF million | Within 1 year | In 1 to 5 years | In 5 or more years | Total cash flows | |
Non-derivatives | |||||
Trade payables | 101.5 | 101.5 | 0.0 | 0.0 | 101.5 |
Other current liabilities | 109.6 | 109.6 | 0.0 | 0.0 | 109.6 |
Fixed-rate bonds | 174.6 | 77.6 | 104.2 | 0.0 | 181.8 |
Bank debt | 114.8 | 114.8 | 0.0 | 0.0 | 114.8 |
Lease liabilities | 35.8 | 7.3 | 16.4 | 17.1 | 40.8 |
Other financial debt | 1.9 | 1.9 | 0.0 | 0.0 | 1.9 |
Total non-derivatives | 538.2 | 412.7 | 120.6 | 17.1 | 550.4 |
Derivatives | |||||
Foreign currency forward and swap contracts | 18.3 | 228.7 | 0.0 | 0.0 | 228.7 |
Total derivatives | 18.3 | 228.7 | 0.0 | 0.0 | 228.7 |
Total | 556.5 | 641.4 | 120.6 | 17.1 | 779.1 |
Capital management
The capital managed by the Group is equal to the consolidated equity. Rieter’s objectives in terms of capital management are to safeguard the Group’s financial stability, its financial independence, and its ability to continue as a going concern in order to generate returns for shareholders and respective benefits for other stakeholders. In addition, capital management aims to maintain an optimal capital structure. The equity ratio is 34 percent at December 31, 2024 (December 31, 2023: 29 percent). As an industrial group, Rieter strives to have a strong balance sheet with an equity ratio of at least 35 percent.
In order to maintain or change the capital structure, the Group may – as the need arises – adjust dividend payments to shareholders, return capital to shareholders, issue new shares, or dispose of assets in order to reduce debt.
In connection with existing, but unutilized committed credit facilities, Rieter is subject to externally imposed requirements (financial covenants) defining minimum equity and maximum gearing. Rieter complies with these requirements and this compliance is monitored on a continuous basis.