Content

3 risk management
3.1 financial risk management
3.2 foreign exchange risk
3.3 interest rate risk
3.4 credit risk
3.5 liquidity risk
3.6 capital risk

3 risk management

3.1 financial risk management

The Orell Füssli Group is active worldwide and is therefore exposed to different financial risks such as foreign exchange risk, interest rate risk, credit risk and liquidity risk.

The overall risk management and especially the financial risk management of the Orell Füssli Group focuses on the unpredictability of developments of the financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group may use derivative financial instruments to economically hedge financial risks. In the reporting period, the Orell Füssli Group did not apply hedge accounting according to IAS 39.

3.2 foreign exchange risk

As a principle, no business activities are conducted in currencies with high volatilities or considered otherwise particularly risky. For substantial orders with a maturity period of more than three months, the hedging of foreign exchange risk using derivative financial instruments will be evaluated and entered, if necessary.

The Orell Füssli Group is exposed to foreign exchange risk particularly with regard to the Euro. The currency exchange rate between Swiss Franc and Euro remained stable in the financial year 2009, however, on a rather low level. In 2008, the Euro lost over 10% of its value against the Swiss Franc, with its highest variance of 14% throughout that period. Based on this experience the Group has benchmarked a currency variation of 15% for the sensibility analyses.

If the Euro had weakened against the Swiss Franc by 15% on 31 December 2009, with all other variables held constant, post-tax profit for the year would have been reduced by CHF 3,603,000 (2008: CHF 2,824,000). In the opposite way the profit for the year would have increased to the same extent. Equity would remain unchanged. Foreign exchange gains/losses would mainly occur on translation of Euro denominated trade receivables, non-current assets, trade payables, and other current liabilities. The reaction of the profit movements in CHF/EUR exchange rates is more sensible due to a decline in receivables denominated in Euro compared to the year 2008. There were no material changes of the portion in Euro on the current liability side.

3.3 interest rate risk

As the Orell Füssli Group has no significant interest-bearing finanical assets, the Group’s income and operating cash flows are not substantially exposed of changes in market interest rates.

The Group is exposed to cash flow interest risk by non-current borrowings issued at variable rates, while non-current borrowings issued at fixed rates expose the Group to fair value interest risk.

Management’s policy is to maintain approximately 80% of its borrowings in fixed rate instruments. Basically, no hedge activities such as interest rate swaps are used.

At 31 December 2009, the Orell Füssli Group did not have any material non-current borrowings in its balance sheet. Therefore, the Group forgoes disclosure of sensibility analyses of the interest risk.

3.4 credit risk

Credit risk may arise from cash and cash equivalents, deposits with banks and financial institutions as well as credit exposures to wholesale and retail customers . Bank and financial institutions need an independently evaluated minimum rating of “A” in order to do business with the Orell Füssli Group.

The Group has not issued a generally accepted credit limit due to the differing customer structure in each of the business units. However, each entity assesses the credit quality of customers systematically, taking into account the financial situation, the past experience and other factors. Material business activities in international environments are usually hedged by bank guarantees or letters of credit.

Management does not expect any losses from substantial receivable assets.

3.5 liquidity risk

The Orell Füssli Group monitors its liquidity risk through prudent liquidity management. In doing so, the Group follows the principle of maintaining liquidity reserves higher than the daily and monthly demand of operating cash. This includes the provision of sufficient cash and marketable securities, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. Therefore a rolling forecast of liquidity on the basis of expected cash flows is conducted and regularly updated. However, some divisions are traditionally more in funds at the year end due to the seasonality of their business. Such funds will be reduced again in the following quarter. The average liquidity reserves are usually considerably below the reserves at the balance sheet date.

At 31 December the available liquidity risk can be summarised as:

liquidity reserves and credit facilities
in CHF '000 at 31 December
20092008
Liquidity reserves
27,02335,868
Committed credit facilities
79,51178,024
./. rental guarantees
–3,644–3,617
./. utilised credit facilities
–11,384–7,169
Total liquidity reserves and non-utilised credit facilities
91,506103,106

Along with the committed credit facilities in local currencies in an unchanged range, the Group should be able to provide sufficient liquidity to ensure ordinary business activities.

Exempt are significant investments in non-current assets as well as future acquisitions. In such cases an adjustment of committed credit facilities may be considered. Furthermore there is the possibility of closing out market positions; as of balance sheet date the authorised capital approved by the Annual General Meeting amounts to the equivalent of 400,000 shares.

3.6 capital risk

When managing capital, the Orell Füssli Group’s objectives are to safeguard the Group’s ability to continue as a going concern, to provide returns for shareholders and to maintain an optimal structure to reduce the cost of capital. In order to reach these goals, the Orell Füssli Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.

The Orell Füssli Group monitors capital on the basis of net gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as the total of the financial liabilities, the trade accounts payable, the prepayments from customers and the other current liabilities, less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt.

Originally, the Orell Füssli Group’s expectation was an increase of its gearing ratio in the financial year 2009, due to budgeted investments and extensive renovation work for the security printing business unit. The disposal of the two subsidiaries and its online database of corporate and personal information business in 2008 the cash outflow could be widely compensated. Therefore the net gearing ratio as of the balance sheet date remained stable. The net gearing ratio at 31 December 2009 and 2008 were as follows:

net gearing ratio
in CHF '000 at 31 December
20092008
Total financial liabilities
13,9769,434
+ trade accounts payable
30,71131,606
+ prepayments from customers
50,06258,723
+ other current liabilities
7,6258,841
./. cash and cash equivalents
–26,936–34,867
Net indebtedness
75,43873,737
Total equity
188,244186,419
Total capital
263,682260,156
Net gearing ratio
29%28%