6 Financial risk management

6.1 Financial risk factors

The group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk and interest rate risk), credit risk and liquidity risk. The group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the group’s financial performance. The group uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department (Group Treasury). Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the group’s entities and businesses. There are written principles for overall risk management and policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

a) Market risk

(I) Foreign exchange risk

The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. The group is exposed to transactional foreign currency risk to the extent that revenues, purchases, license fees, borrowings and other balance sheet items are denominated in currencies other than the functional currencies of group companies. The functional currencies of group entities are primarily CHF, EUR, USD and CNY. Management has established a policy requiring entities to manage their foreign exchange risk against their functional currency. The entities are required to hedge their major foreign exchange risk exposure using forward contracts or other standard instruments, usually transacted with Group Treasury. The group’s management policy is to apply the following hedge ratios:

Contractual FX exposure

• 90% to 100% of the exposure

Non-contractual FX exposure

• 100% of the forecast exposure for the next 1–3 months
• 60% of the forecast exposure for the next 4–6 months
• 40% of the forecast exposure for the next 7–12 months

The group uses forward exchange contracts to hedge its currency risk, with a maturity of less than one year from the reporting date. The contracts are generally designated for hedge accounting as cash flow hedges. The group determines the existence of an economic relationship between the hedging instruments and the hedged item based on the currency, amount and timing of the respective cash flows. For hedges of foreign currency purchases, the group enters into hedge relationships where the critical terms of the hedging instrument exactly match the terms of the hedged item. The group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer exactly match the critical terms of the hedging instrument, the group uses the hypothetical derivative method to assess effectiveness. In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated.

Presently, most of the contracts are designated as cash flow hedges. External foreign exchange contracts are designated as hedges of foreign exchange risk on specific assets, liabilities or future transactions on a gross basis. The group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. If required, currency exposure arising from the net assets of the group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. Derivative financial instruments are only used on an ad hoc basis to manage foreign currency translation risk.

The following tables present the hypothetical impact on the income statement arising from foreign exchange risk related to financial instruments. The calculation is based on the one‑year historical volatility as of 31 December for each relevant currency pair. In light of the group’s hedging strategy, the remaining foreign currency risk is not considered significant.

Hypothetical impact of foreign exchange risk on income statement

The following tables present the hypothetical impact on other comprehensive income related to the foreign exchange risk of financial instruments for the most important currency pairs as of December 31 of the respective year. The volatility used for the calculation is the one-year historic volatility on December 31 for the relevant currency pair and year. Most of the hypothetical effect on other comprehensive income is a result of fair value changes of derivative financial instruments designated as hedges of future cash flows in foreign currencies adjusted for tax effects.

Hypothetical impact of foreign exchange risk on other comprehensive income

(II) Price risk

As of December 31, 2025, and 2024, the group was not exposed to price risks related to investments in equity securities.

(III) Interest rate risk

The group’s interest rate risk arises from interest-bearing assets and liabilities. Assets and liabilities at variable rates expose the group to interest rate risk. The group analyzes its interest rate exposure on a net basis and, if required, enters into derivative instruments in order to limit the volatility of net interest income or expense. The group’s current and non-current interest-bearing liabilities mainly comprise a syndicated term loan of CHF 250.0 million with variable interest rates and a CHF 150.0 million revolving credit facility, of which CHF 7.0 million was drawn as of December 31, 2025 (December 31, 2024: CHF 10.0 million drawn).

The group employs interest rate swaps to hedge a portion of its interest rate risk. The swaps have maturities aligned with the hedged item, which is financed on a variable‑rate basis until September 2028. As of December 31, 2025, CHF 125.0 million was swapped from variable to fixed rate (December 31, 2024: CHF 125.0 million). The contracts are generally designated for hedge accounting as cash flow hedges. The group determines the existence of an economic relationship between the hedging instruments and the hedged item based on the interest reference, amount and timing of the respective cash flows. The group enters into hedge relationships where the critical terms of the hedging instrument exactly match the terms of the hedged item. The group therefore performs a qualitative assessment of effectiveness.

The following tables present the hypothetical influence on the income statement for variable interest-bearing assets net of liabilities at variable interest rates, assuming market interest rate levels would have increased/decreased by 100 basis points. For CHF, increasing interest rates would have a negative impact on the income statement, since the value of variable interest-bearing liabilities exceeds the value of variable interest-bearing assets. For the other most significant currencies, EUR, USD, CNY and CZK, higher interest rates would have had a positive impact on the income statement, as variable interest-bearing assets (comprising mainly cash and cash equivalents) exceed the value of variable interest-bearing liabilities.

Hypothetical impact of interest rate risk on income statement

On December 31, 2025, if the interest rates on CHF-denominated assets net of liabilities had been 100 basis points higher with all other variables held constant, post-tax profit for the year would have been CHF 0.7 million lower as a result of higher interest expenses on CHF-denominated liabilities. A decrease in interest rates on CHF-denominated liabilities net of assets would have caused a gain in the same amount. On December 31, 2024, if the interest rates on CHF-denominated assets net of liabilities had been 100 basis points higher with all other variables held constant, post-tax profit for the year would have been CHF 0.8 million lower as a result of higher interest expenses on CHF-denominated liabilities. A decrease in interest rates on CHF-denominated liabilities net of assets would have caused a gain in the same amount.

The following tables present the hypothetical influence on other comprehensive income related to the interest rate risk of financial instruments as of December 31 of the respective year. The sensitivity used for the calculation is 100 basis points. The hypothetical effect on other comprehensive income is the result of fair value changes of derivative financial instruments designated as hedges of future cash flows from variable interest rates adjusted for tax effects.

Hypothetical impact of interest rate risk on other comprehensive income

b) Credit risk

Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits with financial institutions and credit exposures to customers, including outstanding receivables, contract assets and committed transactions. The maximum exposure to credit risk per class of financial asset is disclosed by carrying amounts in the fair value table.

Credit risks of banks and financial institutions are monitored and managed centrally. Generally, only independently rated parties with a strong credit rating are accepted, and the total volume of transactions is split among several banks to reduce the individual risk with one bank.

For every customer with an expected order volume of more than CHF 0.2 million per year, an individual risk assessment of the credit quality of the customer is performed that considers independent ratings, financial position, past experience and other factors. Additionally, bank guarantees and letters of credit are requested. For more details on the credit risk of contract assets, please refer to note 16 and for credit risk of trade accounts receivable, please refer to note 17.

c) Liquidity risk

Prudent liquidity risk management includes the maintenance of sufficient cash and marketable securities, the availability of funding from an adequate number of committed credit facilities and the ability to close out market positions.

Management anticipates the future development of the group’s liquidity reserve on the basis of expected cash flows by performing regular group-wide cash forecasts.

The following table analyzes the group’s financial liabilities in relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows calculated with the year-end closing rates. Borrowings include the notional amount and interest payments.

Maturity profile of financial liabilities

6.2 Capital risk management

The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

6.3 Fair value estimation

The following tables present the carrying amounts and fair values of financial assets and liabilities as of December 31, 2025, and 2024, including their levels in the fair value hierarchy. For financial assets and financial liabilities not measured at fair value in the balance sheet, fair value information is not provided if the carrying amount is a reasonable approximation of fair value.

Fair values are categorized into three different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. Such instruments are included in level 1.

The fair values included in level 2 are based on valuation techniques using observable market input data. This may include discounted cash flow analysis, option pricing models or reference to other instruments that are substantially the same, while always making maximum use of market inputs and relying as little as possible on entity-specific inputs. The fair values of forward contracts are measured based on broker quotes for foreign exchange rates and interest rates.

Fair values measured using unobservable inputs are categorized within level 3 of the fair value hierarchy. This applies particularly to contingent considerations in business combinations.

Financial instruments table

Financial instruments table