Details on Risk Management of Financial Instruments

Currency Risk

Receivables, liabilities, cash and cash equivalents not issued in the companies' functional (local) currency are subject to currency risks from financial instruments. The Bechtle Group has taken out loans denominated in Swiss francs to finance several business acquisitions. It also holds financial instruments denominated in foreign currency from deliveries to and from subsidiaries in Switzerland and the United Kingdom as well as several dollar-denominated deliveries.

In individual cases, the Bechtle Group makes use of forward exchange contracts and currency swaps for hedging against risks from exchange-rate fluctuations in receivables and liabilities denominated in foreign currency. During the reporting period, the company executed EUR/CHF forward exchange contacts amounting to 7,330 thousand euros, EUR/USD forward contracts amounting to 6,569 US dollars, and EUR/USD currency swaps amounting to 3,963 thousand US dollars. As of the balance sheet date, these forward exchange contracts involved commitments for the sale of 3,811 thousand US dollars, which were carried as effective fair value hedges in accordance with IAS 39. The forward exchange contracts and currency swaps executed in the prior year were insignificant in amount, and there were no outstanding transactions as of the balance sheet date.

The following sensitivity analysis shows how a decrease (or increase) in the euro exchange rate would impact consolidated earnings before tax. It considers how different exchange rates could cause changes to the fair values of the financial assets and liabilities as carried on the balance sheet date. It does not consider exchange-rate-related differences from translating financial statements into the reporting currency.

Changes in the values of interest rate swaps are recognised directly in equity outside profit or loss. The analysis does not show the impact of exchange-rate changes on the value of Swiss-franc-denominated interest rate swaps because the amount in question is negligible.

Fluctuations in the CHF/EUR exchange rate can significantly affect consolidated earnings since a considerable portion of the business is generated in Switzerland. To hedge the EUR/CHF exchangerate risks of current and future income generated by the subsidiaries in Switzerland, Bechtle AG took out several EUR/CHF forward exchange contracts with various maturities worth a total of 27.3 million Swiss francs without designating or qualifying this hedge for hedge accounting in accordance with IAS 39. The forward exchange contracts thus had to be classified as held for trading (IAS 39.9), measured at fair value and recognised in profit or loss. Since the EUR/CHF exchange rate developed quickly and significantly in a favourable direction, Bechtle AG exited its forward position early, realising a cash gain of 501 thousand euros which is reported under other operating income, and so there were no more derivatives that were not qualified and designated for hedge accounting in the Bechtle Group as of the balance sheet date.

Interest Rate Risk

Interest rate risk is present primarily in the interest income earned by the Bechtle Group on its cash, cash equivalents and current securities.

Interest rate swaps were taken out as cash flow hedges to fully hedge the interest rate risk of the variable-rate loans procured to finance several business acquisitions. Since there is no ineffectiveness from the hedge, changes in interest rates only affect the fair value measurement of the interest rate swaps as recognized directly in equity. The group has a minimal position - and thus an insignificant interest rate risk - in both floating-rate financial instruments which are exposed to cash flow risks from a possible deterioration in interest rates and fixed-income financial instruments which are exposed to fair value risks from interest rate fluctuations.

The sensitivity analysis was conducted for the Bechtle Group's cash, cash equivalents, and current fixed-income securities as of the balance sheet date, using the relevant interest rates for the relevant currencies (EUR, CHF, GBP, USD). A hypothetical increase or decrease of 100 basis points or one per cent p. a. (assuming constant exchange rates) would have increased or decreased our interest income by 773 thousand euros (prior year: 539 thousand euros).

In the case of the interest rate swaps, a similar increase or decrease in interest rates would have changed the fair values recognised directly in equity by - 230 thousand euros or + 218 thousand euros (prior year: - 54 thousand euros or + 54 thousand euros).

Liquidity risk

Liquidity risk from financial instruments arises from future interest and principal payments for financial liabilities and derivative financial instruments. The following tables show non-discounted payment obligations for the relevant balance sheet items as of the balance sheet date and the prior year's balance sheet date in accordance with IFRS 7.

The cash flows for the loans and interest rate swaps described in Item IV, No. 19 are grouped together as a 100 per cent effective cash flow hedge. The other liabilities also include non-financial liabilities of balance-sheet items to ensure better matching.

The risk management report contains further disclosures on how the Bechtle Group manages risk and identifies risk concentrations for currency risk, interest rate risk, liquidity risk and other market risks, including its objectives, methods and processes.