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25. Financial instruments

25.1 Categories of financial instruments

Carrying amounts of financial instruments 2022

in thousand CHF

Financial assets at amortised costs

Financial liabilities at fair value through profit or loss

Financial liabilities at amortised costs

Total

Cash and cash equivalents

93,927

93,927

Trade and other receivables

529,479

529,479

Financial assets

23,693

23,692

Current financial liabilities

218,464

218,464

Current lease liabilities

50,173

50,173

Trade and other payables

346,083

346,083

Non-current financial liabilities

49,180

185,668 1)

234,848

Non-current lease liabilities

183,005

183,005

Total

647,098

49,180

983,393

 

1) Of which CHF 3.9 million are in connection to put options for non-controlling interests. Changes in the liability amount are recognised in equity

Carrying amounts of financial instruments 2021

in thousand CHF

Financial assets at amortised costs

Financial liabilities at fair value through profit or loss

Financial liabilities at amortised costs

Total

Cash and cash equivalents

164,982

164,982

Trade and other receivables

461,108

461,108

Financial assets

19,152

19,152

Current financial liabilities

43,052

43,052

Current lease liabilities

49,717

49,717

Trade and other payables

356,067

356,067

Non-current financial liabilities

24,000

382,544

406,544

Non-current lease liabilities

173,334

173,334

Total

645,242

24,000

1,004,714

 

Net gain/(loss) on financial instruments 2022

in thousand CHF

Financial assets at amortised costs

Financial liabilities at fair value through profit or loss

Financial liabilities at amortised costs

Total

Change in fair value of contingent consideration

1,077

1,077

Net gain/(loss) on foreign exchange

–104

–137

–241

Other financial result

–144

–55

–198

Interest income

426

426

Interest expense

–2,818

–2,818

Interest expense on lease liabilities

–2,455

–2,455

Interest income on impaired trade receivables

301

301

Expected credit losses

–1,781

–1,781

Net gain/(loss) recognised in profit or loss

–1,302

1,077

–5,466

–5,690

Net gain/(loss) on financial instruments 2021

in thousand CHF

Financial assets at amortised costs

Financial liabilities at amortised costs

Total

Net gain/(loss) on foreign exchange

304

–274

30

Other financial result

–36

–89

–125

Interest income

492

492

Interest expense

–2,701

–2,701

Interest expense on lease liabilities

–2,298

–2,298

Interest income on impaired trade receivables

245

245

Expected credit losses

–1,023

–1,023

Net gain/(loss) recognised in profit or loss

–17

–5,362

–5,380

Accounting principles financial instruments (measurement and categories)

Galenica classifies its financial assets and financial liabilities at initial recognition. Subsequent measurement is at amortised cost or fair value through profit or loss.

Measurement of financial assets and financial liabilities

With the exception of trade receivables, financial assets and financial liabilities are initially measured at fair value plus or minus directly attributable transaction costs, if those financial instruments are not subsequently measured at fair value through profit or loss. Trade receivables are initially measured at the transaction price resulting from the revenue transaction. All purchases and sales of financial instruments are recognised using trade date accounting.

Financial assets are generally derecognised when the contractual rights to the cash flows expire. Financial liabilities are derecognised when they have been settled.

For subsequent measurement Galenica distinguishes between the following types of financial assets and financial ­liabilities:

Financial assets at amortised cost

This category includes trade and other receivables as well as loans and other financial assets such as rental deposits and securities. These financial assets are subsequently measured at amortised cost using the effective interest rate method less expected credit losses. Expected credit losses are based on historical credit loss experience, adjusted for forward-­looking factors specific to the debtors and the economic environment. Changes in expected credit losses due to changes in estimated credit risk are determined at each reporting date and charged to profit or loss. Galenica uses the simplified approach to determine its bad debt allowances for trade receivables using lifetime expected credit losses. Expenses for expected credit losses comprise the change in bad debt allowance and receivables directly ­written off.

Uncollectible loans and receivables are only derecognised if a certificate of loss has been issued.

Financial liabilities at fair value through profit or loss

Financial liabilities classified as at fair value through profit or loss correspond to contingent consideration liabilities from business combinations.

Financial liabilities at amortised costs

Financial liabilities mainly comprise trade and other payables as well as financial liabilities and bonds and are ­measured at amortised cost using the effective interest rate method.

25.2 Fair value measurement

Fair value

 

 

2022

 

2021

in thousand CHF

Carrying amount

Fair value

Carrying amount

Fair value

Bond (fair value level 1)

380,194

370,830

380,306

389,270

With the exception of the bond in current and non-current financial liabilities, the carrying amounts of all financial instruments approximate to their fair value or fair value disclosure is not required (lease liabilities).

Fair value of contingent consideration liabilities from business combinations (level 3 of the fair value hierarchy)

Fair value of contingent consideration liabilities from business combinations (level 3 of the fair value hierarchy)

in thousand CHF

2022

2021

1 January

24,000

70

Arising from business combinations

26,256

24,000

Change in fair value (recognised in profit and loss)

–1,077

Payments (cash out)

–70

31 December

49,180

24,000

Sensitivity analysis of contingent consideration liabilities from business combinations

Determining the contingent consideration liability of the business combination of Aquantic AG EBITDA of the acquired business was identified as a key assumption. Galenica has recorded the amount of CHF 3.4 million as contingent consideration liability based on the expected future performance for 2025 and 2026 of the acquired business. The possible future cash outflows range between zero and CHF 5.5 million. An increase in the forecasted EBITDA of the acquired business 2025 and 2026 by 5% would increase the contingent consideration liability by CHF 0.4 million. In return, a decrease of the forecasted EBITDA 2025 and 2026 by 5% would reduce the contingent consideration liability by CHF 0.4 million.

Determining the contingent consideration liability of the business combination of Bahnhof Apotheke Langnau AG future net sales for 2026 and 2027 of the acquired cannaplant business was identified as a key assumption. Galenica has recorded the amount of CHF 22.9 million as contingent consideration liability based on assumed probability-adjusted net sales and the expected achievement of other operational targets. The possible future cash outflows range between zero and CHF 29.0 million. An increase in the expected net sales of the acquired business 2026 and 2027 by 5% would increase the contingent consideration liability by CHF 2.0 million. In return, a decrease of the expected net sales 2026 and 2027 by 5% would reduce the contingent consideration liability by CHF 2.0 million.

Determining the contingent consideration liability of business combinations from previous years net sales of the acquired businesses was identified as key assumption. Galenica has recorded the discounted maximum amount as contingent consideration liability, an increase in the forecasted net sales of the acquired businesses would hence have no impact on the contingent consideration liability. In return, a decrease of the forecasted net sales of the forecasted net sales 2024 by 5% would reduce the contingent consideration liability by CHF 2.2 million.

Accounting principles financial instruments (fair value measurement)

Fair value

Financial liabilities contain contingent consideration liabilities from business combinations which are mea­sured at fair value. The fair value of these financial instruments is measured based on the expected cash flows in due consideration of the probability of occurrence and the current market interest rates (level 3 of the fair value hierarchy).

The fair values of the fixed-rate bonds derived from quoted prices (level 1 of the fair value hierarchy).

Fair value hierarchy

Galenica measures financial instruments at fair value using the following hierarchies for determining the fair value:

  • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
  • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
  • Level 3: Unobservable inputs for the asset or liability. These inputs reflect the best estimates of Galenica based on criteria that market participants would use to determine prices for assets or liabilities at the reporting date.
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