Galenica - Annual report 2023

26. Financial instruments

26.1 Categories of financial instruments

Carrying amounts of financial instruments 2023

in thousand CHF	Financial assets at amortised costs	Financial assets at fair value through OCI	Financial liabilities at fair value through profit or loss	Financial liabilities at amortised costs	Total
Cash and cash equivalents	116,159	–	–	–	116,159
Trade and other receivables	518,293	–	–	–	518,293
Financial assets	20,183 1)	200,030	–	–	220,214
Current financial liabilities	–	–	–	70,231	70,231
Current lease liabilities	–	–	–	50,484	50,484
Trade and other payables	–	–	–	407,943	407,943
Non-current financial liabilities	–	–	41,507	427,061 2)	468,569
Non-current lease liabilities	–	–	–	185,557	185,557
Total	654,635	200,030	41,507	1,141,276

1) Of which CHF 2.5 million are in connection to equity instruments which are designated as Financial asset at fair value through profit or loss

2) Of which CHF 4.3 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 2022

in thousand CHF	Financial assets at amortised costs	Financial assets at fair value through OCI	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	19,132 1)	4,561	–	–	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 2)	234,848
Non-current lease liabilities	–	–	–	183,005	183,005
Total	642,537	4,561	49,180	983,393

1) Of which CHF 4.5 million are in connection to equity instruments which are designated as Financial asset at fair value through profit or loss

2) 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

Net gain/(loss) on financial instruments 2023

in thousand CHF	Financial assets at amortised costs	Financial assets at fair value through OCI	Financial liabilities at fair value through profit or loss	Financial liabilities at amortised costs	Total
Change in fair value	-2,900 1)	–	10,057	–	7,157
Net gain/(loss) on foreign exchange	137	–	–	–526	–388
Other financial result	76	–	–	–94	–18
Interest income	1,418	–	–	–	1,418
Interest expense	–	–	–	–6,515	–6,515
Interest expense on lease liabilities	–	–	–	–2,951	–2,951
Interest income on impaired trade receivables	331	–	–	–	331
Expected credit losses	–7,124	–	–	–	–7,124
Impairment on financial assets	–3,349	–	–	–	–3,349
Net gain/(loss) recognised in profit or loss	–11,410	–	10,057	–10,086	–11,439
Net gain/(loss) recognised in other comprehensive income 2)	–	55,530	–	–	55,530

1) Related to equity instruments which are designated as Financial asset at fair value through profit or loss

2) Other comprehensive income includes changes in value of strategic investments (publicly and non-publicly traded equity instruments)

Net gain/(loss) on financial instruments 2022 (restated)¹⁾

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	–	1,077	–	1,077
Net gain/(loss) on foreign exchange	–104	–	–133	–237
Other financial result	–144	–	–55	–198
Interest income	639	–	–	639
Interest expense	–	–	–2,839	–2,839
Interest expense on lease liabilities	–	–	–2,400	–2,400
Interest income on impaired trade receivables	301	–	–	301
Expected credit losses	–1,779	–	–	–1,779
Net gain/(loss) recognised in profit or loss	–1,086	1,077	–5,428	–5,437

1) Figures restated (refer to note 4, Discontinued operations)

Accounting principles financial instruments (measurement and categories)

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. These financial assets are subsequently measured at amortised cost using the effective interest rate method less expected credit losses. 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 assets at fair value through other comprehensive income

Financial assets measured at fair value through other comprehensive income includes equity instruments which were irrevocably classified to be strategic in nature.

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.

Put options granted to non-controlling interests to sell their shares to Galenica as part of a business combination represent a contractual obligation to purchase non-controlling interests and give rise to a financial liability if the option does not provide Galenica with a present ownership interest in the shares concerned. This liability is measured at the redemption amount as if the put option had been exercised at the balance sheet date. Galenica accounts for changes in the carrying amount of this financial liability as an equity transaction.

26.2 Fair value measurement

Fair value

		2023		2022
in thousand CHF	Carrying amount	Fair value	Carrying amount	Fair value
Bond (level 1 of the fair value hierarchy)	419,871	427,050	380,194	370,830

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

As at 31 December 2023 Galenica holds equity instruments designated at fair value through other comprehensive income including a 7.9% (previous year: none) investment in the listed (level 1 of the fair value hierarchy) company Redcare Pharmacy N.V., Netherlands, with a fair value of CHF 196.1 million (previous year: none) and other investment in non-listed (level 3 of the fair value hierarchy) companies with a fair value of CHF 3.9 million (previous Year: CHF 4.6 million). These investments were irrevocably designated at fair value through other comprehensive income as Galenica considers these investments to be strategic in nature. Galenica recognised in the consolidated statement of comprehensive income a remeasurement gain of CHF 55.5 million (previous year: none).

Fair value of financial instruments (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	2023	2022
1 January	49,180	24,000
Arising from business combinations	2,385	26,256
Change in fair value (recognised in profit or loss)	–10,057	–1,077
31 December	41,507	49,180

Fair value changes of contingent consideration liabilities from business combinations are recognised in profit or loss (financial result) for the relevant reporting period.

Fair value of equity instruments designated at fair value through other comprehensive income (level 3 of the fair value hierarchy)

in thousand CHF	2023	2022
1 January	4,561	–
Addition	1,950	4,561
Change in fair value (recognised in other comprehensive income)	–2,583	–
31 December	3,928	4,561

Fair value and sensitivity analysis of contingent consideration liabilities from discontinued operations

Determining the contingent consideration liability in connection with the sale of Mediservice forecasted gross margin and further development of net working capital of the discontinued operation were identified as key assumptions. Galenica has recorded the amount of CHF 2.9 million as other liability based on the expected future gross margin for the years 2024-2026. The future cash outflows range between zero and CHF 3.1 million.

Furthermore, Galenica has not recorded any amount for a payment related to the further development of net working capital of the discontinued operation as per 31 December 2023 as the development of the net working capital was positive in the second half year of 2023. The relevant period under review was extended to the first half of 2024 and a possible but not expected cash out flow would be due in the second half year of 2024. The future cash outflows range between zero and CHF 2.3 million.

Further information of the discontinued operation can be found in note 4, Discontinued operations.

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

in thousand CHF	Lifestage Solutions	Bahnhof Apotheke Langnau	Aquantic	Padma
Fair value of contingent considerations as at 31.12.2023	17,287	18,408	3,395	2,418
Minimal payout	–	–	–	–
Maximal payout	24,000	29,000	5,450	4,000
Key assumption	forecasted net sales 1)	forecasted net sales 1)	forecasted EBITDA 1)	forecasted sell out prices 1)
Year of relevance	2024	2026+2027	2025+2026	2025
Sensitivity analysis
Impact on fair value by 5% increase of key assumption	1,864	1,663	388	967
Impact on fair value by 5% decrease of key assumption	–1,864	–1,663	–388	–967

1) of the acquired business