Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Service warranty in CHF million Swiss franc Swiss franc weakened strengthened (+10%) (–10%) The Group offers its customers a warranty covering all repairs for a certain period after the sale. 22002200 2019 22002200 2019 These warranty obligations are considered as a separate performance obligation and recognized over a period of time. A portion of the transaction price is allocated to the service warranty and USD (2.0) 0.4 2.0 (0.4) recognized as a contract liability. Revenue is recognized over the period in which the service EUR (1.1) (0.4) 1.1 0.4 warranty is provided based on the time elapsed. Contract liabilities are shown in a separate line All other currencies (1.9) (3.3) 1.9 3.3 item on the balance sheet and split in current and non-current. These effects result from the translation of monetary asset and liability positions held in foreign (2.20) Dividend distributions Dividend distributions to the Hilti Corporation’s shareholders are recognized as liabilities in the currencies and from derivative contracts to hedge these foreign currency risks and do not include Groups financial statements in the periods in which the dividends are approved by the any effects of foreign currency transactions during the year. Corporation’s shareholders. At December 31, if the Swiss franc had strengthened/weakened by 10% against the US dollar, euro and all other currencies with all other variables held constant, OCI would have been affected (2.21) Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, as follows: interest rate risk and other price risks), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize in CHF million Swiss franc Swiss franc weakened potential adverse effects on the Group’s financial performance. The Group uses derivative strengthened (+10%) (–10%) financial instruments to hedge certain risk exposures. 22002200 2019 22002200 2019 sury) under Risk management is carried out by a central treasury department (Corporate Trea USD 3.1 4.6 (3.1) (4.6) policies approved by the Board of Directors. Corporate Treasury identifies, evaluates and hedges EUR – – – – certain financial risks in close cooperation with the Group’s operating units. The Board provides All other currencies 7.2 7.0 (7.2) (7.0) written principles for overall risk management, as well as written policies covering specific areas, such as the use of derivative and non-derivative financial instruments, managing market risk, These effects result from changes in the values (due to the respective Swiss franc movements) credit risk and investing excess liquidity. of Swiss francs derivative contracts held to hedge foreign currency risk. Market risk Currency risk Interest rate risk The Group operates globally and is exposed to risk arising from various currency exposures. The Group has investments in interest-bearing assets, mainly deposits and long-term Currency risk arises from future commercial transactions, recognized assets and liabilities and borrowings, mostly consisting of bonds the Group itself has issued. Interest-bearing assets and net investments in foreign operations. borrowings subject to variable rates or held for trading expose the Group to cash flow interest Currency risk arising from future operating transactions (sales and purchases of goods and rate risk. Interest-bearing assets and borrowings subject to fixed rates and not held for trading services) and recognized assets and liabilities is managed by Corporate Treasury using hedging expose the Group to fair value interest rate risk. instruments, primarily forward contracts. Corporate Treasury’s general risk management Virtually all the Group’s interest-bearing assets are subject to variable rates or are reported at practice is to hedge between 50% and 100% of the Group’s anticipated net cash inflows or fair value through profit or loss because they are held for trading. All the Group’s bond liabilities outflows in each major foreign currency for the subsequent 12 months. For hedge accounting are reported at amortized cost. The interest-bearing assets are denominated primarily in Swiss purposes, forward contracts are designated against the relevant amounts of projected franc and euro investments and the bond liabilities are effectively denominated in a combination intercompany sales by the parent company and 100% (2019: 100%) of projected sales qualify of Swiss franc and euro. Interest rate risk arising from long-term financing (banking and capital as ‘highly probable’ forecast transactions. market) liabilities is managed by Corporate Treasury by using hedging instruments, primarily Currency risks arising from net investments in foreign operations are only hedged in exceptional interest rate swaps. Corporate Treasury’s general risk management practice is to hedge between cases. 40% and 60% of the Group’s relevant interest exposure. Currency exposures arising from open balances with third parties and/or Group companies in Based on December 31 levels of borrowings subject to variable rates and interest-bearing assets trade and other receivables, trade and other payables, and bonds are reduced through the subject to variable rates or held for trading, an increase/decrease of one hundred basis points natural hedging (currency matching) of these items as well as managed using hedging would have affected net income as follows: instruments. Currency exposures arising from cash and cash equivalents are reduced by limiting non-Swiss franc denominated investments to the main currencies of the operative business of in CHF million Increase of hundred Decrease of hundred the Group and by limiting the proportions of investments in these currencies. basis points basis points 22002200 2019 22002200 2019 At December 31, if the Swiss franc had strengthened/weakened by 10% against the US dollar, euro and all other currencies with all other variables held constant, net income for the year would All currencies 5.8 3.1 (5.8) (3.1) have been affected as follows: 2020 Financial Report | 28 2020 Financial Report | 29