4.8 Financial instruments
This note discloses the categorization of financial instruments measured at fair value based on the fair value hierarchy.
Accounting policies
Financial instruments measured at fair value are allocated to one of the following three hierarchical levels:
Level 1:
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date.
Level 2:
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques are based on observable market data, where applicable. If all significant inputs required to value an instrument are observable, the instrument is included in level 2.
Level 3:
If a significant amount of inputs is not based on observable market data, the instrument is included in level 3. For this level, other techniques, such as discounted cash flow analysis, are used to determine fair value.
During the reporting period, there were no reclassifications between the individual levels.
The following table summarizes the financial instruments of the Group and the valuation method for financial instruments at fair value through profit and loss.
CHF million | 31.3.2025 | |||||||||||||||||||
Notes | Amortized cost | FVPL | Total financial instruments | Non-financial instruments | Total | Fair value1) | Level 1 | Level 2 | Level 3 | |||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | 686.9 | 686.9 | 686.9 | |||||||||||||||||
Other current financial assets | 10.4 | 1.8 | 12.2 | 12.2 | 1.8 | 0.2 | 1.6 | |||||||||||||
Trade receivables | 576.9 | 576.9 | 576.9 | |||||||||||||||||
Other current operating assets | 99.3 | 99.3 | 60.2 | 159.6 | ||||||||||||||||
Other non-current financial assets | 61.5 | 2.9 | 64.4 | 64.4 | 2.9 | 1.2 | 1.7 | |||||||||||||
Total | 1,435.1 | 4.7 | 1,439.8 | 60.2 | 1,500.0 | 4.7 | 1.4 | 1.6 | 1.7 | |||||||||||
Liabilities | ||||||||||||||||||||
Current financial liabilities | 0.6 | 9.9 | 10.4 | 10.4 | 9.9 | 0.4 | 9.5 | |||||||||||||
Trade payables | 269.0 | 269.0 | 269.0 | |||||||||||||||||
Other short-term operating liabilities | 123.3 | 123.3 | 253.1 | 376.4 | ||||||||||||||||
Bonds/US Private Placement2) | 1,511.7 | 1,511.7 | 1,511.7 | 1,518.3 | 1,359.7 | 158.6 | ||||||||||||||
Non-current financial liabilities | 1.6 | 52.5 | 54.1 | 3.3 | 57.4 | 52.5 | ||||||||||||||
Total | 1,906.2 | 62.4 | 1,968.6 | 256.4 | 2,225.0 | 1,528.2 | 1,359.7 | 158.9 | 62.0 | |||||||||||
1)For financial assets and financial liabilities measured at amortized cost, fair value information is not provided if the carrying amount is a reasonable approximation of fair value.
2)Includes short- and long-term portion of Bonds/US Private Placement.
CHF million | 31.3.2024 | |||||||||||||||||||
Notes | Amortized cost | FVPL | Total financial instruments | Non-financial instruments | Total | Fair value1) | Level 1 | Level 2 | Level 3 | |||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | 513.6 | 513.6 | 513.6 | |||||||||||||||||
Other current financial assets | 9.8 | 0.8 | 10.7 | 10.7 | 0.8 | 0.2 | 0.6 | |||||||||||||
Trade receivables | 538.3 | 538.3 | 538.3 | |||||||||||||||||
Other current operating assets | 89.1 | 89.1 | 58.9 | 148.0 | ||||||||||||||||
Other non-current financial assets | 56.7 | 3.9 | 60.6 | 60.6 | 3.9 | 2.2 | 1.7 | |||||||||||||
Total | 1,207.4 | 4.7 | 1,212.2 | 58.9 | 1,271.1 | 4.7 | 2.4 | 0.6 | 1.7 | |||||||||||
Liabilities | ||||||||||||||||||||
Current financial liabilities | 0.6 | 13.4 | 14.0 | 14.0 | 13.4 | 1.3 | 12.2 | |||||||||||||
Trade payables | 202.4 | 202.4 | 202.4 | |||||||||||||||||
Other short-term operating liabilities | 123.9 | 123.9 | 255.7 | 379.6 | ||||||||||||||||
Bonds/US Private Placement2) | 1,515.3 | 1,515.3 | 1,515.3 | 1,490.9 | 1,328.5 | 162.3 | ||||||||||||||
Non-current financial liabilities | 1.4 | 59.2 | 60.6 | 5.0 | 65.6 | 59.2 | ||||||||||||||
Total | 1,843.5 | 72.6 | 1,916.1 | 260.8 | 2,176.9 | 1,504.3 | 1,328.5 | 163.6 | 71.4 | |||||||||||
1)For financial assets and financial liabilities measured at amortized cost, fair value information is not provided if the carrying amount is a reasonable approximation of fair value.
2)Includes short- and long-term portion of Bonds/US Private Placement.
The following table presents the changes in level 3 financial instruments for the year ended March 31, 2025 and 2024:
Contingent considerations CHF million | 2025 | 2024 | ||
Total | Total | |||
Balance April 1 | 71.4 | 85.9 | ||
Changes through business combinations | 5.2 | 6.0 | ||
Cash outflow for contingent considerations | (12.0) | (13.1) | ||
Gains recognized in profit or loss | (1.1) | (4.9) | ||
Exchange differences | (1.5) | (2.5) | ||
Balance March 31 | 62.0 | 71.4 |
Financial liabilities at fair value through profit or loss mainly consist of contingent considerations from business combinations (refer to Note 6.1). The fair values are determined by considering the possible scenarios of the future performance of the acquired companies, contractual obligations and milestone achievements, the amount to be paid under each scenario and the probability of each scenario. The significant unobservable inputs are the forecast sales and other performance criteria. As at March 31, 2025 and 2024, the maximum potential payments under contingent considerations do not differ significantly from the amounts provided.
Contingent considerations mainly relate to a license agreement for the Sennheiser brand for which a liability was recognized for the expected future licensing payments. The amount of the liability is determined based on a discounted cash flow calculation over a remaining licensing period of 12 years considering five possible payment scenarios. Significant unobservable inputs used in the fair value measurement include the probability of each scenario, projected revenues, the brand licensing fee and the discount rate.
As of March 31, 2025 the fair value of the license liability amounts to CHF 48.3 million (prior year CHF 53.7 million). The valuation model remained unchanged to the prior year. Significant unobservable inputs were updated based on the latest strategic plan. For the calculation a licensing fee of 2.5% for the first 8 years, 1.3% for the subsequent years and a discount rate of 3.4% was used. The gain on the fair value change of the financial liability of CHF 1.0 million (prior year CHF 4.4 million) is considered in the income statement in line “Financial income”. The Group performed a sensitivity analysis, which shows that a decrease in the discount rate of 1% would increase the license liability as of March 31, 2025 by CHF 2.5 million and negatively impact income before taxes by CHF 2.5 million.
Accounting judgements and estimates
Contingent considerations are dependent on the future performance of the acquired companies as well as contractual obligations. If the future performance is not achieved or the estimate needs to be revised, the liability is adjusted accordingly, with a resulting change in the income statement. At the end of the 2024/25 financial year, such liabilities contingent on future events amount to CHF 62.0 million (previous year CHF 71.4 million) and are disclosed under Financial liabilities at fair value through profit or loss (Note 4.5).