23 Financial risk management objectives and policies

The Group’s principal financial instruments comprise trade receivables, cash and cash equivalents, trade payables, lease liabilities, other financial liabilities and interest-bearing loans and borrowings. The market risk, credit risk and liquidity risk relating to the Group’s financial instruments are described below.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: currency risk, interest rate risk and other price risk. Currency risk and interest rate risk are considered most relevant for the Group and are thus described below.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is primarily exposed to interest rate risk due to the interest-bearing loans and borrowings described in Note 19 which is used as the basis for the sensitivity analysis below.

The Group does not enter into derivatives to hedge interest rate risks.

The table below shows the effect on the Group’s profit before tax if a reasonably possible change in the market interest rate had been applied to the risk exposure in existence at the end of the reporting period. No impact on equity is disclosed because the interest rates on the credit facilities are variable.

Since the amounts drawn from the revolving credit facility and the credit facility from Draupnir Holding B.V. (see further details in Note 19) have fluctuated significantly during 2024 and 2023, the Group does not believe that the year-end exposures reflect the exposures during the years. As a result, the sensitivity analysis above is considered unrepresentative for both years.

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured.

The Group’s exposure to currency risk is primarily related to an inter-company receivable between the parent company, PolyPeptide Group AG, and PolyPeptide Laboratories Holding (PPL) AB because the functional currency of PolyPeptide Group AG is Swiss Franc (CHF) while the loan to PolyPeptide Laboratories Holding (PPL) AB is denominated in Euro (EUR).

As of 1 December 2024, however, settlement of the receivable is neither planned nor likely to occur in the foreseeable future. As a result, the monetary item became, in substance, a part of the parent company’s net investment in the subsidiary. As of 1 December 2024, exchange differences arising from the translation of the receivable into the functional currency of the parent company are thus initially recognized in other comprehensive income in the consolidated financial statements and reclassified to profit or loss on disposal of the net investment.

At the end of 2024, a reasonably possible change in the foreign exchange rate between CHF and EUR would thus have no impact on the Group’s profit or loss and equity.

At the end of 2023, a reasonably possibly change in the foreign exchange rate between CHF and EUR of +/– 5 percentage points would have negatively affected the result before tax by kEUR 7,494 if CHF appreciated against EUR by 5 percentage points, while it would have been impacted the result before tax positively by the same amount if the CHF depreciated against EUR by 5 percentage points.

The Group is also exposed to currency risk from sales and purchases in currencies other than the functional currency of the operating sites. However, as the volumes of these transactions are relatively low compared to the total volume, the currency risk exposure from such transactions is considered low.

The Group does not enter into derivatives to hedge currency risks.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counter-parties whose aggregate credit exposure is significant in relation to the Group’s total credit exposure.

The Group has no significant credit risks, other than those that have already been allowed for, nor any concentrations of credit with a single customer or in an industry or geographical region that carries an unusually high credit risk.

Credit risks relating to the trade receivables and cash balances are monitored regularly. Clients are assessed according to Group criteria prior to entering into agreements. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets recognized in the consolidated statement of financial position.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

The Group monitors its liquidity risk by using a cash flow forecast model. This model considers the timing of expected cash inflows from payments from customers as well as expected cash outflows for inventories, investments, salaries, financial expenses, VAT, taxes, and other operating expenses. The Group uses the cash flow forecast model for reducing the amounts drawn from the credit facilities while still monitoring its liquidity risk.

The table below summarizes the maturity profile of the Group’s financial liabilities as at 31 December based on contractual undiscounted payments.

Capital management

The primary objective of the Group’s capital management is to maintain sound capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and adjusts it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made to the objectives, policies or processes during the years ended 31 December 2024 and 31 December 2023.

The Group monitors capital using shareholder equity ratio, which is the total shareholder equity divided by total equity and liabilities, based on the consolidated financial statements. The Group has no formally approved ratio range but considers a ratio above 25% as being sound.

The table stated below shows the development of the shareholder equity ratio for the years 2024 and 2023.