5.2.1.2 Interest Rate Risk The Group is exposed to interest rate risk because entities in the Group borrow funds at fixed as well as floating interest rates, and invest in debt financial instruments. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially counterbalanced by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group Treasury manages interest rate risk centrally by simulating various scenarios on liabilities taking into consideration refinancing, renewal of existing positions and hedging. Hedging strategies are applied by either positioning the liabilities or protecting interest expense through different interest cycles. Hedging activities are regularly evaluated to align interest rate views and define risk limits. Group Treasury manages interest rate risk mainly through the use of interest rate swap contracts. In response to the announcements made by IBOR regulators (the Financial Conduct Authority) in regard of the transition to new interest rate benchmarks to replace LIBOR, the Group had set up an IBOR transition project comprising the following work streams: risk management, tax, treasury, legal, accounting and systems. The aim of the programme was to understand where the business could be impacted by IBOR exposures and prepare and deliver on an action plan to enable a smooth transition to alternative benchmark rates. During 2021 the Group has performed all activities necessary, that were resulting from the IBOR transition project. The revolving credit facility contract has been amended accordingly, while for the interest rate derivatives the ISDA (International Swaps and Derivatives Association) fallbacks will automatically be triggered. The following table shows the sensitivity to interest rate changes: As at 31 December 2021 in millions of Swiss francs 150 basis points increase 25 basis points decrease Impact on income statement – – Impact on equity 147 (30) As at 31 December 2020 in millions of Swiss francs 150 basis points increase 25 basis points decrease Impact on income statement – – Impact on equity 152 (31) The sensitivity is based on exposure on net liabilities at the date of the consolidated statement of financial position using assumptions which have been deemed reasonable by management showing the impact on the income before tax. 62 Givaudan — 2021 Governance, Compensation and Financial Report Governance Report Compensation Report Consolidated Financial Report Statutory Financial Report Appendix Notes to the consolidated financial statements