Note 37 – Financial risk management

The Group is exposed to a number of financial risks that the Group continuously monitors. The overall objective is to minimize the Group’s market, credit and liquidity risk exposures. Below is a description about the Group’s management of various financial risks.

Market risk

Market risk is the risk that fluctuations in market rates, such as currency exchange rates and interest rates, will impact the Group’s profits or financial position.

Currency risk

The Group is partially exposed to currency risk as it operates internationally. The currency risk comprises both transaction exposure and translation exposure. Transaction exposure arises when the Group conducts purchasing and sales in another currency than Euro (EUR) which is the reporting currency of the Group. Transaction exposure is attributable to trade receivables and trade payables. However, the major part of the Groups sales and purchases are denominated in EUR. Transaction exposure relates primarily to Swedish kronor (SEK), Polish Zloty (PLN) and British Pounds (GBP).

The Group’s objective is to minimize the short-term impact of movements in foreign exchange rates. This is mainly achieved by matching revenues and expenses in business transactions with currencies other than EUR. When matching cannot be achieved, the Group sometimes utilizes foreign exchange forward contracts for currency hedging. The currency hedging is performed mainly by the Flextrus subgroup having SEK as functional currency.

Based on income and expenses in foreign currencies for 2015, it is estimated that a change of +/- 5 percent in the EUR against SEK would entail an effect of about +/- 464 TEUR (2014: 518, 2013: 336) in operating result. A change of +/- 5 percent in the EUR against PLN would entail an effect of about +/- 312 TEUR, while a change of +/- 5 percent in the EUR against GBP would entail an effect of about +/- 37 TEUR (2014: 51, 2013: 44) in operating result.

Upon consolidation of the non-Euro functional currency subsidiaries net assets, translation differences are arising that are affecting other comprehensive income. Based on conditions in 2015, it is estimated that a change of +/- 5 percent in the EUR against SEK would entail an effect of about +/- 621 TEUR (2014: 642, 2013: 523) in other comprehensive income. A change of +/- 5 percent in the EUR against PLN would entail an effect of about +/- 569 TEUR, while a change of +/- 5 percent in the EUR against GBP would entail an effect of about +/- 172 TEUR (2014: 237, 2013: 209) in other comprehensive income.

Interest rate risk

Interest risk is attributable to fluctuations in market interest rates and their effect on the Group’s loan portfolio. Consolidated interest-bearing loans and borrowings are subsequent to the refinancing during 2013, mainly subject to variable interest rate (1 months Euribor + 5.75%). Prior to the refinancing, the Group had some interest rate swaps.

At the end of the year, the total interest-bearing loans and borrowings amounted to 134 265 TEUR (2014: 94 540, 2013: 105 648). Interest-bearing assets in the form of non-current financial assets and cash and cash equivalents amounted to 63 131 TEUR (2014: 37 899, 2013: 26 854). Based on conditions by the end of 2015, a change in interest rates of 1 percent would affect consolidated net financial items by approximately 1 300 TEUR (2014: 900, 2013: 900).

Liquidity risk

The Group is a net borrower and a refinancing risk arises in connection with the extension of existing loans and the raising of new loans. Access to external financing, which is affected by factors such as the general trend in the capital and credit markets, as well as the creditworthiness and credit capacity of the Group, may be limited and there may be unforeseen events and costs associated with this. Subsequent to the refinancing during 2013, the Group’s liquidity risk has substantially decreased. The 80 MEUR bond loan has a maturity in mid 2017. The terms in the bond agreement gives us the possibility to issue additionally 35 MEUR bond financing during the term period of the bond loan, which was done in March 2015 as a part of the financing of the acquisition.

In the below tables the undiscounted cash-outflows are disclosed according to the terms and conditions of financial liabilities excluding derivatives:

As at 31 December 2015 <1 year 1-2 years 2-5 years >5 years Total
Interest-bearing loans and borrowings 9 230 137 438 801 373 147 842
Trade payables 52 591 0 0 0 52 591
Other payables 11 096 0 0 0 11 096
Accrued expenses 27 794 0 0 0 27 794
Total 100 711 137 438 801 373 239 323
As at 31 December 2014 <1 year 1-2 years 2-5 years >5 years Total
Interest-bearing loans and borrowings 12 278 10 616 83 711 620 107 225
Trade payables 38 311 0 0 0 38 311
Other payables 8 455 0 0 0 8 455
Accrued expenses 19 190 0 0 0 19 190
Total 78 234 6 003 80 252 620 173 181
As at 31 December 2013 <1 year 1-2 years 2-5 years >5 years Total
Interest-bearing loans and borrowings 18 431 3 857 83 360 0 105 648
Trade payables 41 218 0 0 0 41 218
Other payables 9 450 0 0 0 9 450
Accrued expenses 17 357 0 0 0 17 357
Total 86 456 3 857 83 360 0 173 673

Credit risk
When entering new business relationships and extending the existing ones, a commercial assessment is performed. The risk that payment will not be received on accounts receivable represents a customer credit risk. The Group applies credit policies to manage this risk by limiting the outstanding credit extended and terms for various customers. Short credit terms contribute to reducing credit risk. However the concentrations towards individual customers on the other hand increases the credit risk to some extent, even though the Group has had long-term relationships with those customers that are stable and did not experience any previous credit losses. Please refer to Note 26 for more information regarding risk concentration of trade receivables and provisions for doubtful accounts.

Fair values of financial instruments
The following table provides the fair value measurement hierarchy of the Group’s financial assets and liabilities.

At 31 December 2015 Carrying amount Fair value Hierarchy level
Assets measured at fair value
Derivatives
Currency forward contracts 404 404 2
Available-for-sale financial assets
Cash and cash equivalents 63 131
Assets for which fair value is disclosed
Loans and receivables
Non-current financial assets 214
Trade receivables 59 904
Other receivables 3 590
Accrued income 8 087
Liabilities for which fair value is disclosed
Interest-bearing loans and borrowings
Bond loan 114 350 117 352 2
Loans from credit institutions 17 122 17 122 2
Loans from related parties 0 0 2
Finance lease 2 514 2 514 2
Other loans 1 634 1 634 2
Trade payables 52 591
Other payables 3 023
Accrued expenses 12 606

 

At 31 December 2014 Carrying amount Fair value Hierarchy level
Assets measured at fair value
Derivatives
Currency forward contracts 2 675 2 675 2
Available-for-sale financial assets
Cash and cash equivalents 37 899
Assets for which fair value is disclosed
Loans and receivables
Non-current financial assets 239
Trade receivables 51 178
Other receivables 3 015
Accrued income 4 715
Liabilities for which fair value is disclosed
Derivatives
Currency forward contracts 2 325 2 325 2
Interest-bearing loans and borrowings
Bond loan 79 075 79 866 2
Loans from credit institutions 9 435 9 435 2
Finance lease 5 425 5 425 2
Other loans 605 605 2
Trade payables 38 311
Other payables 2 806
Accrued expenses 9 137

 

At 31 December 2013 Carrying amount Fair value Hierarchy level
Assets measured at fair value
Derivatives
Currency forward contracts 18 18 2
Available-for-sale financial assets
Cash and cash equivalents 26 854
Assets for which fair value is disclosed
Loans and receivables
Non-current financial assets 296
Trade receivables 53 833
Other receivables 3 526
Accrued income 4 311
Liabilities for which fair value is disclosed
Derivatives
Currency forward contracts 149 149 2
Interest-bearing loans and borrowings
Bond loan 78 705 78 705 2
Loans from credit institutions 16 052 16 052 2
Other loans 1 727 1 727 2
Trade payables 41 218
Other payables 4 626
Accrued expenses 9 279

There have been no transfers between the different hierarchy levels during the period.

Fair value on current financial assets and liabilities are assessed agree with the carrying amount due to the short maturity.

Offsetting financial instruments

The Group is included in a derivate agreement The agreement entails that when a counterparty cannot settle its obligations in all transactions the agreement is discontinued and all outstanding dealings are then settled for a net amount. The agreement do not meet the criteria for offsetting in the balance sheet. This is because offsetting according to the agreements is only permitted if the counterparty or the Group cannot settle their obligations. In addition, it is not the intention of the counterparty or Group to settle dealings on a net basis or at the same time. The information in the table below shows the financial instruments covered by a legally binding netting framework agreement or a similar contract.

2015 2014 2013
Financial assets Financial liabilities Financial assets Financial liabilities Financial assets Financial liabilities
Booked gross amount 404 0 2 675 2 325 18 149
Amount covered by netting agreement 0 0 -2 325 -2 325 -18 -18
Net sum after netting agreement 404 0 350 0 0 131