Anders Hedin Invest Årsredovisning 1
differences in the terminology used compared with
the Consolidated Financial Statements, primarily with regard to financial income and expense and equity. Shares in subsidiary companies are reported at the acquisition value, less deductions for depreciation. Group subsidies are reported in the Income Statement under Appropriations. Financial instruments are recognized at acquisition cost. All lease agreements are reported as operational leases, including the higher initial charge, but not including costs for services such as insurance and maintenance, which are reported on a straight-line basis over the term of the lease. NOTE 2 FINANCIAL RISK MANAGEMENT Financial risk factors The Group is exposed through its operations to a number of financial risks, such as market risks (currency risks, interest risks) credit risks and liquidity risks. The Group’s overall risk management policy includes carefully monitoring developments in the financial markets and taking appropriate measures to minimize potentially disadvantageous effects on the Group's financial earnings. Risk management is handled by a central financial division in accordance with policies adopted by the Board. The CEO approves the risk management measures undertaken in accordance with policy and does so in close collaboration with the Group operating units. Currency risk The Group is exposed to currency risks that arise as a result of exposure to foreign currencies. Purchases related to replacement parts operations are paid for mainly in US dollars (USD) while sales are in Euros (EUR). Currency risks arise as a result of future business transactions, reported assets and liabilities and net investments in operations abroad. As the Group is only exposed to currency risks to a limited extent, it has been decided not to hedge current payment flows. If the Swedish krona had weakened or strengthened by 10% in relation to the US dollar, with all other variables constant, profit for the year as of December 31, 2017 would have been with SEK 18,627,000 (16,557,000) lower/higher as a result of changes in purchase prices. If the Swedish krona had weakened or strengthened by 10% in relation to the Euro, with all other variables constant, profit for the year as of December 31, 2017 would have been with SEK 9,607,000 (3,707,000) lower/higher as a result of changes in purchase prices. Interest rate risk in borrowing The Group’s interest rate risks arise as a result of long-term borrowing. In general, the Group does not use derivatives to adjust underlying interest rate exposure. During 2016 and 2017, the Group’s loans at variable interest rates were in Swedish krona, with an average interest rate of 0.6-3.2%. If the interest rates on loans in Swedish kronor as of December 31, 2017 had been 1 per cent higher, with all other variables constant, the estimated profit after tax for the financial year would have been MSEK 11 (MSEK 8) lower/higher, mainly as a result of higher/lower interest rates for loans with variable interest rates. Credit risk Credit risks are managed at Group level, with the exception of credit risks attributable to outstanding accounts receivable. Each Group company is responsible for following up and analyzing credit risks for each new customer prior to offering standard terms and conditions for payment and delivery. Credit risks arise as a result of cash and cash equivalents, derivatives, holdings with credit institutions and bank deposits, as well as exposure to credit to customers, including outstanding receivables and agreed transactions. The use of credit limits is followed up regularly, and management does not expect any losses as a result of any parties defaulting on their payments. The credit risk in accounts receivable is specified in Note 20. Estimates and assessments are valued continuously and are based on historical experience and other factors, including expectations of future events that it can be reasonably assumed will occur under current conditions. The Group makes estimates and assumptions about the future. The resulting estimates for accounting purposes will, by definition, seldom match the actual results. The estimates and assumptions that carry a significant risk of material adjustments in carrying values for assets and liabilities during the following financial year are outlined below. Liquidity risk Cash flow forecasts are prepared by the Group's operating companies and aggregated by the Group's CFO. The Group’s CFO carefully monitors current projections for the Group's liquidity reserves in order to ensure that the Group has sufficient liquidity to satisfy any requirements in current operations while at the same time maintaining sufficient flexibility in agreed credit facilities that have not been utilized to ensure that the Group does not exceed the credit limits of any of its loan facilities. The table below analyses the Group’s financial obligations distributed over the period remaining as at the year-end through to the agreed expiration date. The amounts in the table are agreed non-discounted cash flows. Maturities of liabilities Bond loans Liabilities to credit institutions Financial leasing liabilities Overdraft facilities Accounts payable Accrued expenses Other debts Total < 1 year 1-2 years 48,000 370,665 8,560 564,882 2,258,379 46,983 112,105 3,409,573 > 2 years 152,204 8,505 0 0 0 0 48,000 1,644,000 0 38,550 0 0 0 0 208,709 1,682,550 The contractual maturity date for most of the loans is 2017, but this is expected to be extended with a continued amortization rate. Calculation of fair value Classification of financial instruments valued at fair value has been conducted in accordance with a fair value hierarchy which defines the various levels as follows: Level 1 indicates quoted prices in active markets for identical assets and liabilities. Level 2 indicates other observable data concerning assets or liabilities other than quoted prices, in line with Level 1, either directly (i.e. as prices) or indirectly, (i.e. derived from prices). Level 3 indicates information input on assets or liabilities that is not based in observable market data. Financial instruments valued at fair value through profit or loss, as well as disposable financial assets, are classified as Level 1. The fair value of financial liabilities is the same as the carrying value. Property and land are valued at fair value in accordance with the revaluation method and are classified as Level 3, see also Note 3. These assets were sold in 2016. NOTE 3 ESTIMATES AND ASSESSMENTS ANDERS HEDIN INVEST AB / ANNUAL REPORT / 2017 85