I.A. Hedin Bil - Annual Report 2018 1
NOTE 2 FINANCIAL RISK MANAGEMENT Financial risk f
actors Credit risk 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. The main currency risk for the Group is the currency fluctuations that arise when the assets and liabilities of the foreign subsidiaries are converted. Decisions have been made not to hedge these translation differences. Net assets in foreign currency amounted to MSEK 873 (0) in EUR and to MSEK 1,037 (1 014) in NOK. Purchases are mainly made in local currency. Some purchases in the spare parts business in Norway are made in US dollars (USD) and 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 percent in relation to the US dollar, with all other variables constant, the profit for the year as of December 31st, 2018 would have been MSEK 1.1 lower/higher as a result of changes in purchase prices. If the Swedish krona had weakened or strengthened by 10 percent in relation to the Euro, with all other variables constant, the profit for the year as of December 31st, 2018 would have been MSEK 4.1 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. Long-term loans consists of a bond in SEK with variable interest rate of, for the moment, 3.5 percent. Other borrowings are at variable interest rates in SEK and EUR. Average interest rate are between 1.0 percent - 2.0 percent. If the interest rates on loans in Swedish kronor as of December 31st, 2018 had been 1 percent higher, with all other variables constant, the estimated profit after tax for the financial year would have been MSEK 21 (MSEK 7) lower/higher, mainly as a result of higher/lower interest rates for loans with variable interest rates. If the interest rates on loans in Euro had been 1 percent higher, with all other variables constant, the estimated profit after tax for the financial year would have been MSEK 3 (MSEK 0) lower/higher. 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, 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 16. 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, including future interest payments. Maturity of liabilities - Group Bond loans Liabilities to Group companies Liabilities to credit institutions Overdraft facilities Accounts payable Other debts Accrued expenses Summa < 1 year 51,000 0 496,942 1,065,356 1,258,126 502,946 14,944 1-2 years > 2 years 51,000 1,589,250 0 834,692 0 0 303,779 0 350,000 0 0 0 302,788 0 3 389 315 1 189 471 2 242 038 Maturity of liabilities - Parent Company Bond loans Liabilities to Group companies Overdraft facilities Accounts payable Liabilities to Group companies Total < 1 year 51,000 0 1,065,356 8,544 10,987 1,135,887 1-2 years > 2 years 51,000 1,589,250 0 0 0 0 350,000 0 0 0 51,000 1,939,250 I.A. HEDIN BIL AB / ANNUAL REPORT / 2018 63