Note 31 – Financial risk management
In its operations, BE Group is exposed to a number of financial risks. The management of these risks is regulated through the Group’s finance policy. The finance policy is established by the Board and provides a framework for BE Group’s management of the financial risks in its operations. BE Group maintains a centralized finance function that is responsible for identifying and managing the financial risks in accordance with the established policy.
The finance function reports to the President and CEO of BE Group.
BE Group’s ongoing operations cause a number of financial risks. These consist of market risk (currency and interest risk), refinancing risk (liquidity risk) and credit risk. The goals that have been established in the finance policy are stated under the respective heading below.
Market risk
Market risk is the risk that fluctuations in market rates, such as interest and exchange rates, will impact the Group’s profits or financial position.
Currency risk
By reason of its international operations, BE Group is exposed to currency risk through exchange rate fluctuations. BE Group’s currency exposure comprises both transaction exposure and translation exposure.
Transaction exposure
Transaction exposure arises when the Group conducts purchasing in one currency and sales in another, meaning that the transaction exposure is attributable to accounts receivable and payable. BE Group’s purchases are denominated mainly in SEK and EUR, while sales are denominated in local currency, which means that the Group’s purchases in EUR exceed sales. BE Group’s objective is to minimize the short-term and long-term impact of movements in foreign exchange rates on the Company’s profit and equity. This is mainly achieved by matching revenues and expenses in business transactions with currencies other than SEK. When matching cannot be achieved, the Group sometimes utilizes forward contracts for currency hedging. All currency hedging is performed by the Group’s central finance function in the Parent Company. At year-end, BE Group had no outstanding forward contracts relating to transaction exposure.
During 2017, BE Group’s transaction exposure in EUR amounted to EUR 53 M (43), consisting of the difference between actual purchasing and sales in EUR. The real effect of the transaction exposure affected operating profit/loss negatively by SEK 0 M (-2). Based on income and expenses in foreign currency for 2017, it is estimated that a change of +/- 5 percent in the SEK against the EUR would give an effect of about +/- SEK 3 M in the operating result. On the balance sheet date, the Group had operating liabilities of EUR 2 M net and financial liabilities of EUR 44 M.
As of the balance sheet date, net assets are allocated among the following currencies:
| Amount | SEK M | |
| SEK | 397 | 49% |
| EUR | 422 | 53% |
| Others | -17 | -2% |
| Total | 802 | 100% |
Translation exposure
When the net assets of foreign Group companies are restated in SEK, translation differences arise in connection with exchange rate fluctuations that affect consolidated equity. The Parent Company, BE Group AB, has loans in EUR to reduce translation exposure arising from the Finnish and Estonian operations, respectively. In the consolidated financial statements, hedge accounting is applied in accordance with the principles for hedging net investments in foreign currency. No hedge accounting has been applied in the Parent Company. Translation exposure for other countries has been judged immaterial and accordingly not hedged.
The Group’s earnings are affected by the currency rates used in the translation of the results of its foreign units. Based on conditions in 2017, it is estimated that a 5 percent strengthening of the SEK against the EUR would entail an effect of SEK -3 M on operating result in the translation of the earnings of foreign units.
See also “Accounting principles” concerning management of hedge accounting for net investments.
Interest risk
Interest risk is attributable to fluctuations in market interest rates and their effect on the Group’s loan portfolio. Consolidated interest-bearing liabilities are mainly subject to variable interest or short terms of fixed interest.
In accordance with the finance policy, BE Group works to minimize the effect on the Group’s profit/loss before tax due to fluctuations in market interest rates. BE Group’s objective is to maintain the average fixed rate term of one to twelve months. The fixed rate term was kept short during the year and was approximately three months (three) as of the balance sheet date.
At the end of the year, the total interest-bearing debt was SEK 539 M (590). Interest-bearing assets in the form of cash and bank balances amounted to SEK 61 M (27).
A change in interest rates of one percent would affect consolidated net financial items by approximately SEK +/- 5 M and consolidated equity by approximately SEK +/- 4 M. The sensitivity analysis has been conducted on the basis of current net debt at the end of the period.
The table below details the consolidated interest-bearing liabilities outstanding at December 31, 2016 and December 31, 2017.
| Loan terms, maturity structure/fixed rate terms and fair value | |||||||||
| Nominal amount in original currency | Carrying amount (SEK M) | Fixed interest terms number of days | Maturity | ||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||
| Financial lease, SEK | SEK M | 5 | 10 | 5 | 10 | – | – | 2018-2019 | 2017-2019 |
| Financial lease, EUR | EUR M | 1 | 1 | 8 | 10 | – | – | 2018 | 2017 |
| accrued interest | – | – | |||||||
| Total financial leasing liability | 13 | 20 | |||||||
| Of which, current liability | 5 | 7 | |||||||
| Factoring PLN | PLN M | – | 0 | – | 1 | – | – | 2017 | |
| accrued interest | – | – | |||||||
| Total factoring liability | – | 1 | |||||||
| Of which, current liability | – | 1 | |||||||
| Bank loan, CZK | CZK M | – | 100 | – | 21 | – | – | 2017 | |
| accrued interest | – | – | |||||||
| Total external bank loans in subsidiaries | – | 21 | |||||||
| Of which, current liability | – | 21 | |||||||
| Parent Company 1) | |||||||||
| Bank loan, SEK | SEK M | 105 | 139 | 103 | 138 | 90 | 90 | 2019 | 2018 |
| Bank loan, EUR | EUR M | 43 | 43 | 423 | 411 | 90 | 90 | 2019 | 2018 |
| accrued interest | – | – | |||||||
| Total interest-bearing liabilities, Parent Company | 526 | 549 | |||||||
| Of which, current liability | 15 | 34 | |||||||
| Total interest-bearing liabilities, Group | 539 | 590 | |||||||
| Of which, current liability | 20 | 63 | |||||||
1) In addition to its external interest-bearing liabilities, the Parent Company has Group-internal liabilities amounting to EUR 4 M (10). The recognized amount totals SEK 39 M (100). The liabilities mature on December 31, 2018 with interest rates based on three-month EURIBOR. There is no accrued interest on the balance sheet date. In addition to these liabilities, the Parent Company has interest-bearing liabilities related to the intra-group cash pool that amount to SEK 37 M (58) as per the balance sheet date. The interest applied in the cash pool is based on STIBOR T/N.
The recognized amount for interest-bearing liabilities constitutes a good approximation of the fair value.
Refinancing risk (liquidity risk)
BE 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 borrower’s creditworthiness and credit capacity, may be limited and there may be unforeseen events and costs associated with this. The borrowing strategy focuses on securing the Group’s borrowing needs, both with regard to long-term financing needs and day-to-day payment commitments. BE Group works to maintain satisfactory payment capacity by means of unutilized credit facilities and through active control of its working capital, which is the main item affecting the Group’s liquidity.
| Maturity structure, financial liabilities | ||
| Financial liabilities | ||
| 2017 | 2016 | |
| Maturity within 90 Days | 560 | 445 |
| Maturity within 91–180 Days | 6 | 6 |
| Maturity within 181–365 Days | 10 | 29 |
| Maturity within 1–5 years | 522 | 528 |
| Maturity later than 5 years | 0 | 0 |
| Total | 1,098 | 1,008 |
The table above details the maturity structure for financial liabilities and shows the undiscounted future cash flows. BE Group has an overdraft facility of SEK 100 M, of which SEK 0 M had been utilized as of December 31, 2017, see Note 27. Of the financial liabilities that fall due for payment within one to five years, the largest part relate to the Parent Company’s credit facility maturing in 2019. BE Group has no liabilities that are classified as derivatives.
Credit agreement
Current credit agreement with Skandinaviska Enskilda Banken och Svenska Handelsbanken was signed 2015 and have a maturity of three years. During 2017 an extension of existing credit agreement was signed which matures end of March 2019.
The key figures measured are net debt/equity ratio and interest coverage ratio. The covenants are measured quarterly, and the interest coverage ratio is based on the trend over the past 12-month period. In addition, the Group is subject to limitations with regard to investments during the duration of the agreement. On the balance sheet date, the Group has unutilized credit facilities in an amount of SEK 286 M (including overdraft facilities).
Credit risk
When entering into new business relations and extending existing ones, BE Group makes a commercial assessment.
The risk that payment will not be received on accounts receivable represents a customer credit risk. BE Group applies credit policies to manage this risk by limiting the outstanding credit extended and terms for various customers. Short credit terms and the absence of risk concentrations towards individual customers and specific sectors contribute to reducing credit risk in Business Area Sweden & Poland and Finland & Baltics.
The spread of risk among the customer base is satisfactory as no individual customer accounted for more than 5 percent (5) of sales in 2017. The ten largest customers combined accounted for about 13 percent (13) of sales.
Provisions for credit losses have been assessed on an individual basis. The total cost of bad debts in 2017 was SEK 0 M, and at December 31, 2017, provisions for bad debts amounted to SEK 19 M (16), corresponding to 4 percent (4) of the gross of total accounts receivable.
Credit exposure arises in conjunction with placements of cash and cash equivalents and derivatives trading. BE Group manages the risk that a counterparty will default by selecting creditworthy counterparties and limiting the commitment per counterparty.
In all material respects, the Group’s credit exposure coincides with the carrying amount of each class of financial instrument.
| Accounts receivable | Gross | Impairment | Net | |||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Not yet due | 410 | 390 | 0 | -2 | 410 | 388 |
| Unimpaired, past due | ||||||
| < 30 Days | 62 | 43 | – | – | 62 | 43 |
| 30–90 Days | 12 | 8 | – | – | 12 | 8 |
| >90 Days | 5 | 2 | – | – | 5 | 2 |
| Total | 79 | 53 | – | – | 79 | 53 |
| Impaired, past due | ||||||
| < 30 Days | 2 | 0 | -2 | 0 | 0 | 0 |
| 30–90 Days | 2 | 0 | -2 | 0 | 0 | 0 |
| >90 Days | 15 | 14 | -15 | -14 | 0 | 0 |
| Total | 19 | 14 | -19 | -14 | 0 | 0 |
| Total | 508 | 457 | -19 | -16 | 489 | 441 |
| Provisions for bad debts | 2017 | 2016 |
| Provision at January 1 | 16 | 23 |
| Reserve for anticipated losses | 7 | 2 |
| Reversal of reserves | 2 | 2 |
| Realized losses | -7 | -12 |
| Exchange rate differences | 1 | 1 |
| Provision at December 31 | 19 | 16 |
Valuation of financial assets and liabilities
In all material respects, fair value coincides with the carrying amount in the Balance Sheet for financial assets and liabilities. The total carrying amounts and fair value as per asset class are shown in the table below:
| Group | Measurement category |
| A | Financial assets and liabilities valued at fair value via profit and loss for the period |
| B | Investments held to maturity |
| C | Loans and receivables |
| D | Financial assets available for sale |
| E | Financial liabilities measured at accrue cost |
| Carrying value according to balance sheet | Of which, financial instruments covered by the disclosure requirements in IFRS 7 | Group | Total carrying value | Fair value | |||||
| 2017 | A | B | C | D | E | ||||
| Assets | |||||||||
| Other securities held as non-current assets | 0 | 0 | – | – | – | 0 | – | 0 | E/T |
| Non-current receivables | 0 | 0 | – | 0 | – | – | – | 0 | 0 |
| Accounts receivable | 489 | 489 | – | – | 489 | – | – | 489 | 489 |
| Other receivables | 14 | 9 | – | – | 9 | – | – | 9 | 9 |
| Prepaid expenses and accrued income | 15 | 2 | – | – | 2 | – | – | 2 | 2 |
| Cash and equivalents | 61 | 61 | – | – | – | 61 | – | 61 | 61 |
| Liabilities | |||||||||
| Non-current interest-bearing liabilities | 519 | 519 | – | – | – | – | 519 | 519 | 519 |
| Current interest-bearing liabilities | 20 | 20 | – | – | – | – | 20 | 20 | 20 |
| Accounts payable | 479 | 479 | – | – | – | – | 479 | 479 | 479 |
| Other liabilities | 70 | 3 | – | – | – | – | 3 | 3 | 3 |
| Accrued expenses and deferred income | 82 | 57 | – | – | – | – | 57 | 57 | 57 |
| Carrying value according to balance sheet | Of which, financial instruments covered by the disclosure requirements in IFRS 7 | Group | Total carrying value | Fair value | |||||
| 2016 | A | B | C | D | E | ||||
| Assets | |||||||||
| Other securities held as non-current assets | 0 | 0 | – | – | – | 0 | – | 0 | E/T |
| Non-current receivables | 0 | 0 | – | 0 | – | – | – | 0 | 0 |
| Accounts receivable | 442 | 442 | – | – | 442 | – | – | 442 | 442 |
| Other receivables | 28 | 13 | – | – | 13 | – | – | 13 | 13 |
| Prepaid expenses and accrued income | 15 | 1 | – | – | 1 | – | – | 1 | 1 |
| Cash and equivalents | 27 | 27 | – | – | – | 27 | – | 27 | 27 |
| Liabilities | |||||||||
| Non-current interest-bearing liabilities | 544 | 544 | – | – | – | – | 544 | 544 | 544 |
| Current interest-bearing liabilities | 46 | 46 | – | – | – | – | 46 | 46 | 46 |
| Accounts payable | 375 | 375 | – | – | – | – | 375 | 375 | 375 |
| Other liabilities | 60 | 1 | – | – | – | – | 1 | 1 | 1 |
| Accrued expenses and deferred income | 71 | 25 | – | – | – | – | 25 | 25 | 25 |
The assessment of the fair value of the financial assets and liabilities has been carried out in accordance with level 2 as defined by IFRS 7.27 A, with the exception of cash and cash equivalents, which are valued in accordance with level 1. The Group also holds shares/participations in unlisted companies, which are included in the assessment category of “Financial assets available for sale”. As it is difficult to reliably measure the fair value of these assets, they are recognized at cost.
Impairment losses
At each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or group of assets is impaired. Objective evidence is made up of two components: observable circumstances that impair the capacity to recover the carrying amount of the asset and significant or prolonged decline in fair value for financial investments classified as financial assets available for sale. A decline in value of 20 percent is classified as significant and a decline in value is classified as prolonged when it lasts for more than 9 months.
Risk management and insurance
The responsibility for risk management within BE Group lies with the Group’s central finance function. The objective of these efforts is to minimize the total cost of the Group’s loss risks. This is accomplished by continually improving loss prevention and loss limitation in operations and through a Group-wide insurance solution.