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. 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 2019, BE Group’s transaction exposure in EUR amounted to EUR 58 M (51), consisting of the difference between actual purchasing and sales in EUR. The Group mainly makes its purchases in EUR while sales are in local currency. The real effect of the transaction exposure affected operating profit/loss by SEK -1 M (-2). Based on income and expenses in foreign currency for 2019, 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 0 M net and financial liabilities of EUR 43 M.

Translation exposure

As of the balance sheet date, net assets are allocated among the following currencies:

Amount SEK M
Belopp MSEK
SEK SEK 486 53%
EUR EUR 443 48%
Others Övriga -7 -1%
Total Summa 922 100%

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, had until August 2019 loans in EUR to reduce translation exposure arising from the Finnish and Estonian operations, respectively. In the consolidated financial statements, hedge accounting was until then applied in accordance with the principles for hedging net investments in foreign currency.

In connection with the refinancing in 2019, the hedge was concluded. In the consolidated financial statements, hedge accounting was applied in accordance with the principles for hedging net investments in foreign currency until August 2019. The balances that remain in the reserve that originate from the hedging of the currency translation reserve from the hedging relationship where hedge accounting is no longer applied amount to a negative SEK -61 M. No hedge accounting has been applied in the Parent Company.

See also “Accounting principles” concerning management of hedge accounting for net investments.

Net investment in forreign operations 2019 2018
Carrying amount (bank loans) 441
Carrying amount in EUR 43
Hedging quota 1:1
Change in the loans carrying amount due to changes in exchange rates since January 1 18
Changes in value of the hedged item to determine effectiveness 18

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 2019, it is estimated that a 5 percent strengthening of the SEK against the EUR would entail an effect of SEK -1 M on operating result in the translation of the earnings of foreign units.

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 one month (three) as of the balance sheet date.

At the end of the year, the total interest-bearing debt excl. IFRS 16 was SEK 542 M (548). Interest-bearing assets in the form of cash and bank balances amounted to SEK 168 M (108).

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, 2018 and December 31, 2019.

Loan terms, maturity structure/fixed rate terms and fair value

1) In addition to its external interest-bearing liabilities, the Parent Company has Group-internal liabilities amounting to EUR 4 M (4) and SEK 17 M. The recognized amount totals SEK 59 M (41). The liabilities mature on December 31, 2020 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 49 M (29) 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
2019 2018
Finansiella skulder
2019 2018
Maturity within 90 Days Förfaller inom 90 dagar 410 513
Maturity within 91–180 Days Förfaller inom 91-180 dagar 7 4
Maturity within 181–365 Days Förfaller inom 181-365 dagar 24 8
Maturity within 1–5 years Förfaller inom 1-5 år 560 543
Maturity later than 5 years Förfaller efter 5 år 0 0
Total Total 1,001 1,068
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 150 M, of which SEK 0 M had been utilized as of December 31, 2019, 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 2022.

Credit agreement

Current credit agreement with Skandinaviska Enskilda Banken was signed 2019 and have a maturity of three years with an option for extension of another 1+1 years.

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. On the balance sheet date, the Group has unutilized credit facilities in an amount of SEK 236 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 2019. The ten largest customers combined accounted for about 13 percent (13) of sales.

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.

Provision for accounts receivable 2019

In order to calculate anticipated credit losses, accounts receivable have been grouped based on credit risk characteristics and the number of days of delay. The anticipated credit loss levels are based on the customers’ loss history. Historical losses are then adjusted to take into consideration current and prospective information about macroeconomic factors that can affect the customers’ possibilities of paying the receivable. The historical loss level is adjusted based on the anticipated changes in these factors. Accounts receivable are written off when there is no reasonable expectation of repayment. Indicators that there is no reasonable expectation of repayment include that the debtor fails with the repayment plan or that contractual payments are more than 90 days delayed. Credit losses on accounts receivable are recognized as credit losses – net within the operating result. Reversals of amounts previously written off are recognized in the same line in the income statement.

Not overdue Overdues
1-30 days
Overdues
31-90 days
Overdues more
then 90 days
Total
Ej förfallna Förfallet
1-30 dagar
Förfallet
31-90 dagar
Förfallet mer
än 90 dagar
Summa
Koncern 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
Kundfordringar – brutto 336 397 43 67 7 6 1 13 387 483
Förlustreserv 0 -1 0 -1 -2 0 -1 -12 -3 -13
Förväntad förlustnivå % 0% 0% 0% 1% 29% 2% 100% 89% 1% 3%
2019 2018
Provision at January 1 Avsättning vid årets början 13 19
Increase of loss reserve, change accounted for in income statement Ökning av förlustreserven, förändring redovisad i resultaträkningen 1 2
Reversals of reserves Återföring av reserv -2 -3
Realized losses Konstaterade förluster -1 -6
Exchange rate differences Valutakursdifferenser 0 1
Divested/liquidated operations Avyttrad/likviderad verksamhet -8
Provision at December 31 Avsättning vid årets slut 3 13

Impairments

The Group has two kinds of financial assets that are in the application area for the model for anticipated credit losses:
– Accounts receivable attributable to sales of goods
– Cash and equivalents

Cash and cash equivalents are within the application area for impairments according to IFRS 9; the impairment that would come into question has been deemed immaterial. See above for information on anticipated credit losses regarding accounts receivable.

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 Amortized cost
C Financial assets available for sale
D Financial liabilities measured at amortized cost
Carrying value according to balance sheet Of which, financial instruments covered by disclosure requirements in IFRS 7 Group Total carrying value Fair value
2019 A B C D
Assets
Redovisat värde enligt balansräkning Varav finansiella instrument som omfattas av upplysningskraven i IFRS 7 Grupp Summa redovisat värde Verkligt värde
2019 A B C D
Tillgångar
Other securities held as non-current assets Andra långfristiga värdepappersinnehav 0 0 0 0 E/T
Non-current receivables Långfristiga fordringar 0 0 0 0 0
Accounts receivable Kundfordringar 387 387 387 387 387
Other receivables Övriga fordringar 33 27 27 27 27
Prepaid expenses and accrued income Förutbetalda kostnader och upplupna intäkter 18 7 7 7 7
Cash and equivalents Kassa och bank 168 168 168 168 168
Liabilities Skulder
Non-current interest-bearing liabilities Långfristiga räntebärande skulder 536 536 536 536 536
Current interest-bearing liabilities Kortfristiga räntebärande skulder 6 6 6 6 6
Accounts payable Leverantörsskulder 398 398 398 398 398
Other liabilities Övriga skulder 66 0 0 0 0
Accrued expenses and deferred income Upplupna kostnader och förutbetalda intäkter 73 25 25 25 25
Carrying value according to balance sheet Of which, financial instruments covered by disclosure requirements in IFRS 7 Group Total carrying value Fair value
2018 A B C D
Assets
Redovisat värde enligt balansräkning Varav finansiella instrument som omfattas av upplysningskraven i IFRS 7 Grupp Summa redovisat värde Verkligt värde
2018 A B C D
Tillgångar
Other securities held as non-current assets Andra långfristiga värdepappersinnehav 0 0 0 0 E/T
Non-current receivables Långfristiga fordringar 0 0 0 0 0
Accounts receivable Kundfordringar 470 470 470 470 470
Other receivables Övriga fordringar 23 18 18 18 18
Prepaid expenses and accrued income Förutbetalda kostnader och upplupna intäkter 29 14 14 14 14
Cash and equivalents Kassa och bank 108 108 108 108 108
Liabilities Skulder
Non-current interest-bearing liabilities Långfristiga räntebärande skulder 543 543 543 543 543
Current interest-bearing liabilities Kortfristiga räntebärande skulder 5 5 5 5 5
Accounts payable Leverantörsskulder 468 468 468 468 468
Other liabilities Övriga skulder 68 5 5 5 5
Accrued expenses and deferred income Upplupna kostnader och förutbetalda intäkter 76 32 32 32 32

The assessment of the fair value of the financial assets and liabilities has been carried out in accordance with level 2, 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 valued at fair value via profit and loss for the period”.

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.