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 2020, BE Group’s transaction exposure in EUR amounted to EUR 57 M (58), 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 3 M (-1). Based on income and expenses in foreign currency for 2020, it is estimated that a change of +/- 5 percent in the SEK against the EUR would give an effect of about +/- SEK 4 M in the operating result. On the balance sheet date, the Group had operating liabilities of EUR 7 M net and financial liabilities of EUR 15 M.

Translation exposure

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

Amount SEK M
Belopp MSEK
SEK SEK 480 53%
EUR EUR 432 48%
Others Övriga -7 -1%
Total Summa 905 100%

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. For information regarding hedge accounting for net investments until August 2019, see the Accounting principles.

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 2020, it is estimated that a 5 percent strengthening of the SEK against the EUR would entail an effect of SEK -2 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.

At the end of the year, the total interest-bearing debt excl. IFRS 16 was SEK 322 M (542). Interest-bearing assets in the form of cash and bank balances amounted to SEK 166 M (168).

A change in interest rates of one percent would affect consolidated net financial items by approximately SEK +/- 3 M and consolidated equity by approximately SEK +/- 3 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, 2019 and December 31, 2020.

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 20 M (4) and SEK 148 M (17). The recognized amount totals SEK 347 M (59). The liabilities mature on December 31, 2021 with interest rates based on three-month EURIBOR and STIBOR. 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 77 M (49) 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
2020 2019
Finansiella skulder
2020 2019
Maturity within 90 Days Förfaller inom 90 dagar 427 410
Maturity within 91–180 Days Förfaller inom 91-180 dagar 34 7
Maturity within 181–365 Days Förfaller inom 181-365 dagar 4 24
Maturity within 1–5 years Förfaller inom 1-5 år 321 560
Maturity later than 5 years Förfaller efter 5 år 0 0
Total Total 786 1,001
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, 2020, 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 428 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 Sweden and Finland.

The spread of risk among the customer base is satisfactory as no individual customer accounted for more than 4 percent (5) of sales in 2020. 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 2020

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 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Kundfordringar – brutto 353 336 18 43 4 7 1 1 376 387
Förlustreserv 0 0 0 0 -2 -2 -1 -1 -3 -3
Förväntad förlustnivå % 0% 0% 2% 0% 50% 29% 100% 100% 1% 1%

Loss reserve

The changes in the loss reserve are specified below.

2020 2019
Provision at January 1 Avsättning vid årets början 3 13
Increase of loss reserve, change accounted for in income statement Ökning av förlustreserven, förändring redovisad i resultaträkningen 1 1
Reversals of reserves Återföring av reserv 0 -2
Realized losses Konstaterade förluster -1 -1
Exchange rate differences Valutakursdifferenser 0 0
Divested/liquidated operations Avyttrad/likviderad verksamhet -8
Provision at December 31 Avsättning vid årets slut 3 3

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
2020 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
2020 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 376 376 376 376 376
Other receivables Övriga fordringar 14 10 10 10 10
Prepaid expenses and accrued income Förutbetalda kostnader och upplupna intäkter 22 12 12 12 12
Cash and equivalents Kassa och bank 166 166 166 166 166
Liabilities Skulder
Non-current interest-bearing liabilities Långfristiga räntebärande skulder 321 321 321 321 321
Current interest-bearing liabilities Kortfristiga räntebärande skulder 1 1 1 1 1
Accounts payable Leverantörsskulder 414 414 414 414 414
Other liabilities Övriga skulder 93 34 34 34 34
Accrued expenses and deferred income Upplupna kostnader och förutbetalda intäkter 69 16 16 16 16
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

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.