Note 3 - Financial risk management
3.1 Financial risk factors
The Group is exposed to a number of different financial risks in its activities: market risk (currency risk), credit risk, liquidity risk and credit risk. The Group’s general risk management policy focuses on the unpredictability of the financial markets and attempts to minimise potential unfavourable effects on the Groups financial results. The Group does not use derivative instruments to hedge its risk exposure.
Risk management is performed by Group Finance in accordance with policies adopted by the Board. The Board draws up written policies for general risk management and for specific areas such as currency risk, credit risk, the use of derivative instruments and financial instruments that are not derivatives, as well as the investing of excess liquidity.
(a) Market risk
Currency risk
The Group operates on an international level and is exposed to currency risks arising from various currency exposures, in particular in respect of the US dollar (USD). Currency risk arises through future business transactions, recorded assets and liabilities, and net investments in foreign businesses.
Currency risks also arise when future business transactions are expressed in a currency that is not the entity’s functional currency. The Group’s product purchases takes place mainly in USD, then in order of SEK, EUR and GBP. In order to manage the currency risk of outflows in USD, the Group has USD bank accounts but also SEK, EUR and GBP accounts. The Group's revenues are mainly in USD and SEK, and a small part of the revenues are received in EUR. Remuneration to employees is paid in SEK in the Swedish companies and in GBP in the subsidiary in the United Kingdom.
The Group has a holding in a foreign business in the UK, the net assets of which are exposed to currency risks.
The Group does not currently hedge any foreign currencies.
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises through cash and cash equivalents, bank balances and credit exposure with customers, including receivables outstanding.
Only banks and financial institutions that have a minimum rating of “A” from independent agencies are accepted. The Group’s customers consist primarily of private individuals to whom sales are made through payment with major credit cards to reduce credit risk. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions.
The Group’s accounts receivable and debt instruments recognised at amortised cost are within the field of application of the model for expected credit losses: The Group applies the simplified approach to measuring expected credit losses, which entails using the expected credit losses over the entire period of the receivable as the starting point. The expected credit losses are based on the customers’ payment profiles together with the credit losses for the same period. They are then adjusted to reflect current and forward-looking information on macroeconomic factors affecting the customers’ ability to settle the receivables. The Group has historically had low customer losses, and believes that this also reflects the situation going forward since the Group’s customers are well-established companies with high credit ratings.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
(c) Liquidity risk and interest
Cash flow forecasts are drawn up by the Group’s operational companies and are aggregated by Group Finance. Group Finance monitors rolling forecasts of the Group’s liquidity reserve closely in order to make sure that the Group has sufficient cash funds to meet the need of operating activities.
The table below analyses the Group’s non-derivative financial liabilities broken down according to the time remaining on the balance sheet date until the contractual due date. The amounts quoted in the table are the contractual, non-discounted cash flows.
As of 31 August 2019 | Less than 3 months | Between 3 months and 1 year | Between 1 and 2 years | Between 2 and 5 years | More than 5 years | Total |
|---|---|---|---|---|---|---|
Trade and other payables | 6,611 | 0 | 0 | 0 | 0 | 6,611 |
Other current liabilities | 0 | 15,556 | 0 | 0 | 0 | 15,556 |
Accrued expenses and prepaid income | 8,011 | 0 | 0 | 0 | 0 | 8,011 |
As of 31 August 2018 | Less than 3 months | Between 3 months and 1 year | Between 1 and 2 years | Between 2 and 5 years | More than 5 years | Total |
|---|---|---|---|---|---|---|
| Other long-term liabilities | 0 | 0 | 15,556 | 0 | 0 | 15,556 |
| Trade and other payables | 5,047 | 0 | 0 | 0 | 0 | 5,047 |
Other current liabilities | 1,041 | 15,556 | 0 | 0 | 0 | 16,597 |
Accrued expenses and prepaid income | 15,483 | 0 | 0 | 0 | 0 | 15 483 |
Interest bearing debt for the group is TSEK 15,556 and is ammortized quarterly until June 2020. With a non-fixed interest the group carries limited risk in the interest cost in that peiod.
3.2 Managing capital
The Group’s objective with regard to the capital structure is to secure the Group’s ability to continue its activities so that it can continue to generate a return for shareholders and value for other stakeholders, and to maintain an optimal capital structure in order to keep down the costs of capital.
To maintain or adjust the capital structure, the Group can change the dividend paid to shareholders, repay capital to shareholders, issue new shares or sell assets in order to reduce liabilities.
3.3 Calculation of fair value
Fair value of the Group’s short- and long-term borrowing is deemed to essentially correspond to the carrying amount, since the loans mature with variable market interest rates for long-term borrowing and the discount effect for short-term borrowing is immaterial.