Risk & risk management
The Group’s activities expose it to a variety of financial risks. Financial risk refers to fluctuations in the company’s earnings and cash flow due to changes in exchange rates, interest rates, refinancing and credit risks. The management of the Group’s financial risks are concentrated in a central finance function. This uses the finance policy established by the Board.
The Group’s treasury function is responsible for raising capital, liquidity management and currency and interest rate risk management for the Group as a whole. The overall objective of the finance function is to provide cost-effective financing and to minimize negative effects on the Group’s earnings from market fluctuations.
Commercial flows of receipts and payments in different currencies give rise to transaction risk.
Commercial flows mainly occur in each subsidiary’s own currency and transaction risk is assessed as low and thus not hedged. In contrast, in companies where the purchase and or sale occurs via in currencies is the possibility of hedging through forward contracts. The majority, about 90 percent of Nilorn group reported sales occur in another than the Group’s functional currency. However, the match revenues and expenses through local purchases and sales of subsidiaries in the respective currency area. This means that the currency impact on consolidated net income is limited, but has a great impact on the individual items in the consolidated income statement such as net sales, raw materials supplies and merchandise, etc. This means that approx. 10 percent strengthening of the SEK affects the Group’s net sales negatively by approximately SEK 40 million and net profit of about 3 million.
Counterparties to derivative transactions consist solely of creditworthy banks, with a minimum long-term rating AA- by S & P. Hedge accounting of the forward contracts will not occur. Market valuation in accordance with IAS 39 Financial Instruments: Recognition and Measurement is ongoing, which means that unrealized gains and losses are recognized in the income statement.
Balance sheet exposure
Besides the transaction exposure as described above, the Group is affected by currency fluctuations for receivables and liabilities that arise in foreign currencies. The bulk of the risks that arise must be covered either by funding the respective companies’ currency or by hedging.
Nilörngruppen reported earnings and balance sheet in SEK. The majority of the Group’s subsidiaries report in currencies other than SEK, which means that Niörnrngruppen consolidated earnings and equity are exposed to exchange rate fluctuations. This risk is called translation exposure. Expected future earnings and equity in foreign subsidiaries is not hedged. For sales of foreign subsidiaries is the translation difference to the income statement and thus affect the result.
Interest rate risk
Interest rate risk refers to the risk that the Group’s exposure to changes in the market can affect net income. Management of the Group’s interest exposure is centralized, which means that the central finance function is responsible for identifying and managing this exposure. Maturities and lending conditions for loans are determined on the basis of Nilörngruppen future liquidity needs, interest rates and other factors on the debt market, which at the time of the deposit can be significant. The interest rate on loans taken in the Group are bound never more than one year and on loans that exceed one year, less than the fixed-rate period not three months.
Excess liquidity is primarily used to reduce the external debt. Capital Safety is the starting point for placement. When choosing between a safety equivalent investments are highest interest rate decision.
Financing risk is the risk that financing of the Group’s capital requirements and refinancing of outstanding loans more difficult or more expensive. A continuous dialogue with the Group’s main bank for the financing of the Group. Covenants are available with the company’s lenders.
Commodity price risk is the risk that the cost of direct and indirect materials rises when commodity prices rise in global markets. The Group does not hedge any purchase of raw materials when it is judged to have limited impact on earnings
Dependent of a few suppliers
For all goods Nilörngruppen purchase there are alternative suppliers and it is the believe that Nilörnrngruppen would not be seriously damaged by an individual supplier could not meet the requirements.
The risk that customers can not meet their commitments, ie Nilörnrngruppen not receive payment for its accounts receivable, constitutes a customer credit risk. Nilörngruppen credit checks on its customers‚ information about their financial position from various credit reporting agencies. Coverage of arrears is ongoing and reminders and interest invoices sent out when it is necessary.
Nilörngruppen works actively with IT security and has taken a variety of measures to prevent and prevent IT problems. To the extent that there still are problems corrected this quickly so that production and deliveries, etc. minimally affected. Nilorn have an IT department that works to ensure the operation, development of the Group’s business and provide customers with a first class service in the integration of IT / logistics solutions.