The primary financial risks are foreign exchange, financing, interest rate and credit risks. Financial risks are managed by the Group’s finance function according to the guidelines established by Cloetta’s Board of Directors.
The objective is to identify the Group’s risk exposure and, with a certain degree of foresight, to attain predictability in the financial outcome and minimise possible unfavourable effects on the Group’s financial results in close cooperation with the Group’s operating units.
By consolidating and controlling these risks centrally, it is possible to minimise the level of risk while at the same time reducing the cost of measures like currency hedging. Financial risk management is described in detail in Note 28, on page 118 in the annual report.
Read more about the statement of financial risks based on probability and impact in the document below.
|Foreign exchange risks||Exchange rate fluctuations affect Cloetta’s financial results partly in connection with buying and selling in different currencies (transaction exposure), and partly through translation of the profit and loss accounts and balance sheets of foreign subsidiaries to Swedish kronor (translation exposure). Cloetta’s presentation currency is the Swedish krona, while a majority of the subsidiaries use the Euro as their functional currency, for which reason translation exposure is significant.||The objective for Cloetta’s foreign exchange management is to minimise the effects of exchange rate fluctuations by utilising incoming currency for payments in the same currency. If the Swedish krona had weakened/strengthened by 10 per cent against the Euro, the year’s profit before tax would have been around SEK 50m higher/lower. The Group hedges parts of its translation exposure through borrowing in Euros.|
|Refinancing and liquidity risks||Refinancing risk refers to the risk that it will not be possible to obtain financing or that financing can be obtained only at a significantly higher cost. Due to the acquisition of Leaf, Cloetta has a relatively high net debt/equity ratio. This high leverage means that Cloetta uses a large share of cash flow for repayment of loans, which limits Cloetta´s financial flexibility.||Cash flow forecasts are performed by the operating units in the Group and are aggregated by the Group’s central finance function, which continuously monitors rolling forecasts to ensure that there is always adequate liquidity to meet the needs of operating activities. In addition, the finance function monitors the Group’s attainment of central key performance indicators or compliance with binding financial covenants that are attached to the Group’s credit facilities. Surplus liquidity in the operating units is transferred to the Group’s internal bank operations.|
|Interest rate risks||Cloetta is exposed to interest rate risks in interest-bearing current and non-current liabilities. The relatively high level of debt results in exposure to interest rate risk, since the loans carry variable interest rates.||The Group continuously analyses its exposure to interest rate risk and performs regular simulations of interest rate movements. Interest rate risk is reduced by hedging a share of future interest payments through interest rate swaps. If the interest rate had been 1 percentage point higher/lower in 2015, with all other variables held constant, profit before tax for the year would have been around SEK 30m lower/higher.|
|Credit risks||Credit risk refers to the risk that a counterparty to Cloetta will be unable to meet its obligations and thereby cause a loss to the other party. Financial transactions also give rise to credit risks in relation to financial and commercial counterparties.||Credit risk in trade receivables is relatively limited in that the Group’s customer base is diverse and consists mainly of large customers, and that distribution takes place primarily through the major grocery retail chains. The customers are subject to credit assessments in accordance with the credit policy and the receivables balance is monitored continuously. The Group’s counterparties in financial transactions are banks and credit institutions with good credit ratings (between AA– and A-3).|
|Valuation risks||The Group has a number of assets and liabilities that have been valued with the help of various experts. These include goodwill and brands/trademarks on the asset side and the pension liability and tax liabilities on the liability side.||Assets and liabilities are tested for impairment yearly or when there is an indication that such testing may be necessary.|