The primary financial risks are composed of foreign exchange, financing, interest rate and credit risks. Financial risks are managed by the Group’s central finance function according to the guidelines in the finance policy established by Cloetta’s Board of Directors. Financial risk management primarily aims to identify the Group’s risk exposure and, with a certain degree of foresight, to attain predictability in the financial outcome and minimise possible unfavorable effects on the Group’s financial results, in close cooperation with the Group’s operating units. Consolidating and controlling these risks centrally enables the Group to minimise the level of risk while reducing the cost of measures such as currency hedging.
|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 reporting currency is the Swedish krona, while many subsidiaries have the euro as their functional currency, thus translation exposure is significant. Aside from SEK and EUR, Cloetta also has exposure to DKK, NOK, GBP and USD.
|The objective of 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 25m (40) higher/lower. The Group hedges parts of its translation exposure through borrowing in euro.
|Refinancing risk refers to the risk that it will not be possible to obtain financing or that financing can only be obtained at a significantly higher cost.
|In 2022, Cloetta met its financial target related to a net debt/EBITDA ratio of around 2.5x. Through the term and revolving facilities agreement with the club of banks and the commercial paper programme, Cloetta has a favourable situation for accessing financing, for example for potential acquisitions. In 2022, Cloetta extended its existing multicurrency term and revolving facilities agreement with the banks with one year. During the year, Cloetta also secured financing for the greenfield facility in the Netherlands by entering a new term loan facility and by increasing the multicurrency revolving loan facilities.
|Interest rate risks
|Cloetta is exposed to interest rate risks in interest-bearing current and
non-current liabilities. Although some of the Group’s bank loans are
hedged via interest rate swaps, there is still exposure to interest rate
risk for the parts that are not hedged or when hedges expire.
The Group will incur a higher level of net debt over the years 2023– 2026 on the account of the new greenfield facility.
|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.
In 2022, if the interest rate had been 1 percentage point higher with all other variables held constant, profit before tax for the year would have been approximately SEK 7m (1) lower. If the interest rate had been 1 percentage point lower with all other variables held constant, profit before tax for the year would have been approximately SEK 4m (1) higher.
Credit risk refers to the risk that a counterparty to Cloetta will be unable to meet its obligations and thereby cause a loss.
Financial transactions also give rise to credit risks in relation to financial and commercial counterparties.
|Credit risk in trade receivables is relatively limited considering that the Group’s customer base is diverse and consists mainly of large customers, and because distribution takes place primarily through the major grocery retail chains. Customers are subject to credit assessments in accordance with the credit policy, and receivables balances are monitored continuously.
The Group’s counterparties in financial transactions are banks and credit institutions with good credit ratings (between AA– and A-1).
|The Group has a number of assets and liabilities that have been valued with the input from or the help of various experts. These include good-will and trademarks on the asset side and the pension liability and tax liabilities on the liability side.
|Assets and liabilities are tested for impairment annually or when there is an indication that such testing may be necessary. Read more in Note 12, Intangible assets on pages 95–96 and Note 30, Critical accounting estimates and judgements on pages 115-116, in the Annual report.