Financial risks

The primary financial risks are 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 financing policy 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 minimize 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 minimize 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 29, on pages 122–124.

Read more about the statement of financial risks based on probability and impact in the document below.

RisksProbability ManagementImpact
Foreign exchange risks image

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 many subsidiaries have the euro has the euro as their functional currency, for which reason translation exposure is significant. Aside from SEK and EUR, Cloetta also has some exposure to DKK, NOK, GBP and USD.

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The objective for Cloetta’s foreign exchange management is to minimize the effects of exchange rate fluctuations by utilizing 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 27m lower/higher. The Group hedges parts of its translation exposure through borrowing in EUR. In addition, the Group has hedges in USD to some extent.

Refinancing risks image

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.

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In 2017 Cloetta met the financial target related to a net debt/EBITDA ratio of 2.5x. In 2016 the Group also refinanced its entire debt (bank loans and senior secured notes) and entered into a new term and revolving facilities agreement with a group of four banks. This means that Cloetta now has a favourable situation for access to financing, among other things, potential acquisitions.

Interest rate risks image

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, there is still exposure to interest rate risk for the parts that are not hedged or when hedges expire.

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The Group continuously analyzes 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 with all other variables held constant, profit before tax for the year would have been approximately SEK 7m 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 6m lower due to some interest rate swaps that do not include a zero-floor clause.

Credit risks image

Credit risk refers to the risk that a counterparty to Cloetta will be unable to meet its obligations and thereby causes a loss.

Financial transactions also give rise to credit risks in relation to financial and commercial counterparties.

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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 image

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.

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Assets and liabilities are tested for impairment yearly or when there is an indication that such testing may be necessary. Read more in Note 12, Intangible assets on page 107 and Note 33, Critical accounting estimates and judgements on page 127.

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