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 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 28, on pages 126–127.

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 a majority of the subsidiaries 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 NOK, GBP and USD.

image

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 25m higher/lower.

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.

image

In 2016 Cloetta met the financial target related to a net debt/EBITDA ratio of 2.5x. During the year, 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, including that for potential acquisitions, among other things.

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.

image

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 25m 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 35m 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 the other party causes a loss.

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

image

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.

image

Assets and liabilities are tested for impairment yearly or when there is an indication that such testing may be necessary. Read more in Note 11, Intangible assets on page 110 and Note 33, Critical accounting estimates and judgements on page 131.

Topics

, ,

Share this page

Latest Press Releases

Latest Report

Upcoming Events

Carnegie Small and Mid Cap Seminar in Stockholm

6 September 2017

Silent period Q3 2017

25 September 2017 - 24 October 2017

Interim report – Q3 2017

25 October 2017