Financial instruments and financial risk management
Pricer’s financial assets consist primarily of trade receivables and cash in bank.
See also Note 21 in the 2016 Annual Report.
Financial risk management in the Pricer Group
Given the nature of its business, the Group is exposed to various types of financial risk, including fluctuations in the company’s earnings and cash flow caused by changes in exchange rates and interest rates, as well as refinancing and credit risks.
Risks are managed by a finance policy adopted by the Board with the purpose of limiting and controlling these risks. The policy establishes a framework of guidelines and rules in the form of risk mandates and limits for financial activities. The Group’s financial transactions are executed centrally by the Parent Company. The Parent Company’s finance department has responsibility for the Group’s cash management and ensures that any cash requirements of the subsidiaries are satisfied. The overriding goal of the finance department is to arrange cost-effective financing and to minimize any negative effects of market fluctuations on consolidated earnings resulting from market fluctuations.
The Group is exposed to various types of currency risk. The main exposure relates to purchases and sales in foreign currencies, where the risks include the effects of fluctuations in the currencies on customer and supplier invoices, as well as the currency risk resulting from expected or contracted payment flows (transaction exposure). Pricer is also exposed to currency risk in financial assets, primarily loans to subsidiaries and cash in bank in foreign currencies. Currency risks also arise in connection with the translation of foreign subsidiaries’ assets and liabilities into the Parent Company’s functional currency (translation exposure). The company has not hedged its translation exposure in foreign currency, aside from internal loans taken up in EUR and USD depending the subsidiaries’ respective presentation currencies.
Pricer’s policy is to limit its transaction exposure by matching flows in foreign currencies by denominating customer contracts in USD and using currency clauses in price quotations and contracts. In 2016, Pricer’s main payment flows were denominated in EUR and USD. Pricer’s closing order books were denominated in EUR and USD since sales are invoiced in these currencies, predominantly in EUR. Purchases of components and finished products are mainly invoiced in USD. Pricer did not entered into any new forward exchange contracts in 2016.
Interest rate risk
Interest rate risk is the risk that changes in market interest rates will have a negative impact on cash flow or the fair value of financial assets and liabilities. At present, Pricer has no assets carrying fixed rates of interest, since its cash and cash equivalents are placed on deposit at banks. Accordingly, any change in interest rates will have a direct impact on consolidated earnings.
Credit risk is the risk that a counterparty in a transaction will fail to meet its financial obligations, and that collateral, if any, will not be sufficient to cover the company’s receivable. Pricer’s sales are spread across a large number of customers with a wide geographic distribution. The Group has established routines for how credits are to be valued, how uncertain debts are to be dealt with, and sets decision levels for various credit limits. Pricer has known its customers for many years, and they are relatively large or very large retailers or retail chains whose bad debts have tended historically to be low.
Financial credit risks
Pricer’s finance policy regulates the handling of the financial credit risks that arise in the financial management, for example in connection with the placement of cash and cash equivalents. Transactions are only executed within established limits and with selected creditworthy counterparties. The policy for interest rate and credit risks is to aim for a low risk profile. Temporary surplus cash and cash equivalents may only be invested in instruments issued by institutions with the highest rating and with established banking connections.
Refinancing risk consists of the risk of not being able to meet future financing requirements. In addition to the available cash and cash equivalents, Pricer has an unutilized overdraft facility amounting to SEK 50 M and an additional SEK 50 M in a credit facility to ensure access to the necessary funds for Pricer’s continued development. The promissory credit facility includes covenants linked to the Group’s earnings.