New Wave Group AB Annual_report_2018_EN_HQ | Page 94

NWG // FINANCIAL INFORMATION //
THE GROUP
Financial risk management
New Wave Group is continually exposed to various financial
risks. Financial risks comprise interest risks, currency risks
and liquidity and credit risks. To minimize the impact on the
income statement from these risks, the Group has a financial
policy which describes how the Group seeks to limit the impact
of financial risks on the income statement. The goal is to ensure
that the central finance function exploits available economies
of scale in the Group and assists the subsidiaries by providing
professional service in order to minimize the risks.
Interest risk
New Wave Group believes that the use of short-term fixed
interest rates leads to lower borrowing costs over time while
short-term interest rates follow the economy cycles and
therefore offset fluctuations in the Group’s earnings. The
breakdown by currency of the Group’s net debt at year-end is
shown in the table below. An increase in interest rates over
the course of the year by one percentage point would have a
negative impact on earnings of SEK 10.7 million (SEK 9.2
million), based on the reported net debt at 31 December 2018.
Net debt break-down is shown in Note 20.
SEK million
Break-down by currency
SEK
EUR
GBP
USD
CHF
DKK
NOK
CAD
CNY
Other
Total
2018
Net debt 2017
Net debt
-1 349.4
-309.1
-18.3
-197.7
79.8
19.4
-120.3
-26.0
19.2
71.3
-1 831.0 -507.2
-215.2
-16.6
-831.2
8.8
50.9
-113.1
-53.9
23.6
16.6
-1 637.3
Currency risk
A significant portion of New Wave Group’s sales are made in
foreign currency (76 %). The Group is exposed to changes
in exchange rates in the future flows of payments related to
firm commitments and to loans and investments in foreign
currencies, i.e. transaction exposure. The Group’s financial
statements are also affected by translating the results and net
assets of foreign subsidiaries into SEK, i.e. translation exposure.
094 // ANNUAL REPORT
Transaction exposure and hedge
accounting
Transaction exposure mainly arises as a result of intra-Group
transactions between the Group's purchasing companies and
sales companies, situated in other countries and selling the
products to their customers normally in local currency on their
local market. In some countries, transaction exposure may arise
from sales to external customers in a currency different from
the local currency. The Group’s most important purchasing
currency is USD. Changes in exchange rates between USD, EUR
and SEK constitute the single largest transaction exposures in
the Group.
Managing the currency exposure related to purchases
differs between the Group's both sales channels. In the promo
sales channel, New Wave Group is the stock keeper and orders
from resellers are therefore not placed until the the reseller has
received an order from the end customer. The order backlog for
future deliveries is therefore small, as deliveries are made imme-
diately. Currency hedging is not used for this sales channel since
price adjustments towards the customer are made continuously
as the purchase price changes. In the retail sales channel, sales
are mostly made through advance orders and, at this point,
the prices towards the customers are fixed. An advance order
means, for example, that customers place orders in the spring for
deliver in te autumn. In order to limit the currency risk in these
advance orders, derivatives are purchased to guarantee that
the value of incoming deliveries to the warehouses match the
prices towards the customers. In these cases hedge accounting
according to IFRS 9 is applied, which means that changes in
the value of the derivatives that are part of an effective cash flow
hedge are recognized in other comprehensive income.
In the Corporate operating segment, 97 (97) % of the sales
occur in the promo sales channel and adjustments for changes
in purchase prices are made continuously. In Sports & Leisure
about 73 (75) % of sales are made through the retail sales
channel which means that the majority of purchases in the
operating segment are hedged against fluctuations in exchange
rates. For Gifts & Home Furnishings, 85 (87) % of the sales
are to retail and most of the production takes place in Sweden.
Where purchases are made from another country, 50-80 % of
the purchase in a foreign currency are hedged against fluctua-
tions in exchange rates.
The Group’s principal commercial flows of foreign currencies
mainly pertain to imports from Asia to Europe and intra-Group
flows within Europe. Currency rates and payment conditions to
be applied to the internal trade between the Group companies
are set centrally. Currency exposure and risk is primarily, and to