NWG Annual Report 2019 - EN NWG Annual Report 2019 - EN | 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 risk 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
16.6 (10.7) million, based on the reported net debt at 31 December
2019. Net debt breakdown is shown in note 20.
SEK million
Breakdown by currency
SEK
EUR
GBP
USD
CHF
DKK
NOK
CAD
CNY
Other
Total
2019
Net debt 2018
Net debt
-1 596.0
-587.2
-23.0
-434.0
97.7
-0.2
-273.2
-189.9
8.6
32.4
-2 964.8 -1 349.4
-309.1
-18.3
-197.7
79.8
19.4
-120.3
-26.0
19.2
71.3
-1 831.1
Currency risk
A significant portion of New Wave Group’s sales are made in
foreign currency (77 %). 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 delivery
in the 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 deriva-
tives 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
74 (73) % 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, 87 (85) % 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 purchases in a foreign
currency are hedged against fluctuations 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 a
large extent, reduced by netting internal transactions. Therefore,
through netting, the Group's main transaction exposure can
be reduced and, together with the use of currency hedges and