The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses to seek to identify and mitigate potential risks arising from financial markets, customer transactions and liquidity requirements.
Risks are identified, assessed and mitigated as a part of daily management routines. Majority of Group financing is done by Robit Plc, minor investments or working capital needs may be financed locally.
The Board of Directors provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of derivative financial instruments.
Foreign exchange risk
The following table demonstrates the sensitivity to a reasonably possible change in the base currency against the quote currency, with all other variables held constant, of the Group’s profit before tax and equity due to changes in the fair value of financial assets and liabilities.
A reasonably possible change is assumed to be a 10% base currency appreciation or depreciation against the quote currency. A change of a different magnitude can also be estimated fairly accurately because the sensitivity is nearly linear.
|Base currency||Base currency|
|10 % stronger||10 % weaker||10 % stronger||10 % weaker|
|EUR thousand||Income statement||Income statement||Income statement||Income statement|
|Base currency/Quote currency|
Cash flow interest rate risk
The Group’s interest rate risk arises from long-term borrowings. Majority of the Group’s loans are with variables interest rate which expose the Group to cash flow interest rate risk. During the presented periods, the Group’s borrowings at variable rate were denominated in euro and South Korean Won.
At 31 December 2021, if interest rates had been 50 basis points higher with all other variables held constant, post-tax profit for the year would have been EUR 152 thousand lower as a result of higher interest expense on floating rate interest-bearing liabilities. Interest rate sensitivity has been calculated by shifting the interest curve by 50 basis points (due to low market interest environment the lower scenario has not been presented). The interest position includes all external variable rate interest-bearing liabilities.
|Interest rate||Interest rate|
|0,5 % higher||0,5 % higher||0,5 % higher||0,5 % matalampi|
|EUR thousand||Income statement||Income statement||Income statement||Tuloslaskelma|
|Impact of interest change||-152||–||-126||–|
Credit risk arises mainly from cash and cash equivalents and credit exposures to customers from outstanding receivables. Credit risk on cash and cash equivalents is managed at group level. Cash and cash equivalents are held in reputable mainly Nordic banks. Each local entity is responsible for managing the credit risk for their account receivables balances. The local entities have the responsibility to analyse the credit standing of each of their new clients before standard payment and delivery terms and conditions are offered.
Before accepting a customer, the customer’s ability to pay the purchase transactions is carefully estimated through analysing customer’s financial statements and current market position. Credit risk countering payment methods such as letter of credit and advance payments are used in high risk regions. The Group has been able to collect also significantly overdue receivables eventually.
The maximum exposure to the credit risk at the reporting dates are the carrying values of each class of financial assets mentioned above.
The Group has only one type of financial assets subject to the expected credit loss model: trade receivables from sales of product and maintenance services. Although cash and cash equivalents and liabilities recognised at amortised cost are also subject to impairment testing under IFRS 9, the impairment loss observed is not material.
On the basis of this, entries reducing the carrying amount of trade receivables were made, amounting to EUR 836 thousand in financial year 2021 and EUR 724 thousand in 2020.
Cash flow forecasting is performed in the Group’s finance function. Group finance function monitors the Group’s liquidity requirements monthly to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed facilities at all times. Cash and cash equivalents amounted to EUR 9 525 thousand as at 31 December 2021 (2020: EUR 14 339 thousand). Operating cash flows and liquid funds are the main source of financing for the future payments together with possible new debt or equity financing.
Covenants on the Group’s interest-bearing financial liability drawn-down in 2021 are monitored regularly. The financial covenants are the equity ratio and the net debt in relation to EBITDA. The minimum equity ratio is agreed to be 32,5%. Minimum net debt to EBITDA ratio was defined to be 4.0 at 31 December 2021 review date. The net debt/EBITDA ratio according to the new financing agreement at the next covenant review date on 31 March 2022 must not exceed 4.0. Financial year 2021 will return to the original covenant on the net debt/EBITDA ratio, which must not exceed 2.5. The covenant of Robit Plc’s financing agreement, net interest-bearing debt/EBITDA, was 4,5 and did not meet the terms of the financing agreement on 31 December 2021. The company obtained the consent of its main financier to the breach of the covenant on 21 December 2021. We are referring to note 4.3 information on the covenant breach.
The Group’s equity ratio 42.2 % as at 31 December 2021 (2020: 45.5%) is strong and the Group is able to draw external financing in case that operational cash flows are not sufficient. The Group does not invest actively surplus cash held. The Group’s target is to achieve both organic and structural growth and cash balances are directed to those purposes.
The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Robit defines capital as equity plus borrowings as shown on the balance sheet 31.12.2021 EUR 82 942 thousand (2020 EUR 82 556 thousand). Robit’s capital management’s target is to keep capital structure that supports the business by ensuring the operating conditions and to increase shareholder value by aiming at a competitive return on invested capital. The capital structure shall take into account both current and future business needs, as well as ensure competitive cost of financing. Robit board monitors equity ratio and net interest-bearing debt to EBITDA ratio. The equity ratio is calculated as shareholders’ equity divided by total assets less advances received.
The capital structure can be affected, among other things, by the dividend distribution and share issues. If necessary, Robit has the opportunity to acquire own shares and to issue new shares in accordance with mandates by General Meeting. The Group’s equity ratio was 42.2 (2020: 45.5) per cent and the ratio of net debt to adjusted EBITDA was 4.5 as at 31 December 2021. We are referring to note 4.3 information on the covenant breach.
Cooperation with banks is based on long-term banking relationships. In the long-term goal is to service Robit’s loan obligations by operating cash flow. During the phase of rapid growth, capital may be acquired both equity and debt financing terms.