Last edited: 5.3.2021

Financial Risk Management

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.

Market Risk

Foreign Exchange Risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, Australian dollar, sterling pound, Russian ruble and Korean Won. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.

Group companies initiate sale and purchase transactions mainly in group companies’ functional currencies.  The Group has specified a policy for hedging against currency risks. Management aims to balance the revenue and expenses realised in a currency other than the functional currency and hedges the most significant positions that are cost-effective to hedge.

At 31 December 2020, if the EUR had weakened/strengthened by 10% against the Australian dollar with all other variables held constant, the recalculated post-tax profit for the year would have been EUR 132 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of Australian dollar-denominated account receivables from group companies.

As 31 December 2020, if the EUR has weakened/strengthened by 10% against the US dollar with all other variables held constant, the recalculated post-tax profit for the year would have been EUR 181 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of US dollar-denominated loans amounted to EUR 1 851 thousand.

As 31 December 2020, if the EUR has weakened/strengthened by 10% against the Korean won with all other variables held constant, the recalculated post-tax profit for the year would have been EUR 536 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of Korean won denominated loan amounted to EUR 5 821 thousand.

As 31 December 2020, if the EUR has weakened/strengthened by 10% against the pound sterling (GBP) with all other variables held constant, the recalculated post-tax profit for the year would have been EUR 243 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of GBP denominated loan amounted to EUR 1 335 thousand and account receivables from group companies and third parties amounted to EUR 1 222 thousand.

As 31 December 2020, if the EUR has weakened/strengthened by 10% against the South African rand with all other variables held constant, the recalculated post-tax profit for the year would have been EUR 132 thousand higher/lower, mainly as a result of South African rand denominated loan amounted to EUR 1 166 thousand

As 31 December 2020, if the EUR has weakened/strengthened by 10% against the Russian ruble with all other variables held constant, the recalculated post-tax profit for the year would have been EUR 135 thousand higher/lower, mainly as a result of Russian ruble denominated account receivables from group companies and third parties.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group is exposed to translation risk mainly due to changes in Australian dollar, sterling pound and Korean Won.

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, South Korean Won, South African rand and sterling pound.

At 31 December 2020, 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 126  thousand (2019: EUR 140 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.

The management of the Group has assessed that cash flow interest rate risk is low in current market situation and therefore does not actively use derivatives to manage its cash flow interest rate risk.

Credit Risk

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 724 thousand in financial year 2020 and EUR 842 thousand in 2019.

Liquidity Risk

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 14 339 thousand as at 31 December 2019 (2019: EUR 15 248 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 2016 are monitored monthly.  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 has been defined to be 2,5 at 30 June 2018 and onwards. The net debt/EBITDA ratio according to the new financing agreement at the next covenant review date on 31 December 2020 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 4,1 and did not meet the terms of the financing agreement on 31 December 2020. The company obtained the consent of its main financier to the breach of the covenant on 18 December 2020. We are referring to note 4.3 information on the covenant breach.

The Group’s equity ratio 45.5 % as at 31 December 2020 (2019: 47.4%) 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.