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 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 2019, 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 757 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of Australian dollar-denominated loan amounted to EUR 7 846 thousand granted by the parent company to the Australian subsidiary.
As 31 December 2019, 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 1 520 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of US dollar-denominated loans amounted to EUR 5 112 thousand and US dollar denominated account receivables from group companies and third parties amounting to EUR 11 965 thousand.
As 31 December 2019, 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 1 088 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of Korean won -denominated loan amounted to EUR 5 918 thousand and internal account payables.
As 31 December 2019, 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 651 thousand higher/lower, mainly as a result of foreign exchange gains/losses on translation of GBP-denominated loan amounted to EUR 4 572 thousand.
As 31 December 2019, 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 224 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. Subsidiaries in UK, Korea and South Africa did not reports fixed rate loans at year end 2019 (31.12.2018: EUR 2 706 thousand). During the presented periods, the Group’s borrowings at variable rate were denominated in euro, South Korean Won and sterling pound.
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 842 thousand in financial year 2019 and EUR 1 298 thousand in 2018.
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 accounts receivable balances. The local entities have the responsibility to analyze 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 analyzing 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. Historically, credit losses have been insignificant. The company has been able to collect also significantly overdue receivables eventually.
The maximum exposure to the credit risk at the reporting dates is the carrying values of each class of financial assets.
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 15 248 thousand as at 31 December 2019 (31.12.2018: EUR 27 476 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 Group’s equity ratio 47 % as at 31 December 2019 (31.12.2018: 49%) 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.