Axactor Annual Report 2016

Interest rate risks Interest risk is related to the risk the group is exposed to from changes in the market’s interest rate which can affect the net profit. Interest rate risk relate primarily to the Group’s interest bearing debt, which amounted to SEK 708 million on December 31, 2016. The loans carries a variable annual interests tied to the market rates. Any annualised increase/ decrease by 100 basis point would increase/decrease the Groups profit before tax by SEK 7 million. The average interest rate for 2016 was 4,23% Currency risks Currency risk refers to the risk that the value of a financial instrument may shift as a result of changes in currencies conversion rates. The Company’s accounts are held in Swedish krona (SEK). However, conducts the majority of its business operation in other countries. This foreign exchange exposure may affect the Company’s results and the number of liquid assets. Credit risks Credit risks is the risk that counterparty will not meet its obligations under a financial contract of customer contract, leading to a financial loss. The Group are exposed to credit risk from its operating activities, primarily related to cash and cash equivalents, trade receivables, purchased debts and outlays on behalf of clients. Customer credit risk is managed subject to established policy, procedure and control relating to customer credit risk manage- ment. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. Risk inherent in purchased debt To minimize the risks in this business, caution is exercised in purchase decisions. The focus is small and medium-sized portfolios with relatively low average amounts, to help spread risks. The acquisitions generally involve unsecured debt, which reduces the capital investment and significantly sim- plifies administration compared with collateralized receiva- bles. Purchased debt portfolios are usually purchased at prices significantly below the nominal value of the receivables, and Axactor retains the entire amount it collects, including interests and fees. Axactor places high yield requirements on purchased debt portfolios. Before every acquisition a careful assessment is made based on a projection of future cash flows (collected amount) from the portfolio. In its calculations, Axactor is aided by its scoring models. Scoring entails, the customer’s payment capacity being assessed with the aid of statistical analysis. Axactor also uses specialized industry consultants for getting a second opinion on each contem- plated debt portfolio purchase. Axactor therefore believes that is has the expertise required to evaluate these types of receivables. Liquidity risk Liquidity risk is the potential loss arising from the Group’s inability to meet its contractual obligations when due. The Group monitors its risk to a shortage of funds using cash flow forecasts. Following the acquisitions in 2016 the Group generate positive cash flow. The Group had cash and cash equivalents of SEK 617 million at 31 December 2016 (2015 SEK 372 million). Based on the current cash position, the Group assesses the liquidity risk to be low. The table below summarises the maturity profile of the Group’s financial liability based on contractual undiscounted payments: Year ended 31 December 2016 SEK thousand On demand Within one year 1-5 year Later than 5 year Total Net interest bearing loans DnB/Nordea 129,269 278,742 1) 408,011 Net interest bearing loans Spain 3,119 3,119 Net interest bearing loans Italy 67,375 240,600 307,975 Bank overdraft, Italy 8,342 8,342 Trade Payables 63,614 63,614 Other Liabilities 85,089 85,089 Taxes payables 3,705 3,705 Deferred tax liabilities 57,021 57,021 Pension liability 15,881 15,881 Payment to minority of CS Union 13,811 13,811 Accruals 2,688 2,688 Total 0 360,513 608,743 - 969,256 1) Classified as short term in the balance sheet due to breach of the covenants. The breach has been resolved in 2017. Maturity of the loan is in 2019, ref note 23. Capital management The primary objective of the Group’s capital management is to ensure the Company maintains a solid capital structure enabling it to develop and build its business to maximise shareholder value. The Group’s objective is to maintain a balance of financial assets that reflects the cash requirement of its operations and investments for the next 12-24 months. No change were made in the objectives, policies or process for managing capital during the year ended 31 December 2016. Axactor AB | Annual report 2016 37