Hexagon Annual Report 2019

(I) CREDIT RISK The Group is mainly exposed to credit risk associated with trade receivables and contract assets. The Group minimizes its exposure to credit risk by ensuring that all parties requiring credit (primarily trade receivables) are approved and undergo a credit check. The Group has a small number of large customers or counterparties who could be considered to be a Group due to similarities in credit risk. The risk associated with these counterparties is regularly reviewed and is minimized by measures such as use of credit insurance. The subsidiaries Hexagon Ragasco AS, Hexagon Raufoss AS and Hexagon Purus GmbH applies credit insurance to covers parts of the companies' receivables. Trade receivables in foreign subsidiaries amounted to NOK 371 029 thousand (89 191 thousand). Except for parts in Hexagon Purus GmbH these do not have credit insurance, however, are partly covered through Letter of Credits and prepayments from customers. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history and that outstanding amounts do not exceed the defined credit limits. Credit information is also used in the group's regular appraisal of new and existing customers. The Group has not issued guarantees for third party obligations. The carrying amount of the financial assets, including derivatives, in the balance sheet represents the maximum risk exposure. As counterparties in derivative transactions are normally banks, the credit risk associated with derivatives is considered to be negligible. The Group considers its maximum risk exposure to be the carrying amount of its trade receivables (see note 14), contract assets (see note 4) and other current assets (see note 15). An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for grouping of various customer segments with similar loss patterns (i.e. geographical region, product type, customer type and rating, coverage by letter of credit or prepayments or other forms of credit insurance). The calculation reflects the probability-weighted outcome and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than one year and are not subject to enforcement activity. Note 14 disclose the ageing of trade receivables. The Group is exposed to interest rate risk from its financing activities (see notes 20 and 21). The majority of the Group's interest-bearing liabilities have variable interest rates, which means it is affected by changes in interest rates. (II) INTEREST RATE RISK The aim of the Group's interest rate risk management is to reduce interest expenses, while also keeping the volatility of future interest payments within acceptable limits. The Group's strategy is for its finance departments to regularly evaluate the interest rate exposure of Hexagon Composites liabilities based on a total assessment of interest expectations and risk profile. The total fixed-interest term must not be below 0 years and must not exceed 10 years. The Group may use derivatives to adjust its effective interest rate exposure. As a starting point, all interest rate derivatives are adapted to the duration and other conditions of individual loans. Bank loan facility has been drawn in Euro and USD, with EURIBOR/ LIBOR base rates. As part of the financing of the acquisition of Agility a new senior unsecured bond was issued of NOK 1,1 billion with a coupon of 3-month NIBOR + margin. A cross-currency hedge has been established where the Group receives a variable rate equal to NIBOR + margin and pays a variable rate equal to LIBOR + margin. Apart from this, the group is remains unhedged at end 2019 as was the case by end 2018. The following table shows the group's sensitivity to potential changes in interest rates. The calculations take into account all interest-bearing instruments and associated interest rate derivatives (if any) as of 31.12. 50 136 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS