Note 30 - Financial risks and risk policies

Financial assets and liabilities

The financial assets that exist and are used in the Group are cash and cash equivalents, accounts receivable and derivatives. The financial liabilities that exist and are used within the Group are accounts payable, overdraft facilities and interest-bearing liabilities to credit institutions and derivatives. The carrying amount of all financial assets and liabilities corresponds to the fair value of each asset and liability.

Group 2009	Derivatives used in hedge accounting	Accounts receivable and loan receivables	Financial assets held for sale	Other financial liabilities	Total carrying amount	Fair value	Non-financial assets and liabilites	Total Balance sheet
Other securities held as fixed assets							32	32
Other long-term receivables							7,241	7,241
Accounts receivable		14,203			14,203	14,203		14,203
Other current receivables							10,437	10,427
Cash and bank balance		25,370			25,370	25,370		25,370
Total financial assets	—	39,573	—	—	39,573	39,573	17,710	57,273
Long-term liabilities to credit institutions				90,197	90,197	90,197		90,197
Other long-term interest-bearing liabilities
Current liabilities to credit institutions				215,613	215,613	215,613		215,613
Other current interest-bearing liabilities
Accounts payable				89,277	89,277	89,277		89,277
Other current liabilities	2,337				2,337	2,337		2,337
Total financial liabilities	2,337	—	—	395,087	397,424	397,424	—	397,424


Group 2008	Derivatives used in hedge accounting	Accounts receivable and loan receivables	Financial assets held for sale	Other financial liabilities	Total carrying amount	Fair value	Non-financial assets and liabilites	Total Balance sheet
Other long-term securities							29	29
Other long-term receivables							5,621	5,621
Accounts receivable		9,880			9,880	9,880		9,880
Other current receivables							6,692	6,692
Cash and bank balance		31,490			31,490	31,490		31,490
Total financial assets	—	41,370	—	—	41,370	41,370	12,342	53,712
Long-term liabilities to credit institutions				60,004	60,004	60,004		60,004
Other long-term interest-bearing liabilities
Current liabilities to credit institutions				145,491	145,491	145,491		145,491
Other current interest-bearing liabilities
Accounts payable				58,745	58,745	58,745		58,745
Other current liabilities	3,453				3,453	3,453		3,453
Total financial liabilities	3,453	—	—	264,240	267,693	267,693	—	267,693


Group 2007	Derivatives used in hedge accounting	Accounts receivable and loan receivables	Financial assets held for sale	Other financial liabilities	Total carrying amount	Fair value	Non-financial assets and liabilites	Total Balance sheet
Other long-term securities							28	28
Other long-term receivables							6,550	6,550
Accounts receivable		8,959			8,959	8,959		8,959
Other current receivables							1,922	1,922
Cash and bank balance		56,681			56,681	56,681		56,681
Total financial assets	—	65,640	—	—	65,640	65,640	8,500	74,140
Long-term liabilities to credit institutions				7,871	7,871	7,871		7,871
Other long-term interest-bearing liabilities
Current liabilities to credit institutions				64,801	64,801	64,801		64,801
Other current interest-bearing liabilities
Accounts payable				63,126	63,126	63,126		63,126
Other current liabilities	2,461				2,461	2,461		2,461
Total financial liabilities	2,461	—	—	135,798	138,259	138,259	—	138,259

Parent Company 2009	Derivatives used in hedge accounting	Accounts receivable and loan receivables	Financial assets held for sale	Other financial liabilities	Total carrying amount	Fair value	Non-financial assets and liabilites	Total Balance sheet
Other long-term securities							4	4
Other long-term receivables							185	185
Accounts receivable		13,912			13,912	13,912		13,912
Other current receivables							8,920	8,920
Cash and bank balance		13,449			13,449	13,449		13,449
Total financial assets	—	27,361	—	—	27,361	27,361	9,109	36,470
Long-term liabilities to credit institutions				90,000	90,000	90,000		90,000
Other long-term interest-bearing liabilities
Current liabilities to credit institutions				199,760	199,760	199,760		199,760
Other current interest-bearing liabilities
Accounts payable				80,013	80,013	80,013		80,013
Other current liabilities
Total financial liabilities	—	—	—	369,773	369,773	369,773	—	369,773


Parent Company 2008	Derivatives used in hedge accounting	Accounts receivable and loan receivables	Financial assets held for sale	Other financial liabilities	Total carrying amount	Fair value	Non-financial assets and liabilites	Total Balance sheet
Other long-term securities							4	4
Other long-term receivables							288	288
Accounts receivable		9,826			9,826	9,826		9,826
Other current receivables							5,806	5,806
Cash and bank balance		19,534			19,534	19,534		19,534
Total financial assets	—	29,360	—	—	29,360	29,360	6,098	35,458
Long-term liabilities to credit institutions				57,500	57,500	57,500		57,500
Other long-term interest-bearing liabilities
Current liabilities to credit institutions				141,266	141,266	141,266		141,266
Other current interest-bearing liabilities
Accounts payable				51,959	51,959	51,959		51,959
Other current liabilities
Total financial liabilities	—	—	—	250,725	250,725	250,725	—	250,725


Parent Company 2007	Derivatives used in hedge accounting	Accounts receivable and loan receivables	Financial assets held for sale	Other financial liabilities	Total carrying amount	Fair value	Non-financial assets and liabilites	Total Balance sheet
Other long-term securities							4	4
Other long-term receivables							1,236	1,236
Accounts receivable		8,650			8,650	8,650		8,650
Other current receivables							392	392
Cash and bank balance		30,144			30,144	30,144		30,144
Total financial assets	—	38,794	—	—	38,794	38,794	1,632	40,426
Long-term liabilities to credit institutions				—	—	—		—
Other long-term interest-bearing liabilities
Current liabilities to credit institutions				58,795	58,795	58,795		58,795
Other current interest-bearing liabilities
Accounts payable				57,724	57,724	57,724		57,724
Other current liabilities
Total financial liabilities	—	—	—	116,519	116,519	116,519	—	116,519

Accounts receivable	Group
	2006/07	2007/08	2008/09
Gross accounts receivable	8,959	9,880	14,649
Provision for uncertain accounts receivable	—	—	– 446
Net accounts receivable	8,959	9,880	14,203

Reserve fund for credit losses – reconciliation
Reserve at the beginning of the year	—	—	—
Provision for anticipated losses	—	—	– 446
Determined losses	—	—	112
Reserve at the end of the year	—	—	– 446

Age analysis of accounts receivable
Non-matured accounts receivable	8,959	8,059	9,884
Matured accounts receivable 0–30 days	—	276	975
Matured accounts receivable > 30–90 days	—	1,007	1,190
Matured accounts receivable >90–180 days	—	538	2,167
Matured accounts receivable >180–360 days	—	—	433
Matured accounts receivable >360 days	—	—	—
Total	8,959	9,880	14,649

Currency forward contracts

The total value of purchase orders for which current forward contracts have been signed amounted to USD 7.9 M (15.5) on April 30. The value of these outstanding currency forward contracts amounted to a deficit of SEK 2.3 M (deficit: 3.5) on the closing date. The fair value of forward contracts is determined by using the market prices for the forward contracts on the closing date. Hedge accounting does not take place.

Financial risks

In its financial policy for the Hemtex Group, the Board of Directors has established various limits and identified the risks that may be taken. Risk management is intended to identify, quantify and reduce or eliminate risks.

The Group’s financial policy specifies limits for how various types of financial risks shall be managed and defines the risk exposure under which the operations may be conducted. The basic principle is to achieve a low risk profile. The financial policy identifies the risks that arise with regard to currency management, capital procurement and liquidity management.

Currency management:

The policy covers the entire Group’s currency management. Group companies shall operate in only local currency, if possible. All transactions between Hemtex AB and other Group companies take place in each company’s local currency. Currency risks arise due to the following three types of exposure:

Transaction exposure – defined as the net of all contracted commercial inflows and outflows in foreign currency.
Translation exposure – defined as adjusted shareholders’ equity in foreign subsidiaries.
Financial exposure – defined as the shifts in the competitive situation that occur when exchange rates change. Currency risk refers to the effect on earnings resulting from a change in exchange rates.

The single largest transaction exposure is the fluctuation of the USD against the Swedish Krona since most of Hemtex’s goods are purchased in USD. Hemtex hedges the risks identified regarding currency management in accordance with the risk norms established by the Board and included in the policy of established instruments/transactions. To reduce the exchange-rate risk, Hemtex hedges a significant portion of the Group’s contracted flows in foreign currency. In accordance with the Group’s finance policy, at least 65% of contracted flows in USD must be hedged.

All exchange-rate differences that affected earnings during the fiscal year were positive and amounted to SEK 19.9 M (48.9). The change in value of outstanding forward contracts, after applying IAS 39, had a positive impact on gross profit for the year of SEK 1.1 M (neg: 1.0).

Capital procurement

The policy here includes liquidity risk, interest-rate risk, the provision of collateral and guidelines for subsidiaries.

Liquidity risk – defined as the risk that the Group does not have access to or is able to borrow funds for anticipated or unanticipated payments on market terms. Liquidity risk is managed on a short-term basis in that the Group has a liquidity reserve. The liquidity reserve may consist of bank loans, investments in liquid interest-bearing securities and the unutilized portion of approved overdraft facilities.
Interest-rate risk – defined as the risk that the Group’s earnings change as a result of fluctuations in market interest rates. Interest-rate risk is managed by regulating the average fixed-interest period of loans and through the use of interest derivatives.

In conjunction with the implementation of the new share issue, most Hemtex loans were converted. The conversion aims to reduce the rate of amortization and thus improve cash flow for the period. All Hemtex loans mature for payment within five years.

Liquidity management

The Group’s external investments of surplus liquidity are handled by Hemtex AB. Amortization of loans is considered an alternative to external investment. The Board of Directors has prepared guidelines on procedures, permissible instruments and instructions for subsidiary for the risks identified in the financial policy.