Note 34 – Management of capital risk
Capital risk
Capital risk comprises refinancing and liquidity risks, and these risks arise if the company cannot meet payment obligations due to a liquidity shortage or difficulties obtaining loans from external sources.
The risk is managed within Duni by Treasury ensuring that sufficient cash and cash equivalents are available through financing, agreed credit facilities (these are described in greater detail in Note 29) and the possibility to close market positions. Excess liquidity is centralized via the Group’s cash pools. Treasury manages liquidity both within and between these cash pools. On December 31, 2019, Duni’s liquidity totaled SEK 311 m (260) along with a non-utilized credit facility of SEK 1,050 m (843). Payments for coming periods relating to financial liabilities are shown in the tables below.
Duni’s credit facility is subject to covenants consisting of a financial key ratio as well as a number of non-financial conditions. The financial key ratio comprises financial net debt as a percentage of the underlying EBITDA. The interest margin is calculated based on the same key ratio and adjusted based on given levels each quarter. This key ratio is used solely for compliance with the credit facilities and is thus not a key ratio defined by Duni.
Duni’s financing agreement was signed on December 18, 2017. The financing is long term and consists of two loan facilities with revolving borrowing in EUR. The two facilities total EUR 200 m. During the year, Duni took out additional financing in the amount of EUR 30 m with quarterly repayments and exercised an extension option to extend the maturity of an existing EUR 150 m credit facility by one year. The EUR 150 m facility matures in December 2022 and the EUR 50 m facility matures in July 2021.
Duni has the possibility to freely use the facilities based on the Company’s liquidity needs within the term of the facility. In addition to this financing, there is a put call totaling EUR 20 m which matures in May 2020. There are overdraft facilities in place totaling EUR 10 m that had not been used at December 31, 2019.
The table below shows the Group’s contracted outstanding non-discounted interest payments and repayments on financial liabilities and liabilities regarding derivative instruments:
| 1 to 3 months | 3 to 12 months | Later than 1 year but within 5 year | |||||||
| SEK m | Book value | Interest rate | Amortization | Interest rate | Amortization | Interest rate | Amortization | ||
| 1 till 3 månader | 3 till 12 månader | Senare än 1 år men inom 5år | |||||||
| MSEK | Bokfört värde | Ränta | Amortering | Ränta | Amortering | Ränta | Amortering | ||
| Bank loans | Banklån | -1,396 | -1 | – | 0 | -271 | – | – | |
| Overdraft facility | Checkräkningskredit | 0 | – | 0 | – | – | – | – | |
| Accounts payable and other liabilities | Leverantörsskulder och övriga skulder | -657 | – | -657 | – | – | – | – | |
| Currency forward contracts1) | Valutaterminskontrakt1) | 0 | – | – | – | – | – | – | |
| – Interest rate swap | – Ränteswap | 0 | 0 | – | 0 | 0 | 0 | – | |
| – Liability for put option of minority owners | – Skuld avseende minoritetsägares säljoption | -365 | – | – | – | -23 | – | -342 | |
| Derivative instruments – Liabilities | Derivatinstrument – Skulder | -365 | 0 | 0 | 0 | -23 | 0 | -342 | |
| Currency forward contracts1) | Valutaterminskontrakt1) | 1 | – | – | – | – | – | – | |
| – Interest rate swap | – Ränteswap | 0 | – | – | – | – | – | – | |
| Derivative instruments – Assets | Derivatinstrument – Tillgångar | 1 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Sum | Summa | -2,417 | -1 | -657 | 0 | -294 | 0 | -342 | |
The market value of the derivative instruments is broken down by derivative type as follows:
| SEK m | 2019 | 2018 | ||
| MSEK | 2019 | 2018 | ||
| Bank loans | Currency forward contracts | Valutaterminskontrakt | 1 | 1 |
| Interest rate swap | Ränteswap | 0 | -3 | |
| Liability for put option of minority owners* | Skuld avseende minoritetsägares säljoption* | -365 | -348 | |
| Sum | Summa | -364 | -350 |
Financial currency forward contracts relate to both internal and external liabilities and receivables. The above presentation includes all financial liabilities and derivative instruments with negative and positive values. Amounts in foreign currency and amounts paid based on a variable rate of interest have been estimated through the use of the prevailing exchange rates on the balance sheet date and the most recent interest rate adjustments. Total repayment does not always correspond to the book value. This is due to the fact that the Group’s transaction costs in connection with the arrangement of loans are booked against the loan. Currency forward contracts are settled gross. All flows are due and payable within one year.
The table below shows these currency forward contracts, broken down by the time remaining on the balance sheet date until the contractual expiration date. The amounts stated below are the contractual non-discounted amounts.
| SEK m | 2019 | 2018 | ||
| MSEK | 2019 | 2018 | ||
| Bank loans | Currency forward contracts | Valutaterminskontrakt | ||
| – Inflow according to contracts for financial assets and liabilities | – Inflöde avseende kontrakt för finansiella tillgångar och skulder | 649 | 394 | |
| – Outlow according to contracts for financial assets and liabilites | – Utflöde avseende kontrakt för finansiella tillgångar och skulder | -649 | -393 |
All flows are due and payable within one year. Financial currency forward contracts relate to both internal and external liabilities and receivables.
The above presentation includes all financial liabilities and derivative instruments with negative and positive values. Amounts in foreign currency and amounts paid based on a variable rate of interest have been estimated through the use of the prevailing exchange rates on the balance sheet date and the most recent interest rate adjustments. Total repayment does not always correspond to the book value. This is due to the fact that the Group’s transaction costs in connection with the arrangement of loans are booked against the loan.
Impact of hedge accounting on the Group’s financial position and performance
The effects of hedge accounting of the impact of currency risks on the Group’s financial position and performance are shown below:
Net investment in foreign operations
| 2019 | 2018 | |||
| 2019 | 2018 | |||
| Recognized amount (AUD m) | Redovisat belopp (MAUD) | 65 | 63 | |
| Nominal amount of hedging instruments (AUD m) | Säkringsinstrumentens nominella belopp (MAUD) | 21 | 21 | |
| Hedge ratio | Säkringskvot | 32% | 34% | |
| Weighted average of forward prices during the year (including forward points) | Vägda genomsnittet för terminskurser under året (inklusive terminspunkter) | 6.4991 | 6.3807 |
Derivative instruments - Interest rate swaps
| 2019 | 2018 | |||
| 2019 | 2018 | |||
| Recognized amount (EUR m) | Redovisat belopp (MEUR) | 15 | 40 | |
| Maturity date | Förfallodag | 2022-12-19 | 2019-08-07 | |
| Nominal amount of hedging instruments (EUR m) | Säkringsinstrumentens nominella belopp (MEUR) | 15 | 40 | |
| Hedge ratio | Säkringskvot | 11% | 28% | |
| Weighted average of the variable interest rate during the year | Vägda genomsnittet för den rörliga räntan under året | 0.39% | -0.324% |
Hedge reserve
| SEK k | Interest rate swaps | Currency forwards | ||
| TSEK | Ränteswappar | Valutaterminer | ||
| Balance at 1/1/2018 | Balans 2018-01-01 | -3,895 | 0 | |
| Plus: Change in fair value of hedging instrument recognized in other comprehensive income | Tillkommer: Förändring i verkligt värde på säkringsinstrument redovisade i ÖTR | 2,952 | 3,267 | |
| Less deferred tax | Avgår uppskjuten skatt | -662 | -699 | |
| Balance at 12/31/2018 | Balans per 2018-12-31 | -1,605 | 2,568 | |
| Plus: Change in fair value of hedging instrument recognized in other comprehensive income | Tillkommer: Förändring i verkligt värde på säkringsinstrument redovisade i ÖTR | 2,060 | -4,981 | |
| Less deferred tax | Avgår uppskjuten skatt | -431 | 996 | |
| Balance at 12/31/2019 | Balans per 2019-12-31 | -24 | -1,417 |
Capital structure
Duni’s objective with respect to its capital structure is to ensure the Group’s ability to continue its operations. The Group assesses capital on the basis of the net debt/equity ratio. This key ratio is calculated as interest-bearing net debt divided by total capital. The interest-bearing net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as total equity in the consolidated balance sheet plus net debt.
The net debt/equity ratio is as follows:
| Group | ||||
| SEK m | 2019 | 2018 | ||
| Koncernen | ||||
| MSEK | 2019 | 2018 | ||
| Total borrowings | Total upplåning | 1,396 | 1,502 | |
| Overdraft facilities | Chekräkningskredit | 0 | 0 | |
| Other long-term receivables | Andra långfristiga fordringar | 195 | 2 | |
| Allocation to pensions | Avsättningar till pensioner | 276 | 255 | |
| Group loan / receivables | Koncern lån / fordringar | -10 | -9 | |
| Less: cash and cash equivalents | Avgår: likvida medel | -311 | -260 | |
| Interest-bearing net debt1) | Räntebärande nettoskuld1) | 1,546 | 1,490 | |
| Total equity | Totalt eget kapital | 2,664 | 2,616 | |
| Total capital | Totalt kapital | 4,210 | 4,106 | |
| Net debt/equity ratio | Skuldsättningsgrad | 37% | 36% | |