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Financial risks

The group is exposed to various types of financial risks in its operations, such as a financing risk, liquidity risk, credit risk, interest rate risk and currency risk. The group’s finance policy forms a framework of guidelines and rules as well as risk mandates and limits. The responsibility for the group’s financial transactions and risks is handled by the CFO in consultation with the board of directors. The goal is to ensure cost-efficient financing and to minimize any negative effects on the group’s earnings as a consequence of changes in the market.

Risks

1. Currency risks

Balco is affected by currency risks which can be broken down into transaction exposure and recalculation exposure. Transaction exposure arises when a sale or purchase price is stated in a foreign currency. Balco is primarily exposed to changes in EUR, NOK and DKK in relation to SEK. Recalculation exposure arises when the balance sheet and income statements of the subsidiaries or recalculated from the local currency into SEK.

2. Financing and liquidity risks

There is a risk that the company’s financing opportunities may be rendered more difficult or more costly. Even if the company’s financial position is currently good, the company may require access to additional financing. Balco conducts project operations within which sales, earnings and thus liquidity are affected by fluctuations.

3. Interest risk

Interest rate risk refers to the manner in which changes in market rates affect Balco’s earnings as well as the valuation of financial instruments and Balco’s goodwill. The speed and degree to which changes in market rates affect net interest income/expense depend primarily on the chosen principal and fixed interest period. Balco is exposed to interest rate fluctuations due, among other things, to its financing arrangements at variable interest rates. 

4. Credit risks

Balco’s credit risk is primarily related to the risk that the company’s customers will not make timely payment of their invoices.

Risk management

1. Currency risk 

Balco has a finance policy which makes it possible to handle its risks through currency hedging. The transaction exposure is primarily handled through natural hedges, which entail that purchases are made in the same currency as the cash flow from revenues.

2. Financing and liquidity risks

The group has ample lead times on its projects which provides relatively good visibility and possibilities for planning. The company strives to maintain sufficient liquidity reserves and, where necessary, has access to an overdraft facility in order to secure sufficient liquidity reserves.

3. Interest rate risk 

This risk is handled through targets for the future debt-equity ratio and the spreading out of maturity dates for future loan financing. The existing loan structure entails a low level of exposure.

4. Credit risks

Balco’s customers consist largely of tenant-owner associations and construction companies. A financial report and review of the customer’s finances is made at the start of each project in order to ensure the financial stability of the contracting party. The fees for a significant portion of the projects are paid in advance.