Financial risks include, but are not limited to, risks related to adequate capitalisation and financing, currency, interest rate and credit risks. Financial risks are managed through accounting and financial rules as well as audits. The Group’s cash flow planning is the responsibility of the financial unit, which constantly monitors the cash positions and projections of the subsidiaries. Within the framework of the regular budgeting procedure established in the Group, the Group’s annual forecasts are updated three times a year.
Credit risk is the potential loss that arises if counterparties fail to meet their contractual obligations. To reduce credit risk, the payment behaviour of customers is constantly monitored, their financial position and business prospects are analysed along with their business logic and its compatibility with the general development of the economy as well as that of the respective economic sector. If necessary, third parties are involved in transactions as guarantors to mitigate risks. Construction activities are financed in part by advance payments from the customers, for which customers are usually given a bank guarantee.
Available funds are mainly held in current accounts or term deposits with Swedbank, SEB, Luminor and OP Corporate Bank group. Swedbank and SEB Group banks operating in the Baltics do not have a separate credit rating from Moody’s. Swedbank Group’s parent company Swedbank AB has a long-term credit rating from Moody’s of Aa2, and SEB Group’s parent company Skandinaviska Enskilda Banken AB also has a long-term credit rating from Moody’s of Aa2. OP Corporate Bank PLC has a long-term credit rating from Moody’s of Aa3, and Luminor Bank has a long-term credit rating from Moody’s of Baa1. Although cash and cash equivalents also fall under the expected credit loss model of IFRS 9, the management estimates that the Group has no significant credit risks in terms of cash and cash equivalents.
The company’s liquidity or solvency reflects its ability to meet its payment obligations to creditors on time. In addition to short-term working capital, the Group uses working capital loans from credit institutions to better manage cash flows and ensure liquidity. According to the management, the capital structure of the Group at present ensures reliability for creditors. It also allows for the extension of existing financial commitments and the mobilisation of additional working capital where necessary.
Due to differences in the interpretation of the agreements, regulations and laws related to the Group’s core business, there is a risk that a customer, contractor or supervisory body may assess the company’s compliance with contractual agreements or legal requirements on a different basis and challenge the legality of the company’s operations.