Note 29 Financial risk management and financial instruments

Note 29 Financial risk management and financial instruments

PostNord’s Treasury Policy, adopted by the Board of Directors, governs PostNord’s financial risk management activities. The Treasury Policy includes guidelines for liquidity management, financing and financial risk management. For details on PostNord’s financial risks and risk management policy, please see the Risks and Risk Management section.

PostNord’s financial risks are divided into the categories refinancing risk, credit risk and market risk.

Refinancing risk

PostNord shall ensure sufficient payment readiness through a combination of cash and cash equivalents, committed unutilized credit lines and unconfirmed credit lines. PostNord uses cash pools to optimize and centralize liquidity management. Treasury management shall maintain payment readiness of at least SEK 1,500m for the coming 360 days and shall ensure that the maturity structure of the financing portfolio is well diversified. At year-end, liquidity reserves were as follows:

Cash and cash equivalents, SEKm Dec 31, 2013 Dec 31, 2012
Bank balances 1,521 1,885
Commercial paper 295 1,032
Other investments 10 13
Unutilized confirmed credit limits 2,000 2,000
Total liquidity reserves 3,826 4,930
Unutilized amount, CERT program 2,800 2,600
Unutilized amount, MTN program 3,060 3,460
Unutilized amount, other credit limits 118 160
Total unutilized credit facilities 5,978 6,220
Total 9,804 11,150

Maturity Structure 2013

Maturity Structure 2012

Credit risk

The group’s business activities give rise to credit risk exposure in relation to counterparties. Credit risk and counterparty risk refer to the risk of loss if the counterparty fails to meet its contractual obligations. Credit risk arises partly through sales to customers, extending advances to suppliers or accepting guarantees, and partly through Treasury’s liquidity management or utilization of derivative contracts.

Credit risk from accounts receivable

Credit risk in connection with credit sales to customers is managed by the individual business areas. Before credit is granted, all customers undergo a credit check in which data on the customer’s financial position is obtained from a credit-rating agency. Large lines of credit require head office approval. In 2013, the group’s aggregate accounts receivable totaled SEK 4,632m (4,718) and the group’s reported losses on accounts receivable totaled SEK 25m (33).

Credit risk in finance activities

Credit risk in financial transactions is managed by Treasury with a credit limit based on ratings from Moody’s, Standard & Poor’s or a corresponding official rating agency. Trade is regulated through decisions on maximum credit risk per debtor. All counterparties undergo a credit check before qualifying as a debtor.

Ageing of accounts receivable Dec 31, 2013 Dec 31, 2012
Accounts receivable, undue 4,063 3,784
Accounts receivable, due, not impaired

1–5 days 280 534
6–20 days 163 139
21–30 days 52 79
31–60 days 53 162
61–90 days 27 14
>90 days 52 57
Total 4,690 4,769
Provision for bad debts –58 –51
Total 4,632 4,718

Market risk

Currency risk

PostNord uses forward currency contracts and currency swap contracts to control its currency risk. Forward currency contracts are used to hedge risk associated with receivables and current liabilities and with the purchase of capital goods. Other future cash flows are not hedged. Currency swap contracts are used in conjunction with the group’s management of excess liquidity.

Currency exposure


2013 2012
Currency Position Secu- red Net position Position Secu- red Net position
CHF



1 1
DKK –166 157 –9 –1,786 1,785 –1
EUR –150 165 15 –95 116 21
GBP 45 –42 3 79 –68 12
JPY –4 3 –1 –4 3 –1
NOK 372 –389 –17 389 –384 5
PLN 44 –44



SGD 12 –12



USD –12 19 7 –21 23 2
Total 141 –143 –2 –1,436 1,476 40

PostNord’s greatest currency exposure arises through the translation of the net assets of foreign subsidiaries (translation exposure). The greatest exposure arises in DKK, NOK and EUR. Pursuant to PostNord’s Treasury Policy, translation exposure is not hedged. Translation exposure is limited, however, by securing commercial solvency levels in group companies.

Translation exposure


Dec 31, 2013 Dec 31, 2012
Currency SEKm % +/–1% SEKm % +/–1%
AUD 2 0
4 0.1
DKK 3,693 60.8 37 5,077 67.2 51
EUR 458 7.6 5 429 5.7 4
GBP 86 1.4 1 107 1.4 1
HKD 31 0.5
20 0.3
NOK 1,743 28.7 18 1,995 26.4 20
PLN 17 0.3
18 0.2
SGD 21 0.3
–118 –1.6
USD 26 0.4
20 0.3
Total 6,077 100 61 7,552 100 76

Interest rate risk

Fluctuations in interest-rate levels have a limited effect on PostNord’s profit. A change of +/– 1 percentage point in the market rate as of December 31, 2013, all other things being equal, has a pre-tax effect on earnings of SEK –3m (10). At year-end, 53% of the group’s debt portfolio had a variable rate of interest, as compared to 62% in 2012. To reduce profit sensitivity to interest rate changes, PostNord entered into variable- to-fixed rate interest swaps totaling SEK 500m.

Debt Portfolio, Dec 31, 2013 Interest payable SEKm Duration, yrs
Property loan, variable rate 2014-06-30 788 0.5
Property loan, fixed rate 2015-03-31 408 1.2
MTN, variable rate 2014-03-20 1,000 0.2
MTN, fixed rate 2017-09-20 1,000 3.5
MTN, variable rate 2013-03-04 390 0.2
MTN, fixed rate 2015-06-03 150 1.4
MTN, variable rate 2019-06-12 400 0.2
Commercial paper 1–7 billion 200 0.3
Credit line
61 0.0
Total
4,397 1.3
Interest swap, MTN to fixed interest 2–5 years 500 3.3
Duration, debt portfolio with interest swap

1.6
Investment portfolio


Accounts
1,816
Commercial paper
295 0.1
Total
2,111 0.1
Profit sensitivity, upcoming 12-month period, net

–2.7
Debt Portfolio, Dec 31, 2012 Interest payable SEKm Duration, yrs
Property loan, variable rate 2013-06-30 759 0.5
Property loan, fixed rate 2015-03-31 393 2.2
MTN, variable rate 2013-03-20 1,000 0.2
MTN, fixed rate 2017-09-20 1,000 4.4
MTN, variable rate 2013-03-04 390 0.2
MTN, fixed rate 2015-06-03 150 2.4
Commercial paper 1–7 billion 400 0.3
Credit line
17
Total
4,109 1.5
Investment portfolio


Accounts
1,885
Commercial paper
1,046 0.1
Total
2,931 0.1
Profit sensitivity, upcoming 12-month period, net

9.5

Maturity structure of PostNord Group currency and interest/futures contracts, 2013, nominal amounts

Maturity structure, derivatives, Dec 31, 2013 <3 months 3–6 months 6–12 months 1–5 years Total
Interest derivatives




SEK, variable to fixed interest


500 500
Currency derivatives




CHF 5


5
DKK 157


157
EUR 98 15 48 7 168
GBP –42


–42
HKD –11


–11
JPY 2


2
NOK –408
–163
–571
PLN –73


–73
USD 20


20
Total –252 15 –115 507 155

Maturity structure of PostNord Group currency and interest/futures contracts, 2012, nominal amounts

Maturity structure, derivatives, Dec 31, 2012 <3 months 3–6 months 6–12 months 1–5 years Total
Interest derivatives




SEK, variable to fixed interest




Currency derivatives




CHF 9 8 7 4 28
DKK 1,786


1,786
EUR 132 35 78 30 275
GBP –68


–68
JPY –3


–3
NOK –366


–366
PLN –25


–25
Total 1,465 43 85 34 1,627

Market risk in asset management

Asset management is carried out in the group’s affiliated agencies Posten’s Pension Fund and Posten’s insurance association. The agencies manage assets that safeguard payments of certain of the group’s commitments such as future pensions, sickness benefits and family pensions. Asset management includes the investment of capital in various markets and instruments. Through board representation, PostNord advocates a prudently managed diversification between asset classes in Posten’s Pension Fund and Posten’s insurance association in relation to PostNord’s underlying commitment and expected returns.

Financial instruments, accounting treatment and fair value valuation

The fair value of loans is calculated as the discount value of future cash flows as regards repayment of principal and interest. Value is discounted to actual lending rate.

For accounts receivable and accounts payable with a remaining credit period of less than one year, the book value is considered to constitute fair value. Accounts receivable and accounts payable with a remaining useful life of more than one year are discounted when the fair value is ascertained.

Some of the group’s financial instruments are reported at fair value and valuation is determined in accordance with the three levels set forth in IFRS 7, described below.

Reported and fair value of financial assets, SEKm Dec 31, 2013 Reported value Dec 31, 2012 Reported value
Financial investments

Endowment insurance policy reported at fair value in income statement 145 143
Other financial investments 66 73
Other financial assets

Currency derivatives reported at fair value in income statement 12 5
Accounts receivable

Accounts receivable 4,632 4,718
Other receivables

Terminal settlements reported at fair value in income statement 334 282
Short-term investments

Interest-bearing receivables 163 4
Cash and cash equivalents

Commercial paper reported at fair value in income statement 295 1,046
Cash and bank balances 1,678 2,000
Total financial assets 7,325 8,271
Long-term interest-bearing liabilities

Financial liabilities reported at accrued acquisition value 4,315 3,845
Other long-term liabilities

Financial liabilities reported at accrued acquisition value 79 37
Current interest-bearing liabilities

Financial liabilities reported at accrued acquisition value 274 467
Accounts payable

Financial liabilities reported at accrued acquisition value 2,878 2,514
Other accounts payable

Terminal fees reported at fair value in income statement 289 429
Currency derivatives reported at fair value in income statement 8 16
Financial liabilities reported at accrued acquisition value 1,974 2,293
Total financial liabilities 9,817 9,601

1) The fair value of financial liabilities at accrued acquisition value is SEK 4,196m (3,722).

Level 1

The fair value of financial instruments is determined based on listed market prices on balance sheet date without deducting transaction costs. Level 1 essentially includes treasury bills and standardized derivatives for which the listed price is used in valuation. The Group currently has no financial assets or liabilities based on this valuation level.

Level 2

The fair value of financial instruments is determined based on valuation models that are based on other observable market data. Examples of level 2 observable data are market rates of interest and yield curves. In cases where listed price is unavailable, straight interpolation is applied.

Level 3

The fair value of financial instruments is determined based on valuation models under which considerable input is derived from non-observable market data. The Group currently has no financial assets of liabilities based on this valuation level.


31 dec 2013 31 dec 2012
Financial assets and liabilities per level, SEKm Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Financial assets





Endowment insurance policy
145

143
Currency derivatives
12

5
Terminal settlements
328

282
States and municipalities



298
Commercial paper
295

748
Total financial assets
786

1,476
Financial liabilities





Currency derivatives
8

16
Terminal settlements
289

429
Total financial liabilities
297

445