Management of financial risks
In its normal business operations, the Group is exposed to many financial risks, the principal types of which are currency and interest-rate risks. The objective of the Group’s risk management is to minimise the adverse effects of changes in the financial market on the Group’s financial performance. The general principles of the Group’s risk management are adopted by the Board of Directors. Practical implementation of financial risk management is the responsibility of the Group’s CFO, with such management comprising the identification and assessment of the risks and furnishing the Group with the necessary instruments of risk hedging. In risk management, the Group can employ currency forwards and options, interest rate swaps and electricity derivative contracts. The Group does not engage in hedge accounting under IFRS 9.
Exchange rate risk
Tokmanni Group’s business is exposed to risks arising from exchange rate fluctuations caused by both transaction risks arising from the cash flows of income and expenses in different currencies, and from translation risks arising from the translation of the income statements and balance sheets of foreign subsidiaries into the Group currency. The Group seeks to manage currency risks in a variety of ways, such as by using natural hedging or by entering into contracts that hedge the company against fluctuations in exchange rates. Management continuously monitors exchange rate developments and, where necessary, takes strategic decisions to manage exchange rate risks.
The most significant foreign currencies for the Group are the US dollar (USD) and the Swedish krona (SEK). The US dollar is the most significant non-euro purchasing currency of Tokmanni Group. The importance of the Swedish krona is due to the acquired subsidiary operating in its domestic currency.
Transaction risks
Unfavourable changes in foreign exchange rates can raise the acquisition costs of products purchased in other currencies than the euro. Under Tokmanni Group’s hedging principles, about half of the purchases in USD are hedged every month for an average length of six months. Currency hedging takes place through forward exchanges and currency options. The Group’s import and finance departments collaborate to draft a monthly updated estimate of the purchases in USD.
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The Group’s USD positions (in euro) at the end of the reporting period
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2023
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2022
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1,000 EUR
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|
|
|
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Trade creditors
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-19 413
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-6 361
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Cash and cash equivalents
|
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1 282
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-
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Total
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-18 132
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-6 361
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|
|
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Forward exchange agreements and currency options
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23 077
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14 063
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|
|
|
|
|
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Position total
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4 945
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7 702
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|
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Currency derivatives are recognised at their acquisition value and are measured at the end of the financial period at their fair value in profit or loss.
The table below shows the impacts on the Group’s result prior to taxes, as well as the impact on equity. Should the euro strengthen or weaken against the USD (+/- 10%), with the other factors remaining unchanged, the Group’s result after taxes would be affected by EUR 396 thousand (616 thousand) positively or negatively. The sensitivity analysis is based on the currency position on the last day of the reporting period.
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2023
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2022
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1,000 EUR
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USD
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USD
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Change
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+/-10 %
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+/-10 %
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Effect on profit after tax
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396
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616
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Effect on equity
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|
-
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-
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Translation risks
Investments in subsidiaries outside the euro area expose Tokmanni Group to foreign exchange risk arising from the consolidation of the assets, liabilities and income of non-euro-denominated subsidiaries into the Group currency. The balance sheets are translated into euros at the exchange rate of the balance sheet date, and the resulting exchange differences are recognised directly in equity. If a foreign subsidiary is sold, the accumulated translation differences are recognised in the income statement. The Group systematically monitors translation risk and assesses the potential need for hedging. Hedging of translation risk has not been considered necessary to date.
The table below shows the Group’s non-euro-denominated equity in euros, and the potential impact on the Group’s equity if the euro strengthens or weakens by +/-10%, other factors remaining unchanged.
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Net investments
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2023
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2022
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1,000 EUR
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SEK
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DKK
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SEK
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DKK
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Non-euro-denominated equity
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159 937
|
423
|
-
|
-
|
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Change
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+/-10 %
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+/-10 %
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+/-10 %
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+/-10 %
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Effect on equity
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15 994
|
42
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-
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-
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Interest rate risk
The Group's revenues and operational cash flows are largely independent of fluctuations in the market rates of interest, and, therefore, the Group’s exposure to interest rate risks is mainly related to its external loan portfolio. According to its risk management principles, the Group aims to have at least two-thirds of the loans with fixed interest rates or hedged against interest rate changes, subject to discretion of the Board of Directors. The Board of Directors evaluates the Group’s exposure to interest rate risks and the level of hedging on a regular basis and makes interest rate hedging decisions if needed. The average annual rate of the Group’s interest-bearing liabilities excluding IFRS 16 finance liabilities was 4.7% (1.2%).
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The following table shows the Group’s interest position at the end of the reporting period
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1,000 EUR
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2023
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2022
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|
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Floating interest rate
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0
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0
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Financial liabilities
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300 000
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100 000
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The table below shows the impacts on the Group’s profit after taxes, as well as the impact on equity. Should the interests increase or decrease +/- 1.0 percentage points (+/- 0.5), with the other factors remaining unchanged, the Group’s profit after taxes would be affected by EUR 2 400 thousand (EUR 800 thousand) negatively or positively. The sensitivity analysis is based on the floating interest rate position at the end of the reporting period.
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1,000 EUR
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2023
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2022
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Change
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+/-1.0%
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+/-1.0%
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Effect on profit after tax
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2 400
|
800
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Effect on equity
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|
-
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-
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Credit risks
The Group’s credit exposure is constituted of the credit risk related to the receivables from business operations, and the counterparty risk associated with other financial instruments. The Group has no significant credit risk concentrations related to receivables because its clientele is widely spread, the sales are mainly retail sales against cash, and no single customer or group of customers is dominant from the Group's perspective. Note 3.4 Other receivables and income tax receivables presents the breakdown of trade receivables by maturity. The credit losses with impact on profit or loss incurred during the financial period were not significant. The maximum amount of the Group’s credit loss corresponds to the carrying amount of financial assets at the end of the reporting period (Note 4.2 Financial assets and liabilities).
Part of the purchases from the Far East need to be paid in advance, and the respective risk is minimised by long-term cooperation with suppliers. The Group has a procurement company in Shanghai, China together with the Norwegian discount store chain, Europris AS. The company is the cornerstone of goods procurements made in China and the Far East. The company’s operations include identifying and selecting local suppliers, ensuring the correct quality, monitoring delivery times, and ensuring responsible operations on the part of suppliers. The Shanghai company has 33 employees.
Liquidity risk
The Group seeks to follow the financing required in business operations by analysing the sales cash flow forecasts in order to have sufficient liquid assets to fund the operations and to repay loans at maturity.
The availability and flexibility of the Group's financing is guaranteed through sufficient credit facilities, balanced maturity distribution of the loans and sufficiently long loan periods, and by using several financial institutions and forms for the procurement of funding. On December 31, 2023 the Group had a total EUR 216 million (EUR 206 million) in credit facility reserve, including the commercial paper programme.
The company’s loan of EUR 100 million drawn under the financing agreement signed in February 2021 will mature in February 2026. The financing agreement includes a credit facility of EUR 50 million. An additional loan of EUR 180 million was added to the existing financial agreement on July 7 2023, of which EUR 175 million were drawn on August 1, 2023 to finance the acquisition of Dollarstore. The loan period is four years and is paid EUR 30 million annually. The last payment is made on July 7, 2027.
The Group has not identified any significant liquidity risk concentration in relation to its financial assets or sources.
Liability-related defaults and violations of contractual terms
Loans from financial institutions contain a covenant according to which the Group has to achieve a certain ratio of net debt in relation to adjusted EBITDA. Operations in accordance with the loan covenants are reported lenders on a quarterly basis. The Group's management monitors compliance with loan covenants on a regular basis. The additional loan drawn in August 2023 is subject to the existing covenant condition, which determines the required net debt/EBITDA ratio. In 2023, Tokmanni has met the required covenant.
Maturity of contractual cash flows of non-derivative financial liabilities
The table below includes all the instruments in force at the closing of the accounts, as well as their contractual loan principals and interests. The amounts are undiscounted and they include both the future interest payments and the principal repayments.
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Maturity of contractual cash flows of non-derivative financial liabilities 2023
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|
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1,000 EUR
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Carrying amount 31 Dec 2023
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Cash flows based on agreements
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Less than 1 year
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1-5 years
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Over 5 years
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Loans from financial institutions and corporations*
|
298 997
|
336 126
|
69 713
|
266 413
|
-
|
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Lease liabilities
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565 134
|
682 585
|
115 861
|
369 286
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197 439
|
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Trade payables
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159 746
|
159 746
|
159 746
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-
|
-
|
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Total
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1 023 877
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1 178 457
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345 319
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635 699
|
197 439
|
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* Loans from financial institutions, adjusted with arrangement fees paid and corporate loans
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|
|
|
|
|
|
|
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Maturity of contractual cash flows of non-derivative financial liabilities 2022
|
|
|
|
1,000 EUR
|
Carrying amount 31 Dec 2022
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Cash flows based on agreements
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Less than 1 year
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1-5 years
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Over 5 years
|
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Loans from financial institutions *
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109 465
|
115 829
|
11 857
|
103 972
|
-
|
|
Lease liabilities
|
282 976
|
313 548
|
67 418
|
183 212
|
62 919
|
|
Trade payables
|
77 854
|
77 854
|
77 854
|
-
|
-
|
|
Total
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470 294
|
507 232
|
157 128
|
287 184
|
62 919
|
|
* Loans from financial institutions, adjusted with arrangement fees paid
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|
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Maturity of contractual cash flows of derivative financial liabilities
The cash flows related to currency and electricity derivative contracts are based on their fair values at the end of the reporting period with the maturity corresponding to the due date. Potential cash flows related to interest derivatives are disclosed in net.
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Maturity of contractual cash flows of derivative financial liabilities 2023
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|
1,000 EUR
|
|
Carrying amount 31 Dec 2023
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Cash flows based on agreements
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Less than 1 year
|
1-5 years
|
|
Foreign exchange forward contracts and options
|
|
326
|
326
|
326
|
-
|
|
|
|
|
|
|
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Maturity of contractual cash flows of derivative financial liabilities 2022
|
|
1,000 EUR
|
|
Carrying amount 31 Dec 2022
|
Cash flows based on agreements
|
Less than 1 year
|
1-5 years
|
|
Foreign exchange forward contracts and options
|
|
605
|
605
|
605
|
-
|
|
|
|
|
|
|
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Electricity price risk
The Group is exposed to commodity risks in its operations, caused by the possible impacts of the electricity price risk on the Group's energy costs. The Group can hedge itself against electricity price changes through electricity derivative contracts in line with the policy determined by the Board of Directors, at most up to the amount corresponding estimated electricity consumption. The Group hedges against electricity price risk by purchasing fixed-price electricity, which covers about 70% of consumption one year ahead and decreases gradually over 3-4 years. At the end of financial periods 2023 and 2022 Group had no active electricity derivative contracts.
Further reading
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