Niscayah has significant business and financial risk exposure. The Group’s risk management focuses on identification, analysis and limitation of Niscayah's exposures.
Niscayah is exposed in its ongoing operations to both business and financial risks. The risk exposure may affect the Groups’ financial development and position negatively and therefore well-defined risk managements processes, analyses and assessments are prioritized areas within the Group. Niscayah's risk management aims to identify, analyse and limit the Group’s exposure and its impact on earnings. All risk management emanates from the assessment of the risks’ probability, defined objectives and the Group’s financial targets and is based on policies and guidelines which are established by Niscayah's Board of Directors on a yearly basis.
The business risk exposure is primarely attributable to strategic and legal risks in the current local operations and is linked to customers, suppliers, employees and product liability as well as acquisition situations.
The financial risks mainly arises as a consequence of the Group’s international operations as well as financing needs and relates to changes in interest rate levels and foreign exchange rates, counterparty creditworthiness, refinancing opportunities and outstanding financial instruments.
OrganizationNiscayah's business risks are mainly managed at a local level since the risks arise in the local business operations. At Group level, a risk committee has been established which is responsible for defining guidelines and processes for the Group’s overall risk management and insurance strategy. These are communicated and followed up at a Group level. The Group’s insurance programs are managed and coordinated centrally by Risk Management within the internal bank, Group Treasury.
The Group’s financial risks are managed centrally by Group Treasury that is responsible for establishing and communicating policies and guidelines for local management. Group Treasury has the mandate to enter into external hedging transactions with the aim of managing the Group’s existing financial exposure.
Management of business risks The main objective of Niscayah's business risk management is to limit the number of indemnifications from a reputation and financial perspective. The business risk management focuses on contract management and preventive measures in order to minimize losses and protect customers and employees. Insurance solutions are utilized in order to manage potential financial effects of indemnifications mainly linked to liability and property issues. Continuous assessment is part of the negotiation and contract writing process where the main risk is that future delivery and installation does not correspond to the customer’s expectations or occurrence of personal injury in connection with the project. The Niscayah Group has historically a very limited claim statistics.
Assessment of the defined business risks is based on Niscayah's business risk model which evaluates the risk from four different perspectives. The risk model focuses on important aspects of the project and the customer relationship.
InsurancesAs part of the business risk management, certain operational risks are transferred to the insurance market. The Group’s common insurance programs are managed and procured centrally in order to gain a common view as well as scale benefits. The Group’s insurance programs mainly consists of; General Product and Liability Insurance, Directors’ and Officers’ Liability Insurance, Crime Insurance and Employment Practice Liability Insurance. Based on local requirements and specific risk exposure, the Group’s risk committee has defined which local insurances are mandatory and which insurances should be considered at a local level.
Management of financial risksNiscayah's overall objective for the financial operation is to support the local business activities through securing financing, liquidity management and limitation of the financial risk exposure. The financial risk management is based on established guidelines defining limits for Group Treasury and the subsidiaries.
- Derivate instruments are utilized to manage financial risks in order to minimize the negative effects from the current risk exposure. Primarily, the following financial risks are managed:
Foreign exchange risk; Changes in exchange rates may negatively affect the Group’s future cash flows and earnings. Therefore knowledge regarding the effects that changes in exchange rates have on the Group’s operations is essential in order to ensure effective management. The Group’s foreign exchange exposure is mainly linked to translation of foreign subsidiaries’ balance sheets and income statements as well as to cash flows in foreign currency.
- Interest rate risk; Changes in interest rates may affect the Group’s earnings negatively. The interest rate risk exposure in existing loan financing, which is based on floating interest rates, is managed by interest rate derivates which adjusts the duration.
- Refinancing risk; With the aim to secure the Group’s continued capital requirements without limited financing possibilities or without significant higher cost, an appropriate balance is required between short-term, medium-term and long-term financing. The objective is also a diversification between different financing forms and markets.
- Liquidity risk; With the aim of minimizing the risk that sufficient liquid funds are not available, a strategic liquidity reserve is held at Group level. The level of the reserve shall ensure that business operations can be maintained at a normal level at any time.
- Credit and counterparty risk; The risk for losses when counterparties do not fulfil their obligations or could not issue similar guarantees, is managed by only accepting counterparties with sufficient credit worthiness. All financial counterparties are assigned limits and derivative transactions may only be executed with counterparties where international standardized netting agreements, ISDA agreements, have been established.
FinancingNiscayah has signed a Credit -Facility of MSEK 3,000. At year-end MSEK 1,942 of the available credit facility was utilized. The underlying loans conditions are based on floating interest rates and by the use of interest rates derivates the average duration has been extended at favourable rates and was per December 31, 2006, 17.8 months.
IT Security Niscayah has a IT-security policy which specifies how IT and information security shall be managed within the Group. The security policy includes among other things, risk assessment, allocation of responsibility, network and communication, IT equipment, IT system and access rights. The IT policy is revised annually.
Sensitivity analysis The table below shows how changes in important factors affect the Group’s net earnings, all else equal. The different risk management measures that Niscayah applies, based on established policies has not been considered.
| Change in income before tax |
|
| MSEK |
+/- 1%-unit |
| Price change |
63.7 |
| Production expenses |
40.2 |
| Selling and administrative expenses |
17.5 |
| Interest expense |
14.6 |
|
|