Note 11 - Financial risk management
Financial risk management
The Group is exposed to various financial risks through its operations: currency risk, interest risk, credit risk and liquidity risk. The Group’s overall risk management policy focuses on the unpredictability of the financial markets and aims to minimise potentially harmful effects of the Group’s financial result.
Risk management is managed by a central finance department in conjunction with a hedging department in accordance with the policies determined by the Board. The departments evaluate and hedge financial and other risks in collaboration with other operating units in the Group. The Board has prepared policies for overall risk management as well as for specific areas.
Currency risk
The Group is only active in Sweden but is exposed to currency risks that arise from currency exposures pertaining to the purchasing of specialised equipment and printing of lotteries, as well as the sale of licenses for the gaming management tool PlayscanTM. The exposure is to EUR, USD, as well as CHF and GBP. Currency risks arise only through future business transactions when the Group does not have any assets or liabilities in currencies other than SEK nor any net investments in foreign operations.
The Group’s finance policy requires that it handle currency risk against the functional currency by using futures contracts. This means that 100 % of the contracted currency flows are to be hedged when the contract is signed. Forecast flows are to be hedged to a level of 50–100 % over a period of six to twelwe months. Planned investments that involve significant insecurity, such as with regard to the currency and size of the flow, are not to be hedged before the contract is signed.
The Group’s transaction exposure expressed in the equivalent amounts in SEK million is allocated among the following currencies:
| Currency | 2010 | 2009 |
| EUR | 132.3 | 179.1 |
| USD | 8.8 | 5.6 |
| CHF | 1.0 | 1.3 |
| GBP | 1.5 | 2.8 |
| Total | 143.6 | 188.8 |
As more or less all consolidated revenue and expenses consist of payments in SEK and the currency risk pertaining to future business transactions is covered by futures, the remaining currency risk is negligible. Changes in the value of the Group’s functional currency in relation to other currencies have thus not had any short-term impact on the Group’s earnings.
Interest-rate risk
The Group’s interest risks pertain to interest rate fluctuations that concern investments in real interest rate bonds and surplus liquidity investments. Real interest rate bonds are used to hedge the Group’s commitments to winners in the Triss Månadsklöver lottery. Svenska Spel pays a nonrecurring amount to an independent administrator for every win. This payment is based on a present value calculation of future winnings payments at the current rate of interest on the Swedish real interest rate market. The payment is adjusted to cover future payments to the winner. The liability to winners is upwardly adjusted annually according to the Consumer Price Index, CPI, trend. To manage interest rate risk relating to real rate of interest bonds, it is the responsibility of the manager to ensure that the interest rate sensitivity of an investment in the asset, real interest rate bonds, is the same as the liability to the winner, and that the portfolio’s interest rate sensitivity to real interest rate bonds corresponds to that of the liability as far as possible. The Group’s overall interest risk associated with assets and liabilities in real interest rate bonds is deemed to be negligible.
A small portion of the Group’s cash and cash equivalents is invested in financial instruments which largely comprise zero-coupon bonds and prime commercial papers which are held to maturity.
Credit risks
As gaming may not be conducted using credit, which means consolidated revenue consists exclusively of cash transactions, the credit risk in the Group’s operations is limited. Exposure to credit risk arises in funds that are generated on an ongoing basis at retailers, associations and restaurants who sell the Group’s range of games and lotteries on an assignment basis.
This type of credit risk pertains to the risk that these partners are not able to fulfil their financial obligations. This risk is managed in accordance with the Group’s credit policy which has set routines for handling financial flows, credit assessments and collateral etc. There are detailed procedures for the approval of gaming retailers and restaurants, and they are based on stringent requirements for and the risk assessment of retailers. Funds are collected weekly by autogiro and in order to ensure cash flow, measures are taken against retailers that do not pay on time, such as through demanding collateral during the period of retailer agreement and imposing short invoice-to-payment periods on the retailer.
Liquidity risk
Liquidity risk is defined as the risk that the Group will not have access to cash and cash equivalents to be able to make timely payments of foreseen and unforeseen commitments or that financing can only be received at considerable cost. Liquidity risk has historically been low and each year the Group accumulates substantial amounts of cash and cash equivalents and non-restricted equity which is paid annually in its entirety to the Swedish Sports Confederation and the owner.
Financial liabilities consist of unpaid profits, funded winnings and supplier liabilities. The liquidity risk in financial liabilities pertains to the Group having insufficient cash and cash equivalents to be able to pay unpaid winnings due to winners. This risk is considered negligible as most games and lotteries are based on an allocation of funds between participants in the game. As gaming may not be conducted using credit, the funds to be allocated between participants in the game or lottery are available in the form of cash at the time the game or lottery closes. Winnings in the Triss Månadsklöver are paid for up to 25 years, apart from certain campaigns that may lead to winnings being paid out for up to 50 years. This lottery is administrated by a third party and based on funds being paid for each winner to the administrator to cover future payments to the winner.