Svenska SpelSvenska Spel

Note 10 - Financial risk management

Financial risk management

The Group is exposed to various financial risks through its operations: ­currency risk, interest-rate risk, credit risk and liquidity risk. Ongoing risk management is managed by a central finance department pursuant to adopted policies and guidelines. The Board decides policies for overall risk management and financial management.

Currency risk

The Group is active only in Sweden but is exposed to currency risks, such as those arising from currency exposures pertaining to the purchasing of specialised equipment and printing of lottery tickets, as well as the sale of licences for the responsible gaming tool Playscan. The exposure is to EUR, USD, as well as CHF and GBP. Currency risk arises 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.

Under the Group’s finance policy, currency risk must be managed through using forward contracts. As the currency risk pertaining to future contracted business transactions is covered by forward contracts, the remaining currency risk is assessed as negligible.

The Group’s transaction exposure is allocated across the following ­currencies:

Currency, SEK million Net position
31 Dec. 2014
Value change
Value change
Net position
31 Dec. 2013
EUR 122.1 109.9 134.4 132.5
USD 4.5 4.1 5.0 3.4
CHF 1.2 1.0 1.3 1.2
GBP 2.1 1.9 2.3 1.7
Total 129.9 116.9 142.9 138.8

The Group gauges and follows up currency risks through the control and reporting of net exposure in each currency.

A sensitivity analysis of a temporary change in exchange rates by ± 10% on the balance-sheet date demonstrates that a decline in the exchange rate of 10% vis-à-vis the SEK would entail a negative impact on earnings of about SEK 14 million.

Interest-rate risk

The Group has no borrowings from any credit institution. The Group’s interest-rate risks pertain to interest-rate fluctuations related to investments in inflation-indexed and treasury bonds and surplus liquidity investments. Inflation-indexed and treasury 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 inflation-indexed bond market. The payment is adjusted to cover future payments to winners. The liability to winners is upwardly adjusted annually in line with the Consumer Price Index (CPI) trend. To manage interest-rate risk relating to inflation-indexed and treasury bonds, it is the responsibility of the manager to ensure that the interest-rate sensitivity of investments is the same as that of the liability to the winners, and that the portfolio’s interest-rate sensitivity corresponds to that of the liability as far as possible.

A small portion of the Group’s surplus liquidity is invested in financial instruments that largely comprise zero-coupon bonds, commercial paper and deposits. These investments have a prime rating and are held till maturity.

Taken together, the Group’s interest-rate risk is assessed as relatively low.

Credit risk

One area of the Group’s credit risk pertains to funds generated on an ongoing basis at retailers and business partners who sell the Group’s range of products on an assignment basis. There are detailed procedures for the approval of retailers and business partners, and they are based on stringent requirements for and the risk assessment of retailers. Funds are collected weekly by autogiro. Svenska Spel has well-functioning procedures for controlling abnormal cash flows among retailers. In the case of retailers who do not pay on time, measures are taken by requesting ­collateral during the period of the retailer agreement and imposing short invoice-to-payment periods on the retailer. As gaming may not be pursued using credit, which means consolidated revenue consists exclusively of cash transactions, credit risk in Group operations is limited.

For credit risk pertaining to investment of surplus liquidity, there is a set limit structure under the Group’s finance policy that entails that investments may be only made with counterparties with a credit rating equal to or higher than A according to Standard & Poor’s credit rating. The policy also limits the size of the investment with each institution.

Exposure to the Swedish State arises in conjunction with the holding of Swedish inflation-indexed and treasury bonds and in connection with advance payment of forecast annual dividends to the Swedish National Debt Office.

Maximum credit exposure 31 Dec. 2014 31 Dec. 2013
Inflation-indexed and treasury bonds 1,632 1,585
Lending to credit institutions 3,116 3,039
Zero-coupon bonds, commercial paper and deposits 558 800
Trade and other current receivables 611 750
Set off, National Debt Office 1,150 1,200
Total 7,068 7,374

Liquidity risk

The Group’s financial liabilities consist of unpaid winnings, funded ­winnings and trade payables. The liquidity risk pertaining to unpaid ­winnings is considered negligible as most games and lotteries are based on an allocation of funds among participants in the game. As gaming may not be pursued using credit, the funds to be allocated among ­parti­cipants comprise cash. Winnings in the Triss Månadsklöver lottery are paid for periods up to 50 years. These payments are administrated by an external party and based on funds being paid for each win to the administrator to cover all future payments to the winner.

Liquidity risk has historically been low and each year the Group ­accumulates substantial amounts of cash and cash equivalents and non-restricted equity that are paid annually in their entirety to the owner. To minimise liquidity risk, the Group works proactively in matching the maturities of financial assets with anticipated payout dates.

Maturity structure of financial liabilities at 31 Dec. 2014 Within
1 year
1–5 years
Later than
5 years
Unpaid winnings 631 600 736 1,967
    of which Triss Månadsklöver 169 599 736 1,505
Trade payables and other current liabilities 456 456
Settlement funds 227 227
Funded winnings 611 611
Other non-current liabilities 13 13
Total 1,925 613 736 3,274
Maturity structure of financial liabilities at 31 Dec. 2013 Within
1 year
1–5 years
Later than
5 years
Unpaid winnings 563 594 713 1,869
    of which Triss Månadsklöver 166 594 713 1,472
Trade payables and other current liabilities 474 474
Settlement funds 198 198
Funded winnings 442 442
Other non-current liabilities 15 15
Total 1,678 609 713 3,000