The Group is exposed to currency risk in the form of transaction exposures arising through purchases and sales of goods and services in currencies other than each Group company’s local currency.
When subsidiaries’ balance sheets in local currency are translated into SEK, a translation difference arises as a consequence of the current year being translated at a different closing rate than the previous year. The income statement is translated at the average exchange rate for the year while the balance sheet is translated at the exchange rate as per 31 December. The translation exposure forms the risk represented by the translation difference as the change in shareholders’ equity.
The Group applies a finance policy adopted by the Board of Directors. Transaction exposure shall primarily be minimized through internal measures such as matching of flows and choice of invoicing currency. Currency clauses can be used if contractually transparent and possible to follow up, ensuring that the Group is not exposed to any hidden currency risks. Secondarily, currency risks are to be mitigated by means of financial instruments. Currency hedging is arranged with maturities of up to 12 months and is based on the latest estimates available. Currency hedges must meet the following conditions with an accuracy of about +/– 20 percentage points: Contracted future payments for non-current assets in foreign currency may be secured up to the full cost. No hedging is required if the net exposure to any single currency is less than the equivalent of EUR 500,000 annually.
The Group does not hedge this risk. An annual analysis is made of the translation exposure trend and the related risks. See Note 2, Inwido Annual Report 2017.