Income Statement Group

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NOTE 3
FINANCIAL RISK MANAGEMENT
The Group’s business activities primarily entail exposure to interest rate risk, liquidity risk, and credit risk. The Group is not exposed to financial price risk of any particular significance.
             
The Group’s risk management procedures support the Group’s value creation and ensure a continued solid financial platform by identifying and carefully managing financial and operational risk factors. As a rule, risk management is the responsibility of each business unit’s operational management. For a description of other areas of risk to which the Group is exposed, please see the Board Report as well as guidelines for corporate governance.
             
a) Currency risk
Infratek is only to a limited extent operationally influenced by changes in foreign exchange, as the operations are only marginally applying purchase in foreign exchange or trade across countries. When significant foreign exchange risk is present it is evaluated on a case by case basis and secured in found required through forward contracts or similar.
             
The Group has operations in Norway, Sweden and Finland and is thus exposed economically to exchange rate risk from SEK and EUR to NOK. Equity capital in foreign subsidiaries does not have currency hedging and exchange rate fluctuations do affect the Group’s equity capital. As of 31 December 2012, the Group had only a minor degree of financial derivates for currency hedging.
             
Net exchange differences on translating foreign operations to NOK in 2012 was NOK -9 million (-1 million). The below table shows the effect of the Group’s loss / gain on exchange rates by plus or minus 10 per cent change in SEK and EUR currency vs. used currency for the financial year 2012. The amount relates to translation differences which is a part of other comprehensive income and does not affect net profit.
             
Sensitivity analysis translation differences
         
Currency rate change
Amounts in NOK million
Currency
+10%
-10%
Effect on other comprehensive income and equity
SEK
28
(28)
Effect on other comprehensive income and equity
EUR
8
(8)
Total effect on other comprehensive income and equity
  
36
(36)
             
b) Interest rate risk
        
The Group’s operating revenues and cash flow from operations are largely unaffected by changes in interest rates. Variations in the interest rate may, however, affect customers’ willingness to invest, indirectly affecting the Group’s operating revenues and cash flow. As of 31 December 2012, the Group is primarily exposed to interest risk associated with surplus liquidity. At the close of 2012 the Group had net cash holdings of NOK 244 million and had earned NOK 3 million in interest income. Variations in NIBOR, STIBOR and EURIBOR will affect interest on cash reserve as well as the Group’s capital costs. NIBOR, for example, changed from 2.01 per cent on 2 January 2012 to 1.75 per cent on 31 December 2012. Given the Group’s cash holdings at the end of 2012 this would have resulted in an interest income interval of NOK 4.3 to 4.9 million. The Group’s interest income and expenses track general developments in the Norwegian, Swedish and Finnish money markets respectively. The Group has not made use of interest hedging instruments, and only to a very limited degree of currency hedging instruments.
             
c) Liquidity risk
        
Liquidity risk arises from a lack of coherence between cash flow from operations and financial commitments. Infratek’s business activities are subject to seasonal variations that may affect cash flow. Historically, Infratek has satisfactorily managed its working capital. As of 31 December 2012 Infratek had net cash holdings of NOK 244 million. Infratek also has an unused NOK 100 million overdraft facility with DNB Bank ASA which runs until terminated by either party at one month’s notice. Infratek’s borrowing agreement with DNB Bank ASA is conditional upon certain key financial indicators. DNB has an AA rating. The Group’s overdraft assumes a 20 per cent equity ratio. The agreement also contains certain restrictions on changes in the company’s legal status, eg merger/demerger, material acquisition/disposal of assets, changes in capital, as well as limitations relating to sale or pledging of group assets as security for liabilities. The lender undertakes to allow such transactions unless there are reasonable grounds for not doing so. The Group also has a group account system and accounts with short-term credit limits at subsidiary level which draw on the Group’s overall cash holdings. The Group’s cash flow from operating activities in 2012 was positive as a result of a positive pre-tax profit. Infratek is in compliance with all the requirements stipulated in its borrowing agreement. Overall these resources are deemed to provide solid liquidity for the Group.
             
Maturity-analysis long-term debt
2011
1-3 years
3-5 years
5 years or later
Due date not determined
  
Amounts in NOK million
Total
        
Other long-term debt
15
-
-
-
15
Total long-term debt
15
-
-
-
15
             
2012
1-3 years
3-5 years
5 years or later
Due date not determined
  
Amounts in NOK million
Total
        
Other long-term debt
10
-
-
-
10
Total long-term debt
10
-
-
-
10
             
Maturity-analysis short-term debt:
2011
          
Amounts in NOK million
0-30 days
30-60 days
60-90 days
90-120 days
>120 days
Total
Accounts payable
196
6
1
-
1
204
Other current liabilities
142
-
118
-
84
344
Total current liabilities
338
6
119
-
85
548
             
2012
          
Amounts in NOK million
0-30 days
30-60 days
60-90 days
90-120 days
>120 days
Total
Accounts payable
171
6
2
1
-
180
Other current liabilities
157
-
130
-
78
365
Total current liabilities
328
6
132
1
78
545
             
d) Credit risk
            
Credit risk is the risk that customers will not settle their accounts. Credit risk is deemed to be part of the Group’s overall commercial risk and is followed up as part of its day-to-day operations. Infratek has established procedures for credit assessment of larger customers and suppliers. Historically, losses due to bad debts have been insignificant and today’s level of credit risk is considered acceptable. The Group's maximum credit exposure equals the carrying value of receivables and bank deposits.
             
Age-analysis long-term receivables
2011
1-3 years
3-5 years
5 years or later
Due date not determined
  
Amounts in NOK million
Total
        
Paid core-capital, pension fund
-
-
-
17
17
Subordinated loan, pension fund
-
-
-
2
2
Other non-current receivables
1
-
-
-
1
Total long-term receivables
1
-
-
19
20
             
2012
1-3 years
3-5 years
5 years or later
Due date not determined
  
Amounts in NOK million
Total
        
Paid core-capital, pension fund
-
-
-
18
18
Subordinated loan, pension fund
-
-
-
2
2
Other non-current receivables
-
-
-
-
-
Total long-term receivables
-
-
-
20
20
             
Maturity-analysis short-term receivables
2011
          
Amounts in NOK million
0-30 days
30-60 days
60-90 days
90-120 days
>120 days
Total
Accounts receivable
440
5
1
9
4
459
Accrued, non invoiced income
232
-
-
-
-
232
Other short term receivables
15
-
-
-
-
15
Total short term receivables
687
5
1
9
4
706
             
2012
          
Amounts in NOK million
0-30 days
30-60 days
60-90 days
90-120 days
>120 days
Total
Accounts receivable
437
9
3
4
12
465
Accrued, non invoiced income
209
-
-
-
-
209
Other short term receivables
34
-
-
-
-
34
Total short term receivables
680
9
3
4
12
708
             
All customer receivables in excess of 30 days have fallen due for payment.
             
Changes in the allowance for doubtful debts
    
Amounts in NOK million
2012
2011
    
Balance at beginning of the year
(8)
(4)
    
Impairment losses recognised on receivables
(1)
(5)
    
Amounts written off during the year as uncollectible (confirmed loss)
1
1
    
Closing balance allowance for doubtful debts
(8)
(8)
    
             
e) Categories of financial instruments
The group’s financial instruments are categorized as follows:
             
2011
          
Amounts in NOK million
  
Loans and receivables
Total
Assets
      
Other long-term receivables
20
20
Accounts receivables and other receivables (not including prepaid costs and incurred, not invoiced revenues) 1)
474
474
Cash and cash equivalents
300
300
Total assets
        
794
794
             
Amounts in NOK million
Other Financial oblications at amortized cost
Total
Liabilities
    
Long-term debt
15
15
Account payable and other short-term debt (not including statutory obligations) 2)
430
430
Total liabilities
445
445
             
2012
    
Amounts in NOK million
Loans and receivables
Total
Assets
    
Other long-term receivables
20
20
Accounts receivables and other receivables (not including prepaid costs and incurred, not invoiced revenues) 1)
478
478
Cash and cash equivalents
244
244
Total assets
742
742
             
Amounts in NOK million
Other Financial oblications at amortized cost
Total
Liabilities
    
Long-term debt
10
10
Account payable and other short-term debt (not including statutory obligations) 2)
336
336
Total liabilities
346
346
             
1) Prepayments and incurred, non-invoiced revenue is omitted from the receivable balance in the statement of financial position, since this is an analysis that is only required for financial instruments.
2) Statutory obligations and pre-paid amounts are omitted from accounts payable and other liabilities in the statement of financial position, since the analysis only is required for financial instruments.
             
Nominal value less write-downs on sustained losses on accounts receivable and payable is deemed to equal the fair value of an item. Fair value of financial liabilities (calculated for note disclosure) is estimated by discounting future cash flows using the Groups alternative market interest rate for similar financial instruments.
             
f) Capital management
        
The Group’s capital is managed with the goal of continued going concern, safeguarding and further developing the Group’s value and to ensure good credit rating and hence borrowing terms reflecting the operations of the Group. The Group has a solid capital structure and will over time seek a capital structure adapted to the Group’s activities to reduce capital costs, for example, through increased dividends, share buybacks, new share-issues or draw up interests-bearing loans to finance purchase of business.
             
The Group monitors its capital structure by following the developments in its cash and debt ratio, defined as net interest-bearing debt divided by total shareholders’ equity and net-interest-bearing debt. The Group’s debt ratio should not exceed the group’s ability to service a loan which will depend on the group’s future earnings and investment levels, as well as the interest rate level the Group can achieve.
             
Debt ratio
    
Amounts in NOK million
2012
2011
    
Interest-bearing debt
10
14
    
Cash and cash equivalents
(244)
(300)
    
Net interest-bearing debt (cash)
(234)
(286)
    
Total equity inclusive non-controlling interests
697
484
    
Total equity and net interest-bearing debt
463
198
    
Debt ratio
2.2 %
7.1 %