Notes to the Consolidated Financial Statements

29. Management of financing risks  

Digia Plc’s internal and external financing and the management of financing risks is concentrated in the finance function of the Group’s parent company. The function is responsible for the Group’s liquidity, sufficiency of financing, and the management of interest rate and currency risk. The Group is exposed to several financing risks in its normal course of business. The objective of the Group’s risk management is to minimise the adverse effects of changes in the financial markets on the Group’s earnings. The primary types of financing risks are interest rate risk, credit risk and funding risk. The general principles of risk management are approved by the Board of Directors, and the Group’s finance function together with the business segments is responsible for their practical implementation.

Foreign exchange risks

The Group is not significantly exposed to foreign exchange risk in its operations. The Group’s key foreign exchange risks involve the US dollar, Swedish krona, Norwegian krone, Russian rouble and Chinese yuan. The financial statements include foreign currency sales receivables of approx. EUR 2.2 million in Swedish kronas, US dollars, Russian roubles and Chinese yuan. Foreign currency accounts payable totalled approx. EUR 0.5 million, mainly being in Swedish kronas, Norwegian krones, US dollars, Russian roubles and Chinese yuan. The most significant currency risks relating to accounts receivable and accounts payable can be managed by means of forward foreign exchange contracts when necessary. At the end of the fiscal year 2009, the company had no such forward contract in force.

Interest rate risks

The Group’s interest rate risk is primarily associated with a long-term bank loan that has an interest rate linked to Euribor rates. Changes in market interest rates have a direct effect on the Group’s future interest payments. During the financial period 2012, the interest rate on the long-term bank loan varied between 2.7% and 3.2% (2.8%–3.7% in 2011). The impact of a +/-1% change in the loan’s interest rate would be EUR 0.15 million per annum. The Group’s money market investments are a source of interest rate risk, but the overall impact of these investments is negligible. Interest rate developments are monitored systematically in different bodies within the company, and possible interest rate hedges will be made with the appropriate instruments.

Credit risks

The Group’s customers are mostly well-known Finnish and foreign companies with well-established credit, and thus the Group has no significant credit risks. The Group’s policy defines creditworthiness requirements for customers, investment transactions and counterparties. Services and products are only sold to companies with a good credit rating. The counterparties in investment transactions are companies with a good credit rating. Credit risks associated with commercial operations are primarily the responsibility of operational units. The parent company’s finance function provides customer financing services in a centralised manner and ensures that the principles of the financing policy are observed with regard to terms of payment and collateral required. At the end of the fiscal year 2012, credit loss provisions totalled EUR 0.1 (EUR 0.02) million. The maturity analysis of accounts receivable for 2012 and 2011 is presented in Note 17.

Liquidity risk

The Group aims to continuously estimate and monitor the amount of financing required for business operations in order to maintain sufficient liquid funds for financing operations and repaying loans falling due. The availability and flexibility of financing is ensured by maintaining an unused credit facility and using several banks for financing. The amount of unused standby credit facility on 31 December 2012 was EUR 4.0 million, and the company has the ability to take out EUR 8 million in new loans. The Group maintains its immediate liquidity with the help of cash management solutions such as Group accounts and credit facilities at banks. Cash and cash equivalents on 31 December 2012 totalled EUR 8.3 million. An agreement-based maturity analysis on discounted equity and interest payments for the reporting periods 2012 and 2011 is presented in Note 22.

Management of the capital structure

The Group’s capital management aims at supporting company business by means of optimal management of the capital structure, ensuring normal operating conditions and increasing shareholder value with a view to achieving the best possible profit. At the end of the period, the Group’s interest-bearing net liabilities were EUR 11.6 (13.7) million. When calculating gearing, the interest-bearing net liabilities are divided by shareholders’ equity. Gearing includes interest-bearing net liabilities less cash and cash equivalents. Interest-bearing liabilities have mainly been used to finance the company’s business acquisitions. Net gearing at the year-end 2012 was 28% (34%).

The share of liabilities of total shareholders’ equity on 31 December 2012 and 31 December 2011 was as follows:

€ 000

2012

2011

Interest-bearing liabilities

19,849

21,872

Cash and cash equivalents

8,283

8,170

Interest-bearing net liabilities

11,566

13,702

Total shareholders' equity

42,063

39,753

Gearing,%

28%

34%