Financial risks

Systemair is exposed to financial risks via its international business and via its loan financing. Financial risk arises when changes in foreign currency exchange rates and interest rates influence the Group’s cash flow, and in connection with renegotiation of credits. Financial risk also includes the risk that counterparty might not fulfil its obligations. The risk management within the Group has the objective of limiting the negative effects which may arise to the Group’s profits and cash flow. Control and follow- up occur continually by the central finance unit, but it is also conducted in the larger subsidiaries.

Currency risks – transaction exposure

With trade between Group companies, suppliers and customers, a transaction risk arises if payment is made in a currency other than the group company’s local currency. Systemair’s significant international operations entail extensive sales in different currencies and thereby, exposure to foreign exchange rate risks. The currency risk is primarily vis-à-vis Euros and US dollars, which is hedged according to Systemair’s foreign exchange policy. The results of Systemair’s currency hedges have so far been positive, but Systemair can not guarantee that these hedges also in the future will continue to provide positive returns.

Currency risks – translation exposure

Translation exposure arises with the consolidation, as the foreign subsidiaries’ assets and liabilities are translated to Swedish kronor (SEK). Systemair has elected not to hedge its translation exposure, which may have as a consequence that exchange rate gains/losses arise which influences the Group’s shareholder equity.

Borrowings and interest rate risk

Systemair intends to continue to finance certain parts of its business via taking loans from credit institutions. Loan contracts contain conditions with usual restrictions (covenants). This borrowing entails certain risks for the Company’s shareholders. Among other things, Systemair can, in the event of significantly altered circumstances in the Company’s markets, have problems to obtain new credit facilities and may thereby need to use a larger part of its cash flow for interest payments and paying down debt.

Credit and liquidity risk

Credit risk refers to the risk that the counterparty to Systemair can not fulfil its payment obligations, the result of which may be a loss for the Company. A credit assessment is made based on the knowledge which the Company’s management has about the customer and, when necessary, with the assistance of credit bureaus. Each customer also has a credit limit and before this can be exceeded, a new credit examination may be needed to be made. The liquidity risk refers to the risk that the Company because of a deficiency in liquid funds cannot fulfil its financial obligations or has a reduced possibility to carry out its business in an effective way. The liquidity is influenced to a large extent by credit extended to customers and credit received from suppliers. Due to that Systemair’s business has expanded to new markets with varying payment cultures, the length of credit terms have increased somewhat. This has meant an increased cost of tied up capital and a larger risk of credit losses, and thereby a larger risk of a negative impact on the company’s liquidity and profits.’

In the Annual report 2007/2008 Note 2 are all financial and operational risks described.