Financial risk

Under financial risks, we mean the risks inherent in the management of the financial situation of the group and of each company within the group, as well as third-party solvency risks. Primarily, financial risks consist of maintaining a reasonable balance sheet structure throughout the business cycle, i.e. in the risks related to maintaining sufficient capitalization and the level of external financing, and separately also in the credit risk contained in current assets. Financial risks are managed through accounting and financial rules as well as audits. The Group’s cash flow planning is the responsibility of the financial unit, which constantly monitors the cash positions and projections of the subsidiaries. Within the framework of the regular budgeting procedure established in the Group, the Group’s annual forecasts are updated three times a year.

Credit risk

Credit risk is the potential loss that arises if counterparties fail to meet their contractual obligations. To reduce credit risk, the payment behaviour of customers is constantly monitored, their financial position and business prospects are analysed along with their business logic and its compatibility with the general development of the economy as well as that of the respective economic sector. If necessary, third parties are involved in transactions as guarantors to mitigate risks.

The free cash is mainly held on current accounts or time deposits of banks belonging to the banking groups of Swedbank, SEB, OP Corporate Bank and Luminor. The risks of funds held in bank accounts are assessed on the basis of the long-term deposit and/or credit rating of the ultimate parent bank of the respective banking group. The group financial unit monitors changes in credit ratings and initiates a credit risk reduction of funds (termination of deposits) if the long-term deposit and credit rating of the bank group falls below “A2” on Moody’s scale or “A” on the S & P and Fitch scale. Accordingly, management estimates that the group does not have significant credit risks for cash and its equivalents under the expected credit loss model of IFRS 9.

Liquidity risk

The company’s liquidity or solvency reflects its ability to meet its payment obligations to creditors on time. In addition to short-term working capital, the Group uses working capital loans from credit institutions to better manage cash flows and ensure liquidity. Construction activities are financed in part by advance payments from the customers, the receipt of which is usually conditional on the provision of a bank guarantee for the advance. According to management, the group’s capital structure today ensures the credibility of the company for creditors. It will also allow for the extension of existing financial commitments and the raise additional working capital, if necessary.