Annual and Sustainability Report 2011 - Teracom

Note 19. Inventories
Group
Type of goods 2011 2010
Finished goods 67 25
Total 67 25
Inventories are valued at cost. The cost for inventories that is expensed is
included in the item Material costs and amounted to SEK 144 (141) million for
the Group. The obsolescence reserve is included in the value of the inventories.
The total write-down amount for the year was SEK 0 (0) million.
Note 20. Accounts receivable
2011 2010
Accounts receivable 353 306
Provisions for bad debts -32 -11
Accounts receivable, net 321 295
Provisions in relation to accounts receivable 9% 4%
As of 31 December 2011 the Group's provision for doubtful debts was SEK
32 (11) million. Group companies with pay TV operations, which have end
consumers as part of their customer base, make provisions in accordance with
a pre-determined ladder that has been adapted to the conditions of each geographic
market. Group companies with network activities, whose customers
are companies, make provisions based on an individual assessment of each
customer and receivable. Provisions and the utilization of reserves for doubtful
receivables were transferred to the income statement and are included in
cost of sales.
The carrying amount of accounts receivable is the same as the fair value since
the discounting effect is insignificant. The fair value of accounts receivable
constitutes maximum exposure to the calculated risk for bad debt losses.
The credit terms for various types of contracts and customer categories are
defined in each subsidiary's credit instructions. A credit statement is obtained
for sales on credit to both companies and consumers in order to minimize the
risk of bad debt losses.
Time analysis of accounts receivable fallen due 2011 2010
Accounts receivable that have not fallen due 215 188
Accounts receivable overdue < 30 days 87 94
Accounts receivable overdue 30 - 60 days 10 6
Accounts receivable overdue 61 - 90 days 4 2
Accounts receivable overdue 91 - 120 days 2 2
Accounts receivable overdue > 121 days 3 3
Accounts receivable, total 321 295
Provisions for doubtful receivables 2011 2010
Provisions 1 January -11 -24
New provisions -16 0
Release of reserves 4 11
Bad debt losses -9 2
Exchange rate differences and other changes 0 0
Provisions 31 December -32 -11
Note 21. Financial instruments and financial risk management
Teracom’s operations expose the Group to various types of financial risk. The
Group’s overall financial operations and management of financial risk are
centralized to the Teracom Group's Finance department. These activities are
based upon the finance policy established by the Board of Directors, which is
characterized by the desire to maintain a low level of risk. The Group's financial
strategy and goals are designed to achieve maximum return on equity
based upon reliable, cost-effective financial management practices that help
ensure adequate control and high quality risk management within the Group.
The overriding principle is to minimize all factors that could have a negative
impact on earnings and cash flow due to short-term fluctuations in financial
markets. This applies to both the Parent Company and the Group, in its entirety.
The Group may use derivative instruments in order to hedge certain exposures
to risk, however, only for the following purposes:
- To convert future payments for electricity consumption to a fixed electricity price.
- To convert future expected commercial payments in foreign currencies (primarily
EUR) to Swedish krona (SEK).
- To convert the fixed interest term for borrowing.
- To hedge net investment in foreign operations.
The market risks include currency risk, interest rate risk and electricity price
risk, which are also described in this note. Other financial risks are broken
down into credit risk, liquidity risk and financing risk.
Currency risk
This is the risk that changes in exchange rates will negatively impact the
Group's profitability or financial position. This type of risk is divided into two
categories (below): transactional and translational.
Transactional exposure
Transaction exposure encompasses all future contractual and forecasted
income and expenses in foreign currencies, which thus involve a risk that the
Group's profitability will be negatively impacted by changes in exchange rates.
The Teracom Group has limited transactional exposure. This is because the
value-added from international business activities is primarily created locally
by having expenses in the same currency as the sales revenues.
Currency derivatives are used to decrease transaction exposure in EUR and
the hedged flow on the balance sheet date was EUR 6 million.
Sensitivity analysis of currency risk
The Teracom Group's currency transactions are primarily in SEK, EUR and DKK.
During 2011, the net outflow of EUR amounted to the equivalent of SEK -148
(-146) million. In 2011, the average exchange rate for EUR was SEK 9.0335. A
fluctuation in the exchange rate of +/- 10 percent would impact profits by
SEK +/- 15 million. The Group's net flow in DKK during 2011 was close to zero
through internal currency netting within the Group.
Translational exposure
Because the company has international business activities, there is also a
certain degree of translation exposure. This is rooted in the value of foreign
investments as well as the profits generated on an ongoing basis. Such profits
are translated using the average rate for the year as the opening value and
comparing it to the year's ending rate, which is provided by the Swedish Central
Bank. The difference is reported against equity. Accordingly, the only time
that an actual cash flow is involved is in connection with disposals, investments
and dividends from subsidiaries.
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