Tele2 is exposed to various financial risks such as currency risk, interest risk, liquidity risk, credit risk and various tax related risks.
Financial risk management is mainly centralized to centralized to the Corporate Finance and M&A function (responsible for treasury and tax matters) and the Financial Planning and Reporting function (responsible for impairment recognition). The aim is to control the Group’s financial risks as well as financial costs, and optimize the relation between risk and cost.
There is also a risk of errors in the financial reporting of the company, that accounting principles are not correctly applied etc. resulting in misrepresentation of the company’s financial position.
Financial Planning and Reporting are responsible for issuing guidance and instructions to mitigate this risk.
The Internal Audit function audits the closing and reporting processes in local countries in order to assess the risk of errors (in addition to the audit of the financial statements made by the external auditors of the company).
Various components of the financial risk are monitored and treated as emerging risks due to the changing trends in its variables. For example, currency risk, which is the risk of changes in exchange rates having a negative impact on the Group’s result and equity. Currency exposure is associated with payment flows in foreign currency (transaction exposure) and the translation of foreign subsidiaries’ balance sheets and income statements to SEK (translation exposure).
Through active monitoring of emerging trends within this risk we believe that the residual impact and likelihood of this risk is medium after applying the following mitigation measures:
- The Group does not generally hedge transaction exposure.
- Translation exposure related to certain investments in foreign operations is hedged by issuing debt or entering into derivative transactions in the currencies involved if assessed as needed. The hedges of net investments in foreign operations were 100 percentage effective in 2019 and 2020 and hence no ineffectiveness was recognized in the income statement.
- Tele2 also actively monitors this emerging risk through sensitivity analysis. For example, we determined that a five percent currency movement of all currencies against the Swedish krona would affect the Group’s revenues and operating profit/loss on an annual basis and also affect the Group’s total net assets. A strengthening of the SEK towards other currencies would impact net assets negatively.
A complete list of our most important strategic risks have been described in our annual report with a description of our risk mitigation measures.