Financial Risks

Financial risks affect the business’s ability to provide the business with sufficient funding and liquidity to operate and develop the business according to the business plan.

Financial Risks

Risk

  1. Currency risk. Currency risk includes the risk that the fair value of future cash owns from a financial instrument changes due to changes in foreign currency rates. The main exposure is attributable to the translational exposure for transactions relating to sales and purchases in foreign currencies.
  2. Interest rate risk. The Group is exposed to interest rate risks on interest bearing liabilities with variable interest rates. With fixed rate loans, the Group is exposed to market risk.
  3. Credit risk. The credit risk is mainly related to a payment provider not fulfilling its obligations against the Group. The credit risk includes a risk that the acquiring bank/payment provider default.
  4. Liquidity risk. The liquidity risk is related to not having sufficient funding during cash flow low-points. Cash flow low-points occur due to the seasonal variances within the apparel industry.
  5. Liquidity risk – business growth. Liquidity risk relating to business growth means having sufficient funding to be able to invest in technology and infrastructure to be able to grow according to plan. Risk is especially important for a rapid growing business.

Mitigation of risk

  1. Currency risk. The transactional exposure is managed primarily through natural hedges, meaning that procurement is carried out in the same currency as in ow from revenue. The Group constantly evaluates if currency hedges shall be enforced.
  2. Interest rate risk. The risk is mitigated by having a target for future debt ratio and by having a target to spread out maturity dates for future financing of the Group. Given the current loan structure, the exposure is low.
  3. Credit risk. Financial reports from payment providers are monitored to ensure financial stability of the counter party. All payments are monitored and no delays are accepted. In the event of delays, the payment method is paused/on-hold until payment is received.
  4. Liquidity risk. The Group faces two seasonality low points in liquidity per fiscal year. The Group shall strive to have a sufficient liquidity reserve. During low-points the Group has access to a revolving credit facility to ensure a sufficient liquidity reserve.
  5. Liquidity risk – business growth. The board of directors has set guidelines for how much liquidity assets that should be available to meet future demands and opportunities.

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