Since a number of external and internal factors influence Net Insightʼs operations and earnings, the company relies on a continuous process of identifying existing risks and assessing how each risk should be managed. The risks the company is exposed to include customer dependence, technology development, and financial risks.
Net Insight is dependent on a limited number of suppliers for components and production. To mitigate the effects of potential supply chain disruptions, the company has consequential loss coverage, maintains dialogue with alternative suppliers, and ensures that the relevant preferred suppliers have prepared disruption plans.
The following table assesses the likelihood of Net Insight being affected by the various operational risks described in this section and their impact. The assessment does not claim to be exhaustive but merely serves as an illustration.
Net Insight is exposed to various financial risks: market risk (including foreign currency risk, fair value interest risk, cash flow interest risk, and price risk), credit risk, and liquidity risk. Foreign currency risk is predominant and the Board assesses that Net Insight is primarily exposed to the following financial risks:
Foreign currency risk is defined as the risk of decreased earnings and/or decreased monetary flows due to fluctuations in exchange rates.
Changes in exchange rates affect the group’s earnings and equity in different ways:
• Earnings are affected when sales and purchases are in different currencies (transaction exposure)
• Earnings are affected when assets and liabilities are in different currencies (translation exposure)
• Equity is affected when foreign subsidiariesʼ net assets are translated into Swedish kronor (translation exposure in the Balance Sheet).
Net Insight is highly internationalized with most of its sales denominated in EUR and USD. Purchasing of components is mainly in Swedish kronor, but is up to some 70 per cent linked to the USD and to some 12 per cent linked to the EUR. Currency risks are managed in accordance with the finance policy, as adopted by the Board of Directors.
Average rates of exchange for the period are used for translating foreign subsidiaries’ Income Statements. The most significant currency in this context is USD.
Liquidity risk means that Net Insight cannot sell a financial instrument at market price or only subject to significantly increased costs. Net Insightʼs policy is to only invest cash and cash equivalents in banks or financial institutions with a credit rating of at least P1 or A+ (Moodyʼs or equivalent). Liquidity may not be invested for more than 12 months, and the investment terms must at all times reflect the capital requirements of the company. All reported accounts payable are due within one year and show the undiscounted amount.
Interest risk is the risk that the value of a financial instrument varies due to changes in market rates. Net Insightʼs interest risk is low because its need for external financing has been limited. Cash and cash equivalents are normally invested with a fixed-interest period from two weeks up to six months.
Credit risk means that a party in a transaction with a financial instrument cannot fulfill its commitment. The companyʼs customers are generally large, well-established, highly solvent companies spread over several geographical markets. There is no significant concentration of credit risks either geographically or on any particular customer segment. To limit the risks of potential credit losses, the companyʼs credit policy includes guidelines and regulations for credit checks on new customers, terms of payment, and procedures for handling unpaid claims.