Risk management is part of all business operations, and its purpose is to identify, assess, manage and report significant risks. The board has approved a Risk Policy and a Financial Policy.

Risks
The significant risks include:
» Currency risks, existing out of:
- Transaction exposure risks and translation exposure risks
» Interest risks
» Liquidity and finance risks
» Credit risks
» Capital risks
» Project risks
» Price risks
» Insurance risks
» Technological risks
» Environmental risks

Currency risks
Currency risk refers to the fluctuations in exchange rates having a negative impact on the Group’s income statement, balance sheet and/or cash flow. Currency risk arises when future business transactions, or reported assets or liabilities, are expressed in a currency which is not the Group’s functional currency.

Transaction exposure
In the Group’s international operations, some customers pay in their own currency which means that the Group is ex- posed to transactional currency risks. This kind of currency risk also arises in conjunction with the import of raw material and components in a currency that is not the Group’s functional currency. Incoming flows or foreign currencies should be used for payment in the same currency. The subsidiaries within the group perform their business mostly in their functional currencies, therefore limiting transaction exposure risk.

Translation exposure
Currency risk also arises in conjunction with the translation of foreign net Currency risk also arises in conjunction with the translation of foreign net assets and earnings, so-called translation exposure. This currency risk is not hedged and refers, primarily, to the translation of foreign subsidiaries’ income statement and balance sheets. Earnings from foreign subsidiaries are translated into Swedish krona based on the average exchange rate for each month. Net assets are translated into Swedish krona based on the exchange rate per last date of the month. The Group’s risk exposure in foreign currencies at the end of 2023, expressed in thousands of Swedish krona (TSEK) consisted of the following:

As indicated by the exposure table above, the Group is primarily exposed to changes in the EUR/SEK exchange rate.

The company also recognizes a risk on timing of payment and uses currency swap contracts to temporarily prolong the effect of a forward contract if needed. These currency SWAPs will be bought/sold on the settlement date of the forward contract(s). The Company does not have any outstanding SWAP’s to mitigate timing related risks on forward contracts.
The company, from time to time, enters into currency swap contracts to mitigate currency risks on intercompany loans in SEK, which are swapped to a foreign currency. These swap contracts are not accounted for as a cash flow hedge, therefore the fair value of these contracts are accounted for in the profit and loss. At the end of the financial year the outstanding currency swaps had a negative value of 0.09 MSEK.

Interest risks
The company holds no interest-bearing assets and, accordingly, the Group’s income and cash flow from operating activities are, in all material aspects, independent of changes in market interest rates. The Group’s interest-rate risk arises in conjunction with long-term borrowing. The aim is to limit the interest risk in the Group’s interest-bearing liabilities. At the closing date, the Group had MSEK 135.5 (53.0) in interest-bearing liabilities and cash and cash equivalents amounted to MSEK 48.8 (99.7). Borrowing on the basis of floating interest rates, exposes the Group to interest–rate risks as regards to cash flow. Borrowing on the basis of fixed interest rates implies an interest-rate risk for the Group in terms of fair value. In 2022, the Group’s borrowings largely consisted of credit facilities provided by banks with three months fixed interest rates (EURIBOR). The group’s liabilities to shareholders are burdened with three months (EURIBOR) and fixed annual rates on loans. The interest rates and conditions are consistent with 2023. The Group holds no listed financial instruments.

Liquidity and financial risks
Financing risk also refers to risks associated with existing and future financing, refinancing of overdue loans, or difficulties in raising external loans. Liquidity risk refers to the risk of being unable to fulfil payment commitments when they fall due as a consequence of insufficient liquidity. Both of these forms of risk are managed by the company preparing regular cash flow forecasts. The Board closely monitors rolling forecasts for the company’s liquidity reserve to ensure that the company has sufficient cash funds to meet the requirements of operating activities. The group has processes in place to monitor the bank covenants and the cash flow and is in control of cash requirements. For the liabilities the company has conventional covenants towards the banks, such as Debt Service Coverage Ratio, Solvency ratio, absolute EBITDA levels and certain restrictions for new investments. At the end of 2023 the company used MSEK 64.0 (8.8) of its credit facilities. The remainder of the long-term loan provided by the Rabo bank amounts to MSEK 49.2 (22.0). The table below presents an analysis of the Group’s financial liabilities to be settled, specified according to the contractual time to maturity, as of the closing date. The interest amounts stated in the table are the contractual, undiscounted cash flows. Amounts falling due within 12 months correspond with the carrying amounts, as the effect of discounting is negligible.

Credit risks
Credit risks are defined as the risk of loss if the opposite parties with whom the Group has invested cash and cash equivalents, fail to fulfil their obligations. Credit risks are to a large extent avoided through effective creditworthiness analyses/monitoring of existing and potential customers, and in certain cases by obtaining payments in advance or payment against a letter of credit. The Groups’ assets are recognised in the balance sheet after deduction for provisions for expected credit losses. The credit risk is limited to the carrying amount of each financial asset. A provision of MSEK 16.3 (12.0) was made for receivables that are not expected to be paid.

Capital risks
The Group’s objective with regard to the capital structure is to secure the Group’s ability to continue operating, so that it can continue to generate returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to keep the cost of capital down. To maintain or adjust the capital structure, the Group may change the dividend paid to shareholders, repay capital to shareholders, issue new shares or sell assets to reduce debt. The debt/ equity ratio at 31 December 2023 was 66.0% (75.6%).

Project risks
For Sensys Gatso, a major part of operational risk lies in the management of each individual project. Sensys Gatso works actively to integrate risk management in each customer project, and has developed an in-house tool, Risk Assessment Analysis, for this purpose. The tool enables the company to identify, manage and where necessary, accept and limit the risks involved in each project. The project manager is responsible for implementing Risk Assessment Analysis and subsequently following up and reporting on important matters. In addition to this, for larger projects, a member of the management team will be appointed to act as sponsor for the project and the point of contact for regular reports from the project manager.
Each entity manager is responsible for driving and developing his/her respective area of responsibility, which includes identifying opportunities and threats as well as continuously following up on activities. In the local management team meetings projects are discussed, resulting in operational decisions.

Price risks
Price risk in the Group’s operations primarily arise in conjunction with the purchase of material used in manufacturing.

Insurance risks
The Group has adequate insurance policies covering property, product liability, interruptions and transport, as well as an insurance policy covering the Board of Directors and CEO.

Technological risks
As computer-aided technology has assumed an increasingly greater scope within the companies, security requirements net connection is fixed and completely isolated from other networks via hardware firewalls. Access via public networks is secured via security devices. User access to the system is regulated via Group authorisations and entitlements based on actual assignments and roles within the company. As of May 25, 2018, the group is in full compliance with new GDPR regulations.

Environmental risks
As described in our Sustainability report Sensys Gatso aims to reduce its impact on the environment by reducing the use of electricity and gas. For several years we have tracked our consumption which has resulted in more awareness throughout the company. As a result of COVID-19 we introduced remote working reducing both daily commute to our offices as well as international travel. The company was able to operate with limited impact in doing so. Going forward the companies policy will remain in a hybrid model, combining working from the office and from home, where possible.