Financial and other risk management

Odd Molly is exposed to a number of risks in terms of its own operations as well as the industry as a whole. These risks can be divided into operational risks as well as financial and other risks.

Changes in exchange rates

Odd Molly is exposed to currency risk arising from purchases from suppliers as well as sales outside Sweden. About 65 percent of purchases are in EUR and 35 percent are in USD. Odd Molly receives revenue in a number of different currencies as it sells to foreign retailers.

Since the company’s reporting currency is Swedish kronor (SEK) and purchases and a share of sales are in other currencies, the company’s exposure to fluctuations in SEK exchange rates is high, which in the future could have a negative effect on the company’s operations, results and financial position. Even if the company manages this foreign exchange exposure through hedging transactions, there are no guarantees that the company’s hedging strategies are sufficient to protect operating profit from the effects of future exchange rate fluctuations. The company’s goal is to hedge about 50 percent of the net transaction exposure.

Based on 2017 results and with the foreign exchange exposure at the time, a change in the EUR/SEK exchange rate of +/– 10%, for example, would have affected the Group’s result by –/+ SEK 4.7 million. A change in the USD/SEK exchange rate of +/–10% would have affected the Group’s result by –/+ SEK –/+ 3.4 million. This example is based on the Group’s sales and purchases of goods in 2017 and does not take into account any correlating factors or that they can also affect other items in the income statement.

2017 2016
Change in EUR exchange rate, % +10  –10 +10 –10
Effect on EBIT, SEK million –4.7 +4.7 –3.5 +3.5
Change in equity, SEK million –4.6 +4.6 –3.5 +3.5
Change in USD exchange rate, % +10 –10 +10 –10
Effect on EBIT, SEK million –3.4 +3.4 –5.5 +5.5
Change in equity, SEK million –2.5 +2.5 –4.5 +4.5

Refinancing, interest rate and credit risk

Odd Molly currently has access to working capital through an overdraft facility. Available credit through the facility totaled SEK 40 million at year-end, and the company is therefore affected to some extent by risks in refinancing and changes in funding terms. The company’s cash and cash equivalents are invested at low risk in deposit accounts or fixed income funds. Differences in market interest rates can affect the Group’s interest income.

Odd Molly’s customers receive credit after a credit check. Odd Molly may incur losses, however, if a customer is unable to make payment. Payment problems on the part of customers can lead to increased inventory, since Odd Molly does not deliver to customers with unpaid overdue invoices.

Commodity prices and lead times

Prices of commodities such as cotton, silk and wool can increase due to increased demand and lower supplies, which can lead to higher purchasing costs. Increased demand can also mean longer lead times from suppliers, which can cause higher transport costs when a larger share of merchandise has to be shipped by air, and because fabrics or yarns must be reserved in advance before Odd Molly has received orders from retailers.

Inventory risk

To the extent it is forced to maintain an inventory, Odd Molly is exposed to a risk associated with any of the inventory that is not sold or has to be sold at a discount.