Share price risk
Kinnevik is invested in both listed and unlisted investee companies where the share price and total market value can fluctuate based on a number of different factors.
On 31 December 2018, 84% (87%) of Kinnevik’s total assets (excluding cash) pertained to listed investee companies and 16% (13%) to unlisted investee companies.
As Kinnevik intends to act as a long-term shareholder, it has no strategy for managing short-term fluctuations in the share prices of its listed investee companies. The share price risk associated with Kinnevik’s portfolio may be illustrated by stating that a 10% change in the prices of all listed shareholdings at 31 December 2018 would have affected the Group’s earnings and shareholders’ equity by SEK 6.1bn (8.0bn).
The value of Kinnevik’s unlisted investee companies may increase or decrease due to a number of different factors, of which changes of trends in the stock markets is one. In the process of valuing its unlisted holdings, Kinnevik considers a number of factors such as relative valuations of comparable publicly traded companies, the operational and financial performance of the respective investee company, and the valuations resulting from transactions in the respective investee company’s shares. Any changes in these factors have an impact on the total value. For Global Fashion Group, an increase in the multiple by 10% would have increased estimated fair value by SEK 171m. Similarly, a decrease in the multiple by 10% would have decreased estimated fair value by SEK 272m. Should Global Fashion Group have been valued using the same multiples and foreign exchange rates as at 30 September 2018, the fair value would have amounted to SEK 4,550m, SEK 1,266m higher than the assessed fair value as at 31 December 2018.
Liquidity and financing risk
Kinnevik’s liquidity and financing risk is limited because listed shares account for a large part of the Company’s assets. Kinnevik relies in part on dividends received from a number of its investee companies in order to finance its operations and investment activities. Without dividend from its investee companies Kinnevik would be compelled to rely on asset management and/or debt financing to secure the funding of its operations and maintain its targeted financial position.
On 31 December 2018, the Company had cash and cash equivalents amounting to SEK 486m (1,798m) and committed but not utilized, or reserved in any other way, credit facilities amounting to SEK 5,630m (6,130m).
Financing risk is the risk that Kinnevik may not be able to obtain financing or that financing can only be obtained at a considerable cost. Kinnevik’s financing risk is limited since its operations are financed from different sources, its debt financing is sourced from a number of different credit institutions with diversified maturities as well as by striving for refinancing of all facilities at least six months prior to maturity. On 31 December 2018, the total amount of committed financing was SEK 8,480m (8,980m) with an average remaining facility duration of 2.9 (3.9) years. For further details, please refer to Note 10 for the Group.
Foreign exchange rate risk
Transaction exposure arises from cash flows denominated in foreign currencies. Kinnevik’s debt funding and cash position consist mainly of SEK. Excluding dividends received and investments and disposals made, Kinnevik does not have any material cash flows in foreign currencies.
Translation exposure arises from the translation of balance sheet items denominated in foreign currencies. Kinnevik’s balance sheet is mainly exposed to foreign exchange risk by owning shares denominated in either EUR or USD. Kinnevik is also exposed to indirect translation exposure as a majority of its investee companies conduct operations internationally. On 31 December 2018, 31% (45%) of Kinnevik’s total assets (excluding cash), equal to a value of SEK 22.7bn (41.2bn), pertained to shareholdings denominated in EUR.
Kinnevik is also exposed to indirect translation exposure as a majority of the investments are active internationally. By being active internationally, foreign currencies have an indirect effect on the share prices of these investments.
Interest rate risk
Interest rate risk is the risk that the value of interest bearing receivables and liabilities will vary due to changes in market interest rates. On 31 December 2018, none of Kinnevik’s interest bearing liabilities, SEK 2.9bn, were exposed to interest rate changes. SEK 2.4bn out of Kinnevik’s SEK 2.9bn in outstanding bonds were originally exposed to interest rate risk with floating rates (3 months Stibor). This risk was hedged by entering into interest rate swaps expiring on the same dates as the repayment of the bonds. On 31 December 2018, these swaps had a negative market value of SEK 4.5m (negative 0.3m).
In connection with refinancing, or if Kinnevik would increase its receivables or liabilities, the interest rate risk may change In connection with refinancing, or if Kinnevik would increase its receivables or liabilities, the interest rate risk may change materially.