Kinnevik is mainly exposed to financial risks in respect of:
- Valuation risk, in relation to negative changes in the value of the portfolio
- Liquidity and financing risk, in relation to increased cost of financing, and difficulties in refinancing maturing loans and facilities, ultimately leading to payment obligations not being met
- Foreign exchange rate risk, in relation to transaction and translation currency exposure
- Interest rate risk, having an adverse impact on financing costs
Valuation risk
Kinnevik is invested in both listed and unlisted investee companies where valuations can fluctuate due to a wide array of different factors. On 31 December 2022, 34% (52%) of Kinnevik’s Portfolio Value was invested in listed investee companies and 66% (48%) in unlisted investee companies.
Kinnevik is a long-term shareholder and therefore has the flexibility not to have a general strategy for managing short-term fluctuations in the share prices of its listed investee companies. A 10% change in the prices of all listed shareholdings at 31 December 2022 would have affected the Group’s earnings and shareholders’ equity by SEK 1.5bn (3.5bn).
The value of Kinnevik’s investments in unlisted investee companies may increase or decrease due to a number of factors, of which changes in public equity markets is one. In the process of valuing its unlisted holdings, Kinnevik makes numerous considerations. These include relative valuations of comparable publicly traded companies, operational and financial performance of the respective investee company, and valuations reflected in transactions in the respective investee company’s shares. Any changes in these considerations bear impact on the value of Kinnevik’s investments in unlisted investee companies. For the companies that are valued based on multiples an increase in the multiple by 10% on 31 December 2022 would have increased the aggregate assessed fair value by SEK 2.1bn (2.9bn). Similarly, a decrease in the multiple by 10% would have decreased the aggregate assessed fair value by SEK 1.9bn (2.9bn).
Liquidity and financing risk
Kinnevik’s liquidity and financing risk is limited considering its substantial net cash position and material shareholding in Tele2. Kinnevik relies in part on dividends received from Tele2 to finance its operations and maintain recent years’ investment momentum. Without dividends from Tele2, Kinnevik would rely primarily on capital reallocation and/or debt financing to secure the funding of its operations and maintain its targeted financial position.
On 31 December 2022, Kinnevik had cash and cash equivalents amounting to SEK 13,848m (10,544m) and committed but not utilized credit facilities amounting to SEK 5,130m (5,130m).
Financing risk covers the eventuality that Kinnevik is not be able to obtain financing, or that financing can only be obtained at considerable cost. As mentioned above, Kinnevik’s financing risk is limited in consideration of its substantial net cash position and material shareholding in Tele2. Debt financing is sourced from a number of different credit institutions with diversified maturities, and Kinnevik strives to refinance all facilities at least six months prior to maturity. On 31 December 2022, the total amount of committed financing was SEK 8,630m (9,840m) with an average remaining facility duration of 2.2 (2.8) years. For further details, please refer to Note 10 for the Group.
Foreign exchange rate risk
Foreign exchange rate risk comprises transaction and translation currency exposure. Transaction exposure arises from cash flows denominated in foreign currencies. Kinnevik’s debt funding and cash position is virtually entirely denominated in SEK. Excluding investments and divestments, 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 into SEK. Kinnevik’s balance sheet is mainly exposed to foreign exchange risk through investments denominated in either USD or EUR. On 31 December 2022, 44% (35%) of Kinnevik’s Portfolio Value, corresponding to a value of SEK 19.1bn (23.9bn), pertained to investments denominated in USD. The corresponding share of Kinnevik’s Portfolio Value for investments denominated in EUR is 17% (19%), corresponding to a value of SEK 7.5bn (13.2bn).
Kinnevik is also exposed to indirect translation exposure, as several of its investee companies operate internationally, whereby foreign currencies have an indirect effect on the value of these investments.
Interest rate risk
Kinnevik’s interest rate risk pertains to the risk that the value of interest-bearing receivables and liabilities will change negatively due to changes in market interest rates. On 31 December 2022, none of Kinnevik’s interest bearing liabilities, SEK 3.5bn (4.7bn), were exposed to interest rate changes. SEK 3.25bn (4.46bn) out of Kinnevik’s SEK 3.5bn (4.7bn) in outstanding bonds were originally exposed to interest rate risk with floating rates (3 months STIBOR). This interest rate risk was hedged by entering into interest rate swaps maturing on the same dates as the relevant
bonds. On 31 December 2022, these swaps had a market value of SEK 286m (5m). An increase of 1.00% in interest rates at the reporting date would have increased the market value of the swaps by SEK 95m. Similarly, a decrease in interest rates of the equivalent amount have decreased the market value of the swaps by SEK 103m.
In connection with refinancing of current bonds and credit facilities, or if Kinnevik would increase its receivables or liabilities considerably, the interest rate risk may change materially.