Nordecon – Group annual report 2020
At the reporting date, the group’s non-Ukrainian entities had no financial instruments denominated in hryvnias.
During the reporting period, the Swedish krona strengthened against the euro by around 4%. In 2020, the translation
of receivables and payables related to operating activity due to the movement of the Swedish krona against the euro
gave rise to an exchange loss of €48 thousand (2019: €16 thousand). The exchange loss has been recognised in other
operating expenses. The translation of a loan provided to the Swedish subsidiary in euros into the local currency
gave rise to an exchange loss of €24 thousand (2019: €196 thousand). The exchange loss has been recognised in
finance costs.
The group has not acquired derivative financial instruments to hedge currency risk.
Interest rate risk
The main source of the group’s interest rate risk is the possibility of a rise in the base rate of floating interest rates.
In the light of the group’s relatively heavy loan burden this would cause a significant increase in interest expense,
which would have an adverse impact on the group’s profit. The group mitigates the risk by pursuing a policy of
entering, where possible, into fixed-rate contracts when the market interest rates are low.
As regards the loan products offered by banks, observance of the policy has proved difficult and most new contracts
have a floating interest rate. The group has entered into a derivative contract to manage the risks related to the
interest rate of a lease contract signed in 2016 for the acquisition of an asphalt concrete plant.
Further information about the group’s market risk exposures is provided in note 34.
Country risk
In the reporting period, the group’s foreign markets included Sweden, Finland and Ukraine. Revenues generated in
Sweden, Finland and Ukraine accounted for 11%, 6% and 1% of the group’s total revenue, respectively (2019:
Sweden 5%, Finland 4% and Ukraine 2%). At the year-end, assets located in Sweden, Finland and Ukraine accounted
for 3%, 1% and 3% of the group’s total assets, respectively (2019: Sweden 3%, Finland 3% and Ukraine 4%).
The group’s business operations did not change in 2020. The group’s business volumes remained stable compared
to the previous year. The group remains conservative about the contracts it signs, entering into a contract only when
it is certain that the risks involved are reasonable, considering the circumstances.
Real estate development activities which require major investment remain suspended to minimise the risks until the
situation improves (we have currently stakes in two development projects that have been put on hold). To safeguard
the investments made and loans provided, the group and the co-owners have privatised the property held by the
associate V.I. Center TOV and created mortgages on it.
The deterioration in the political and economic environment, caused by the conflict between Ukraine and Russia,
has increased Ukraine’s country risk for the group. The above developments have had, to a greater or lesser extent,
an adverse impact on the Ukrainian construction and real estate markets as well as the value of financial instruments
related to Ukraine.
In view of the above factors, management is of the opinion that the group’s financial instruments and investment
property that are related to Ukraine carry increased risk and the probability that their value may decrease is above
average (notes 9 and 13).
Determination of fair value
According to management’s assessment, the carrying amounts of the group’s financial assets and liabilities do not
differ significantly from their fair values. The group categorises financial instruments into three levels based on the
inputs of their valuation techniques:
• Level 1: Financial instruments measured based on prices quoted on a stock exchange or another active
regulated market (unadjusted). A market is active if quoted prices are readily and regularly available from a
stock exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring transactions on an arm’s length basis.
• Level 2: Financial instruments measured using valuation techniques that use observable inputs. For
example, financial instruments which are measured based on quoted prices for similar instruments in an
active regulated market or financial instruments which are measured based on quoted prices in regulated
markets but whose market liquidity is low. In applying a fair value measurement technique, the group
maximises the use of observable inputs, if those are available, and minimises the use of its own estimates.
An instrument is categorised to level 2 when all significant valuation inputs are observable. If one or several
of significant inputs are not based on observable market data, the instrument is categorised into level 3.