Income Statement Group

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NOTE 3	FINANCIAL RISK MANAGEMENT
The Group’s business activities primarily entail exposure to interest rate risk, liquidity risk, and credit risk. The Group is not exposed to financial price risk of any particular significance.

The Group’s risk management procedures support the Group’s value creation and ensure a continued solid financial platform by identifying and carefully managing financial and operational risk factors. As a rule, risk management is the responsibility of each business unit’s operational management. For a description of other areas of risk to which the Group is exposed, please see the Board Report as well as guidelines for corporate governance.

a) Currency risk
Infratek is only to a limited extent operationally influenced by changes in foreign exchange, as the operations are only marginally applying purchase in foreign exchange or trade across countries. When significant foreign exchange risk is present it is evaluated on a case by case basis and secured in found required through forward contracts or similar.

The Group has operations in Norway, Sweden and Finland and is thus exposed economically to exchange rate risk from SEK and EUR to NOK. Equity capital in foreign subsidiaries does not have currency hedging and exchange rate fluctuations do affect the Group’s equity capital. As of 31 December 2011, the Group had only a minor degree of financial derivates for currency hedging.

Net exchange differences on translating foreign operations to NOK in 2011 was NOK -1 million (12 million). The below table shows the effect of the Group’s loss / gain on exchange rates by plus or minus 10 per cent change in SEK and EUR currency vs. used currency for the financial year 2011.

SENSITIVITY ANALYSIS TRANSLATION DIFFERENCES

					Currency rate change
Amounts in NOK million				Currency	+10%	-10%
Effect on other comprehensive income and equity				SEK	25	(25)
Effect on other comprehensive income and equity				EUR	7	(7)
Total effect on other comprehensive income and equity					33	(33)

b) Interest rate risk
The Group’s operating revenues and cash flow from operations are largely unaffected by changes in interest rates. Variations in the interest rate may, however, affect customers’ willingness to invest, indirectly affecting the Group’s operating revenues and cash flow. As of 31 December 2011, the Group is primarily exposed to interest risk associated with surplus liquidity. At the close of 2011 the Group had net cash holdings of NOK 300 million and had earned NOK 3 million in interest income. Variations in NIBOR, STIBOR and EURIBOR will affect interest on cash reserve as well as the Group’s capital costs. NIBOR, for example, changed from 2.27 per cent on 3 January 2011 to 2.0 per cent on 31 December 2011. Given the Group’s cash holdings at the end of 2011 this would have resulted in an interest income interval of NOK 6,0 to 6,8 million. The Group’s interest income and expenses track general developments in the Norwegian, Swedish and Finnish money markets respectively. The Group has not made use of interest hedging instruments, and only to a very limited degree of currency hedging instruments. Surplus liquidity derives from additional liquidity which was part of Infratek’s flotation in December 2007, the takeover of Fortum’s contracting business in January 2009, as well as a positive cash flow from operating activities.

c) Liquidity risk
Liquidity risk arises from a lack of coherence between cash flow from operations and financial commitments. Infratek’s business activities are subject to seasonal variations that may affect cash flow. Historically, Infratek has satisfactorily managed its working capital. As of 31 December 2011 Infratek had net cash holdings of NOK 300 million. Infratek also has an unused NOK 100 million overdraft facility with DNB Bank ASA which runs until terminated by either party at one month’s notice. Infratek’s borrowing agreement with DNB Bank ASA is conditional upon certain key financial indicators. DNB has an AA rating. The Group’s overdraft assumes a 20 per cent equity ratio. The agreement also contains certain restrictions on changes in the company’s legal status, eg merger/demerger, material acquisition/disposal of assets, changes in capital, as well as limitations relating to sale or pledging of group assets as security for liabilities. The lender undertakes to allow such transactions unless there are reasonable grounds for not doing so. The Group also has a group account system and accounts with short-term credit limits at subsidiary level which draw on the Group’s overall cash holdings. The Group’s cash flow from operating activities in 2011 was positive as a result of a positive pre-tax profit. Infratek is in compliance with all the requirements stipulated in its borrowing agreement. Overall these resources are deemed to provide solid liquidity for the Group.

Maturity-analysis long-term debt

2010		1-3 years	3-5 years	5 years or later	Due date not determined
Amounts in NOK million		1-3 years	3-5 years	5 years or later	Due date not determined	Total
Other long-term debt		18	-	-	-	18
Total long-term debt		18	-	-	-	18

2011		1-3 years	3-5 years	5 years or later	Due date not determined
Amounts in NOK million		1-3 years	3-5 years	5 years or later	Due date not determined	Total
Other long-term debt		15	-	-	-	15
Total long-term debt		15	-	-	-	15

Maturity-analysis short-term debt:

2010
Amounts in NOK million	0-30 days	30-60 days	60-90 days	90-120 days	>120 days	Total
Accounts payable	150	3	1	4	-	158
Other current liabilities	152	-	127	-	81	360
Total current liabilities	302	3	128	4	81	518

2011
Amounts in NOK million	0-30 days	30-60 days	60-90 days	90-120 days	>120 days	Total
Accounts payable	196	6	1	-	1	204
Other current liabilities	142	-	118	-	84	344
Total current liabilities	338	6	119	-	85	548

d) Credit risk
Credit risk is the risk that customers will not settle their accounts. Credit risk is deemed to be part of the Group’s overall commercial risk and is followed up as part of its day-to-day operations. Infratek has established procedures for credit assessment of larger customers and suppliers. Historically, losses due to bad debts have been insignificant and today’s level of credit risk is considered acceptable.

Maturity-analysis long-term receivables

2010		1-3 years	3-5 years	5 years or later	Due date not determined
Amounts in NOK million		1-3 years	3-5 years	5 years or later	Due date not determined	Total
Paid core-capital, pension fund		-	-	-	17	17
Subordinated loan, pension fund		-	-	-	2	2
Other non-current receivables		4	-	1	-	5
Total long-term receivables		4	-	1	19	24

2011		1-3 years	3-5 years	5 years or later	Due date not determined
Amounts in NOK million		1-3 years	3-5 years	5 years or later	Due date not determined	Total
Paid core-capital, pension fund		-	-	-	17	17
Subordinated loan, pension fund		-	-	-	2	2
Other non-current receivables		1	-	-	-	1
Total long-term receivables		1	-	-	19	20

Maturity-analysis short-term receivables

2010
Amounts in NOK million	0-30 days	30-60 days	60-90 days	90-120 days	>120 days	Total
Accounts receivable	453	16	5	4	-	478
Accrued, non invoiced income	203	-	-	-	-	203
Other short term receivables	61	-	-	-	-	61
Total short term receivables	717	16	5	4	-	742

2011
Amounts in NOK million	0-30 days	30-60 days	60-90 days	90-120 days	>120 days	Total
Accounts receivable	440	5	1	9	4	459
Accrued, non invoiced income	232	-	-	-	-	232
Other short term receivables	15	-	-	-	-	15
Total short term receivables	687	5	1	9	4	706

All customer receivables in excess of 30 days have fallen due for payment.

Changes in the allowance for doubtful debts
Amounts in NOK million					2011	2010
Balance at beginning of the year					(4)	(5)
Impairment losses recognised on receivables					(5)	(1)
Amounts written off during the year as uncollectible (confirmed loss)					1	2
Closing balance allowance for doubtful debts					(8)	(4)

e) Categories of financial instruments
The group’s financial instruments are categorized as follows:

2010
Amounts in NOK million					Loans and receivables	Total
Assets
Other long-term receivables					24	24
Accounts receivables and other receivables (not including prepaid costs and incurred, not invoiced revenues) 1)					528	528
Cash and cash equivalents					239	239
Total assets					791	791

Amounts in NOK million					Other Financial oblications at amortized cost	Total
Liabilities
Long-term debt					18	18
Account payable and other short-term debt (not including statutory obligations) 2)					295	295
Total liabilities					313	313

2011
Amounts in NOK million					Loans and receivables	Total
Assets
Other long-term receivables					20	20
Accounts receivables and other receivables (not including prepaid costs and incurred, not invoiced revenues) 1)					474	474
Cash and cash equivalents					300	300
Total assets					794	794

Amounts in NOK million					Other Financial oblications at amortized cost	Total
Liabilities
Long-term debt					15	15
Account payable and other short-term debt (not including statutory obligations) 2)					430	430
Total liabilities					445	445

1) Prepayments and incurred, non-invoiced revenue is omitted from the receivable balance in the statement of financial position, since this is an analysis that is only required for financial instruments.
2) Statutory obligations and pre-paid amounts are omitted from accounts payable and other liabilities in the statement of financial position, since the analysis only is required for financial instruments.

Nominal value less write-downs on sustained losses on accounts receivable and payable is deemed to equal the fair value of an item. Fair value of financial liabilities (calculated for note disclosure) is estimated by discounting future cash flows using the Groups alternative market interest rate for similar financial instruments.

f) Capital management
The Group’s capital is managed with the goal of continued going concern, safeguarding and further developing the Group’s value and to ensure good credit rating and hence borrowing terms reflecting the operations of the Group. The Group has a solid capital structure and will over time seek a capital structure adapted to the Group’s activities to reduce capital costs, for example, through increased dividends, share buybacks, new share-issues or draw up interests-bearing loans to finance purchase of business.

The Group monitors its capital structure by following the developments in its cash and debt ratio, defined as net interest-bearing debt divided by total shareholders’ equity and net-interest-bearing debt. The Group’s debt ratio should not exceed the group’s ability to service a loan which will depend on the group’s future earnings and investment levels, as well as the interest rate level the Group can achieve.

Debt ratio
Amounts in NOK million					2011	2010 restated
Interest-bearing debt					14	17
Cash and cash equivalents					(300)	(239)
Net interest-bearing debt (cash)					(286)	(222)
Total equity inclusive non-contolling interests					484	621
Total equity and net interest-bearing debt					198	399
Debt ratio					7.1%	4.3%