LEGO-Group-Annual-Report-2017.pdf

Credit risk financial instruments are entered into

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Credit risk Financial instruments are entered into with counterparties with investment grade level ratings. Similarly, the LEGO Group only uses insurance companies with investment grade level ratings. For trade receivables the exposures are managed globally through fixed procedures, and credit limits set as deemed appropriate for the customer taking into account current local market conditions. The LEGO Group has no significant trade receivables risk concentrated in specific countries, but has some single significant trade debtors. Credit risk relating to trade receivables is disclosed in note 16. For banks and financial institutions, only independently rated parties with investment grade level ratings are accepted as main banks. The LEGO Group uses the related company KIRKBI Invest A/S for loans and deposits. No independent rating exists but no significant risks are recognised. The maximum credit risk corresponds to the carrying amount of loans granted and receivables disclosed in note 26. The overall credit risk of the LEGO Group is considered to be low. Foreign exchange risk The LEGO Group’s presentation currency is DKK, but the majority of The LEGO Groups activities and investments are denominated in other currencies. Consequently, there are a substantial risk of exchange rate fluctuations having an impact on The LEGO Group’s reported cash flow, profit(loss) and/or financial position in DKK. The LEGO Group’s foreign exchange risk is managed centrally based on a Treasury policy approved by the Board of Directors. Forward contracts and options are used to cover purchases and sales in foreign currencies. These forward contracts and options are classified as hedging when they meet the accounting requirements for hedging future cash flows. The isolated effects of the financial instruments on profit and equity after tax of a currency strengthening of 10% against DKK at 31. December 2017 are specified below for the most important currencies in the LEGO Group. The sensitivities are based only on the impact of the financial instruments that are outstanding at the balance sheet date. The financial instruments included in the analysis are the LEGO Group’s: Cash, Account receivables, Account payable, Borrowings, foreign exchange forwards and foreign exchange options. 43 Notes The LEGO Group — Annual Report 2017
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Note 25 (continued) Note 26. Financial assets and liabilities The maturity profile of financial liabilities is disclosed according to category and class distributed on period to maturity. All interest payments on and repayments of financial assets and liabilities are based on contracts. None of the cash flows are discounted. At 31 December 2017 forward contracts and options have been applied for hedging of cash flows covering future financial periods. The hedging mainly relates to the LEGO Group’s sales of goods and services in USD, EUR, GBP, JPY, AUD and CAD as well as purchases of goods in CZK, MXN and HUF. All contracts are expected to expire - and thus affect results - in the financial year 2018.
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