Financial overviewNote 2 - Financial risk management

Through its operations, the Group is exposed to a number of different financial risks: market risk (inclusive foreign exchange risk, interest rate risk and price risk), credit risk, liquidity risk and cash flow risk.

The Board has established a financial policy as a framework for Cision's financial activities and to provide guidelines for managing financial risks.

The goal of the finance operations is to ensure the Group's financing, optimize its financial net and provide an overall assessment of and control over financial risks. To take advantage of economies of scale and minimize handling risks, the work is centralized. In addition to the financial policy, which is reviewed annually, the Board lays down financial limits one calendar year at the time. Follow-ups are made periodically during the year, and limits are reassessed when needed. In this way, rapid changes in financial risks and the continuous development of the company's structure can be effectively managed. Financial operations do not have a risk mandate, and derivatives are used only to reduce underlying exposure; they are not used for speculative purposes.

Foreign exchange risk

Foreign exchange risks in the form of so-called transaction exposure mainly affect Cision primarily through interest expenses on foreign loans, investments and operating expenses in currencies other than the local country's. Foreign exchange risks also arise in the translation of assets and liabilities in foreign currency as well as the translation of profits of foreign subsidiaries, so-called translation exposure.

Transaction exposure

Transaction exposure is marginal in the Group, since invoicing and expenses are primarily in each unit's local currency. Interest and amortization are paid in the first instance with cash flow generated in each currency. Significant exposures that arise are hedged with the help of forward exchange contracts. The purpose of hedging is to minimize the impact of fluctuations in exchange rates on the Group's profits. As of year-end there were no outstanding forward exchange contracts.

Translation exposure

The effects of translation exposure are limited in the first instance by matching foreign net assets against loans in corresponding currencies. The most important exchange rates are between SEK and USD, GBP, CAD and EUR. Adjustments to the balance between various currencies can be made using financial derivatives. Any remaining exposure in shareholders' equity is not hedged. The goal is to reduce the impact of fluctuations in exchange rates on shareholders' equity and financial covenants. Of the Group's total revenue, approximately 84 percent (85) is generated in currencies other than SEK. This means that fluctuations in exchange rates have a major impact on the Group's income statement. A sensitivity analysis based on the Group's income statement for 2007 shows that a 1% increase in the value of the Swedish krona against all other currencies would affect consolidated revenue by SEK -15.7 million and operating profit by SEK -2.4 million. This exposure is not hedged.

On the balance sheet date, December 31, 2007, the Group had the following interest-bearing net debt.

Interest rate risk

Changes in interest rates have a direct impact on Cision's net interest expense. The average maturity for the Group's borrowing should range between 12 and 36 months. The Board decided during the year to transition from variable to fixed interest rates in order to be able to predict interest expenses and reduce the fluctuations in the financial covenants of the Group's syndicated loan facility. Interest rates are fixed using interest rate swaps, where Cision pays a fixed interest rate to the counterparty and the counterparty pays the LIBOR or similar variable interest rate to Cision. The average fixed interest term was 12 months (1) at year-end. The average finance charge was 6.4% (6.5) at year-end. An overall increase in interest rates of 1% would increase borrowing costs by SEK -6.9 million, but is offset by outstanding interest rate swap agreements, which reduce the cost by SEK 2.2 million. Bank overdraft facilities carry a variable interest rate. Investments are made in liquid instruments with short maturities, i.e. shorter than 12 months.

Liquidity and refinancing risk

Procuring capital and outside investments expose Cision to certain liquidity risks. Refinancing risk refers to the risk that the company cannot refinance its loans at will or raise new financing in the market when needed. Cision hedges its short-term liquidity by maintaining a liquidity reserve consisting of liquid assets and binding credit lines and corresponding to at least one month's revenues. Credit lines consist of the syndicated loan facility and a bank overdraft facility. The syndicated loan facility of USD 200 million expires in October 2011 and contains covenants on interest coverage and net debt in relation to operating profit before depreciation and amortization. During the fiscal year the company fulfilled all the covenants. The bank overdraft facility is renewed annually in various currencies for the equivalent of SEK 88 million. Investments are made only in liquid instruments with short maturities, i.e., less than 12 months.

Credit and counterparty risks

Credit and counterparty risks arise in the investment of liquid assets and when using financial derivatives. Investments are made and agreements concerning financial derivatives are entered into only with counterparties with a credit rating of at least BB+ from Standard & Poor's or similar rating. The maximum exposure to credit risk from financial derivatives as of December 31, 2007 is the sum of the instruments with a positive market value, totaling SEK 0 million.

Commercial credit risk refers to clients' solvency and is managed by each subsidiary by monitoring its clients' payment habits and financial reports and through good communications. The payment term for accounts receivable is normally 10-30 days. No single client accounts for more than one percent of the Group's total revenue.

In accordance with Cision's Group policy, all receivables have been valued individually and recognized in the amount that is expected to be received. In the judgment of the company, the necessary provisions have been allocated.

Financial derivatives

Cision uses derivatives such as forward currency contracts and interest rate swaps to hedge commercial currency flows, change the structure of its loan portfolio or otherwise minimize underlying exposure. These instruments are not used for speculative purposes. In 2007 financial derivatives generated a result of SEK 0.4 million, which is recognized in operating profit, and contributed SEK 0.2 million to the financial net. The result is a consequence of hedges of bank balances in foreign currency, loans in foreign currency and client and supplier invoices. On the balance sheet date, December 31, 2007, the Group had the following financial derivatives.

Asset management

The goal of asset management is to maintain a capital structure that provides the company with sufficient financial strength to conduct its affairs in accordance with the adopted strategy and thereby create a return for shareholders.

The capital structure should reflect the risk level adopted by the Board. The capital structure is modified based on changes in economic conditions and risks in operations. The company can impact its capital structure by paying dividends to shareholders, repurchasing shares, issuing new shares and raising or amortizing loans.

In 2006 the Board revised the strategy and adopted new financial objectives. The asset management objective is to maintain a debt/equity ratio below 100 percent and an interest coverage ratio exceeding 4.0. The capital structure should facilitate financing on acceptable terms.

The dividend policy is to distribute surplus funds to shareholders, of which an average of 25 percent of the Group's after-tax earnings through dividends. Surplus funds are defined as funds not needed for investments, acquisitions and other needs relating to the Group's financial position.