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Aktiekurs 13.37

Financial risks

Crown Energy is exposed to various financial risks in its operations. The Company’s overall risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on performance and liquidity due to financial risks.

The financial risks below are from the annual report 2015.

Financial risks

Description of financial risks

Financial impact if risk occurs

>>> Financing and refinancing risk

High

Description of risk:

Financing risk is defined as the risk of the financing of Crown Energy’s capital needs and refinancing of outstanding loans becoming more difficult or more expensive. Oil and gas exploration is a capital-intensive business. Depending on operational developments in general, Crown Energy may need additional capital to acquire assets, to further develop the assets under conditions favourable for Crown Energy, or to continue its operating activities. If the Group cannot raise enough funds, the extent of its operations may be limited, which in the long run could result in the Company being unable to implement its long-term exploration plan. In addition, new shares may be issued under less favourable market conditions where interest is low and/or the cost of implementing the share issue is too high.

Risk management:

Crown Energy monitors and assesses financing and refinancing options on an ongoing basis to manage this risk.

2015 outcome / Sensitivity analysis

In 2015, Crown Energy conducted several financing and refinancing measures. In a first step, in spring 2015, Crown Energy bought back around 85% of its outstanding convertibles and also offset a loan with shares. For more information about the buy-back and offset, see the Important events after the financial year section in the Directors’ report. In addition, a preferential rights issue was conducted in June which raised SEK 4.9 million in capital. The farm-out agreement for the South Africa asset, which was signed in December 2015, will result in financing for future test drilling in respect of Crown Energy’s remaining share. It is impossible to quantify the risk and thus also impossible to conduct a sensitivity test.

>>> Liquidity risk

High

Description of risk:

The liquidity risk is defined as the risk of not being able to fulfil commitments and pay debts on time or at a reasonable cost. This risk is related to the financing and refinancing risk.

Risk management:

Management carefully monitors rolling forecasts of the Group’s cash and cash equivalents. As mentioned above, Crown Energy reviews financing options on an ongoing basis to be able to meet its obligations.

2015 outcome / Sensitivity analysis

As mentioned above, payment of interest of approximately 85% of the outstanding convertibles was averted in 2015 thanks to the buy-back. The buy-back naturally also reduced the nominal convertible debt by 85%.Cash and cash equivalents at the balance sheet date totalled SEK 156 thousand (34,626). The company’s maturing current liabilities amounted to SEK 17,190 thousand. See the maturity analysis in section 4.4 in Note 4 in the Annual Report 2015. See the section entitled Outlook in the Directors’ report for more information about the Company’s estimates of future liquidity needs.

>>> Market risk – interest rate risk

Low

Description of risk:

Net interest expense is affected by the proportion of financing that has variable and fixed interest rates in relation to changes in market interest rates. The effect of a change in interest rates on earnings depends on the contractual periods of the loans and investments. Future increases in interest rates may therefore have an adverse effect on the Group’s earnings and future business opportunities.

Risk management:

Crown Energy has no interestbearing liabilities with variable interest rates, so there is no interest rate risk related to cash flows. Borrowings with fixed interest rates only expose the Group to interest rate risk in respect of fair value.

2015 outcome / Sensitivity analysis

As the Group has no borrowings at variable interest rates, interest rate risk is not expected to be significant. Because of this, a sensitivity analysis was not prepared either.

>>> Market risk – currency risk

Low

Description of risk:

Currency risk arises from future commercial transactions, recognised assets and liabilities, and net investments in foreign operations.

Risk management:

There is currently no significant exposure in foreign currencies, which is why the Company has not found it necessary to hedge its currency transactions, assets, liabilities, and net investments.However, the Company reviews any future transactions that could pose substantial currency risks on an ongoing basis.

2015 outcome / Sensitivity analysis

At present, there is no external borrowing in foreign currency.The Group’s main transaction currency apart from SEK is USD. On the basis of outstanding liabilities reported in USD, a change in the USD/SEK exchange rate of +/-10% would impact earnings by +/- SEK 170 thousand. See the sensitivity analysis of currency exposure for details in section 4.2 in Note 4 in the Annual Report 2015.

>>> Translation risk

Low-Medium

Description of risk:

Currency exposure arising from holdings in a foreign subsidiary that has a functional currency different from the Group’s reporting currency is a translation risk. Translation impacts both earnings and equity (currency translation reserve).Exploration and evaluation assets acquired via a foreign operation are treated as assets of this operation and are therefore translated to the closing day rate. The acquisition of the subsidiary in Madagascar was executed in USD. As a result, the acquired exploration and evaluation assets are translated at each reporting period. The translation difference impacts the currency translation reserve in equity.

Risk management:

All translation risks refer to the USD/SEK exchange rate. Crown Energy does not hedgethe translation risk at this time. As a result, there may be major fluctuations in the Group's earnings, values of exploration and evaluation assets and in the currency translation reserve in equity between different reporting periods. The great majority refers to the translation that occurs as a result of the Madagascar asset (see explanation above).

2015 outcome / Sensitivity analysis

In section 4.3 in Note 4 in the Annual Report 2015, a sensitivity analysis has been prepared for the translation exposure. A 10% change in the USD/ SEK exchange rate would impact the following items:• exploration and evaluation assets by +/- SEK 6,304 thousand• deferred tax by +/- SEK 1,450 thousand• equity by +/- SEK 4,545 thousand• net loss for the year by +/- SEK 168 thousand

Crown Energy AB (publ)

Norrlandsgatan 18, SE-111 43 Stockholm

Phone+46 8 400 207 20

Fax+46 8 400 207 25

Emailinfo@crownenergy.se

Organisationsnummer556804-8598