Risk Management
Financing and risk management functions
in the Tamro Group are centralised in a separate financing
company called Tamro Finance Ltd. On the Group-level,
Tamro Finance Ltd is responsible for funding operations,
liquidity management, foreign exchange and interest
rate risk management as well as acquiring and maintaining
a certain insurance coverage. The business units are
responsible for the corresponding local activities
in accordance with the policies and guidelines given
by Tamro Finance Ltd.
The objective of the above risk management
activities is to decrease the unpredictability of
the Group’s financial performance due to various
financial and operational risks.
The risk management operations are
carried out in accordance with the financial policy
(“Policy”) approved by the Board of Directors.
Funding and liquidity management
The funding of the Group is secured
by a number of financing sources. The commercial paper
programs of EUR 300 million and SEK 1,000 (EUR 106)
million are supported by EUR 200 million revolving
credit lines agreed with the core banks of Tamro.
The Group has asset securitisation programs of SEK
1,200 (EUR 127) million in Sweden and DKK 1,050 (EUR
141) million in Denmark. In addition, short-term credit
facilities and account overdraft facilities are available.
Any excess liquidity within the Group
is managed with the help of cash pool arrangements
and used primarily to repay short-term debt. If liquid
funds remain after repayment of debt, they are invested
by Tamro Finance Ltd in short-term deposits and commercial
papers of approved issuers. The investment limits
are defined in accordance with the Policy.
Foreign exchange and interest
rate risk management
The currency split of the net sales
in 2007/08 was SEK 30%, DKK 26%, EUR 19%, NOK 13%,
PLN 6% and other currencies 6%. In the Nordic countries
the suppliers carry almost exclusively the foreign
exchange risk. In Estonia, Latvia, Lithuania and Poland
the foreign exchange risk is carried to some extent
by the distributor or pre-wholesaler. About 4 (3)%
or EUR 207.6 (173.0) million of the purchases is exposed
to foreign exchange risk; the currency split of this
percentage was EUR 94 (97)%, USD 5 (2) % and other
currencies 1 (1) %. The business units are responsible
for hedging the net foreign exchange exposure inherent
in the commercial operations. Intragroup loans are
extended by Tamro Finance Ltd in the home currency
of the debtor business unit. Tamro Finance Ltd hedges
any net foreign exchange exposure in accordance with
the Policy.
The foreign currency denominated equity
and equity type loans are not hedged. At financial
year end the foreign currency denominated shareholders’
equity and equity type loans amounted to EUR 562 (599)
million. Of the total amount NOK represented 31 (38)
%, DKK 28 (25) %, SEK 25 (23) % and other currencies
17 (14) %.
The short-term funding structure of
the Group closely matches the short-term asset structure
of receivables. The available financing arrangements
mature at different points in time, allowing renewal
in different market situations and thus diversifying
the interest rate risk in these funding sources.
Derivative instruments are used to
hedge underlying foreign exchange and interest rate
exposures. The derivative instruments used must be
liquid and effectively priced in the market, and the
agreements are entered into with creditworthy counterparties.
The open derivative instruments of the Group are presented
in tabular form in the Notes to the Financial Statements.
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