Financial Risk Management

Financing and risk management functions in Tamro Group are centralised in a separate financing company, Tamro Finance Ltd. At the group level, Tamro Finance Ltd is responsible for funding operations, liquidity management, and foreign exchange and interest rate risk management, as well as for acquiring and maintaining a certain level of insurance cover. 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 risk management activities is to decrease any unpredictability of the Group’s financial performance due to financial and operational risks.

The risk management operations are carried out in accordance with the financial policy approved by the Board of Directors (hereinafter, ‘the policy’). 

Funding and liquidity management

The funding of the Group is guaranteed by a number of financing sources. The commercial paper programmes of EUR 300 million and SEK 1,000 million (equivalent to EUR 94 million) are supported by EUR 160 million committed revolving credit lines arranged with Tamro’s core banks. Negotiations on the prolongation of these facilities within the next few months are being conducted. Tamro Group’s shareholder PHOENIX is in the process of renegotiating its own long term financing arrangements.

The Group has receivable securisation programmes of SEK 1,200 million (EUR 113 million) in Sweden and DKK 1,050 million (EUR 141 million) in Denmark. At the end of December, a three-year amortising loan in the amount of EUR 30 million from Tamro Corporation’s pension insurer was drawn down. In addition, 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 interest-bearing debt. Any remaining liquid funds are invested by Tamro Finance Ltd in short-term deposits and commercial papers of approved issuers. The investment limits are defined by the policy.   

Foreign exchange and interest rate risk management

The currency breakdown of net sales for the 2008/09 financial year was SEK 27% (30%), DKK 27% (26%), EUR 19% (19%), NOK 13% (13%), PLN 7% (6%), and other currencies 6% (6%). In the Nordic countries, it is almost exclusively the suppliers who bear the foreign exchange risk. In Estonia, Latvia, Lithuania, and Poland the foreign exchange risk is borne to some extent by the distributor or pre-wholesaler. The business units are responsible for hedging the net foreign exchange exposure inherent in the commercial operations. Intra-group loans are extended by Tamro Finance Ltd in the home currency of the relevant subsidiary company. Tamro Finance Ltd hedges any net foreign exchange exposure in accordance with the policy.

Foreign-currency-denominated equity and equity-type loans are not hedged. At the end of the financial year, foreign-currency-denominated shareholders’ equity and equity-type loans amounted to EUR 520 (562) million. Of the total amount, the NOK represented 34% (31%), DKK 24% (28%), SEK 25% (25%), and other currencies 17% (17%).

The short-term funding structure of the Group closely matches the short-term asset structure of receivables. The three-year fixed rate loan from the pension insurer diversifies the maturity structure of the funding and thus reduces interest rate risk.

Derivative instruments are used to hedge underlying foreign exchange and interest rate risk exposure. 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’ section.