Descriptions of financial risks, management of them and comments on activities 2016 in the following areas; currency, interest rates, credit risk from financial counterparties and liquidity and refinancing.

Risk Risk management Comment
Currency. The Group’s earnings are affected by fluctuations in exchange rates. Transaction exposure risk arises due to a significant portion of the Group’s sales income being in different currencies than costs. The translation exposure risk arises from the translation of foreign subsidiaries’ assets, liabilities and earnings into Swedish kronor. Transaction exposure. In order to reduce the impact on profit from changes in exchange rates, net flows are hedged using forward foreign exchange contracts. Net flows in euros, US dollars and sterling for the coming four months are always hedged. These normally correspond to trade receivables and outstanding orders. The Board can decide to hedge flows for a longer period if this is deemed suitable in light of the products’ profitability, competitiveness and the currency situation. Currency exposure arising when investments are paid for in foreign currency is distinguished from other transaction exposure. Normally, 90–100 per cent of the currency exposure associated with major investments is hedged.

Translation exposure. Hedging exposure that arises when subsidiaries’ assets and liabilities are translated into Swedish kronor (known as equity hedging) is assessed on a case-by-case basis and is arranged based on the value of net assets upon consolidation. The hedges take the form of foreign currency loans or forward foreign exchange contracts. Exposure that arises when the earnings of foreign subsidiaries are translated into Swedish kronor is not normally hedged.
For the next two years, 90 per cent of expected flows in EUR/SEK are hedged at an average of 9.50, for EUR/GBP 90 per cent of the next year’s expected flows are hedged at 0.86 and for USD/SEK 70 per cent of the next year’s flows are hedged at 8.93. For other currencies, 4 months of flows are hedged. Hedging of net assets in euros amounted to EUR 13 million at year-end, which essentially corresponds to the Group’s total assets in euros. Hedging in pounds sterling amounted to GBP 5 million at year-end. Net assets in other currencies are very limited and are not hedged.
Interest rates. Risks that arise when changes in the market interest rate affect the Group’s interest income and expense. The fixed interest periods for the Group’s financial assets and liabilities are normally short. The Board can decide to lengthen these periods in order to limit the effect of a rise in interest rates. Derivatives in the form of interest rate swaps are used to manage fixed interest periods without altering underlying loans. The Group’s average interest rate on borrowing was 1.1 per cent in 2016 and 0.9 per cent at year-end. The table below shows the Group’s fixed interest agreements by currency.
Credit risk from financial counterparties. The risk of financial transactions giving rise to credit risks in relation to financial counterparties. A maximum credit risk and settlement risk are established for each financial counterparty and are monitored continually. Holmen’s financial counterparties are assessed using reputable credit rating agencies or, where a counterparty has no credit rating, the company’s own analyses. This calculation is based on the maturity and historical volatility of different types of derivatives. The maximum credit risk for other financial assets is estimated to their nominal amount. At 31 December 2016, the Group had outstanding derivative contracts with a nominal amount of about SEK 15 billion and a net fair value of SEK -194 million. Holmen’s total credit risk in derivative transactions amounted to SEK 1 405 million at yearend 2016. This calculation is based on the maturity and historical volatility of different types of derivative.
Liquidity and refinancing. The risk of the need for future funding and refinancing of maturing loans being required at a high cost. Holmen’s strategy specifies that its financial position should be strong to ensure that it has the freedom to take long-term business decisions. The goal is to not exceed a debt-to-equity ratio of 0.5. Holmen’s financing mainly comprises bond loans and the issue of commercial paper. Holmen reduces the risk of future funding becoming difficult or expensive by using long-term contractually agreed credit facilities. The Group plans its financing by forecasting financing needs over the coming years based on the Group’s multi-year business plan, budget and profit forecasts that are regularly updated. Net financial debt decreased in the year by SEK 854 million and amounted at 31 December 2016 to SEK 3 945 million, SEK 201 million of which comprised pension provisions. The Group has contracted a credit facility of EUR 400 million (SEK 3 824 million) with a syndicate of nine banks which expires in 2020 and 2021. The credit facility remained unutilised at year-end. It is available for use provided that the Group’s debt/equity ratio is below 1.25. At year-end, the Group’s debt/equity ratio was 0.19.



Debt/equity ratio

Net turnover (Msek)
15 513

Holmen AB, P.O. Box 5407, SE-114 84 Stockholm, Sweden.

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