STENA METALL AB - Stena Metall Group

Financial review | The Group
33 Financial instruments
The Stena Metall Group’s operations are exposed to various
types of financial risks. The Group uses financial
instruments in accordance with the rules of its financial
policy to reduce the risk of a major impact on income
from these risks.
Fixed assets are financed in local currency. Working
capital is financed in local currency or in the currency in
which the sales proceeds are expected to be paid. To the
extent assets and liabilities in each currency cannot be
matched, the net position is adjusted with the help of
financial instruments.
Currency risks arise in part through the translation of
income and balance sheet items in foreign currency to
Swedish kronor and in part through the translation of
cash flows in foreign currency. These currency risks are
reduced by hedging exchange rates with forward
exchange contracts or currency option contracts.
These financial risks are managed in accordance with
the authorization limits stated in the Group’s financial
policy of the finance department through the units in
Sweden and Switzerland, as well as through operating
units with regard to inventory risks. All financial instruments
are traded with counterparties that are considered
to have satisfactory creditworthiness and where
the terms and settlement routines are well documented.
Normally no collateral is pledged by either party for any
credit risks in financial instruments.
Currency risks
Currency risks in Stena Metall’s operations are related to
changes in the value of contracted and anticipated future
payment flows, changes in the value of loans and investments,
and changes in the value of assets and liabilities
in foreign subsidiaries.
The Group’s policy is to hedge a large part of anticipated
future payment flows based on the transactions it
enters into. Shareholders’ equity in foreign subsidiaries
is hedged on a case-to-case basis. The same applies to
income in local currency.
The following table shows the Group’s forward contracts
as per the closing day.
Forward contracts, value in SEK million Bought Sold
EUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.8
USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285.2
DKK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8
SEK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321.2
Trading
As a minor part of its operations, the Finance business
area trades in currency and fixed income instruments. All
trades take place within the guidelines of the Group’s
authorization limits. All trading positions are valued at
market in the closing accounts, and the change in value
is posted against income for the period.
Interest rate risks
Interest rate risks refer to risks that changes in interest
rate levels will affect the Group’s income and cash flow
or the fair value of financial assets and liabilities. The
goal is to minimize interest rate risks in the form of
imbalances between interest-bearing items in the balance
sheet with variable and fixed interest rates and the
fixed interest rates on a significant share of net cash
(cash and bank balances less interest-bearing liabilities).
By matching the fixed interest period of financial assets
and liabilities, the exposure to interest rate risks is
reduced. Interest swaps are used to change the fixed
interest period of the Group’s financial assets and liabilities.
The following table summarizes the contracts entered
into to hedge interest rate levels for the Group’s loan
portfolio:
Interest rate swaps
Nominal
Currency amount To receive To pay Maturity
SEK 240 3m STIBOR fixed 4.190% Mar 2009
SEK 400 3m STIBOR fixed 2.975% Nov 2006
SEK 400 3m STIBOR fixed 3.620% Nov 2008
SEK 400 3m STIBOR fixed 4.070% Nov 2010
Credit risks
The Group’s receivables from counterparties are managed
according to established routines. Each counterparty is
assigned a limit based on its anticipated solvency and
profit margins.
Liquidity risks
To meet the Group’s need for liquid assets, agreements
have been entered into with several major banks on
credit facilities amounting to SEK 6.7 billion, of which
SEK 3.8 billion has not been utilized. The agreements
contain covenants requiring the Group to maintain specific
key financial indicators such as debt/equity and interest
coverage ratios.
Nominal
amount
Currency option contracts . . . . . . . . . . . . . . . . 186.0
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