27. FINANCIAL RISKS
Financial risk management is part of the Group’s risk management policy. The risk management strategy and plan, the control limits imposed and the course of action are reviewed annually. The Group has a risk management organisation tasked with identifying the risks threatening the company’s business, assess and update them, develop the necessary risk management methods and regularly report on the risks.
Alma Media categorises its financial risks as follows:
Interest rate risk
The interest rate risk describes how changes in interest rates and maturities related to various interest-bearing business transactions and balance sheet items could affect the Group’s financial position and net result. The impact of the interest rate risk on net result can be reduced using interest rate swaps, interest forwards and futures and interest or foreign exchange options. On the balance sheet date the Group had open interest rate swaps, which are described in more detail in Note 26 to the consolidated financial statements.
The Group’s interest-bearing debt totalled MEUR 90.6 on 31 December 2015. Interest-bearing debt comprises loans from financial institutions and finance lease liabilities. All interest-bearing debts are carried at variable rate. Taking the interest rate swaps into account, the average period of interest linkage of the Group’s financial portfolio at the end of 2015 was 1.0 years and the hedging rate 22%. An increase of one percentage point in the interest rate would increase the Group’s finance expenses by MEUR 0.7.
Foreign exchange risks
Transaction risk:
The transaction risk describes the impact of changes in foreign exchange rates on sales, purchases and balance sheet items denominated in foreign currencies Alma Media’s most significant currencies in addition to the euro are the Czech koruna and the Swedish krona. The impact of changes in exchange rates on net result in the most important currencies of the Group can be reduced by the following measures:
* Cash flows in the same currency are netted through a common foreign currency account whenever the cost/benefit ratio is significant
* known, continuous and significant foreign currency cash flow is hedged. Cumulative foreign currency cash flow with a minimum value of MEUR 1 over the following 18-month period is considered significant.
Translation risk:
A foreign exchange risk that arises from the translation of foreign investments into the functional currency of the parent company, the euro. The risk associated with translating long-term net investments in foreign currencies is assessed on a regular basis. Should there be a clear and permanent risk of a currency devaluating, Group management may decide to hedge the company’s foreign currency exposure.
The Group’s open foreign currency derivatives on the balance sheet date are described in Note 26.
Commodity risk:
The commodity risk refers to the impact of changes in the prices of commodities, such as raw materials, on the Group’s net result. The Group regularly assesses its commodity risk exposure and hedges this risk employing generally used commodity derivatives whenever this is possible and economically viable.
The Group has hedged its electricity purchases as follows: the price level of electricity purchases for the following 12 months are hedged at 70–100%, and the price level of electricity purchases for the following 12–24 months is hedged at 35–85%. Electricity prices for the following 25–36 months are hedged at 0–40%. The Group had open electricity forwards on the balance sheet date. The values of these open electricity forwards are described in more detail in Note 26 to the consolidated financial statements.
Capital management risks
Liquidity management:
Alma Media has two MEUR 20 financing limits at its disposal, of which MEUR 15 was in use on 31 December 2015. In addition, Alma Media ensures its liquidity by issuing its own commercial papers if required via brokers, and hedges over-liquidity according to its treasury policy. Liquidity is assessed daily and liquidity forecasts are made at weekly, monthly and 12-month rolling intervals.
On the balance sheet date, the company had a commercial paper programme of MEUR 100 in Finland. Within the programme, the company may issue commercial papers to a total value of MEUR 0–100. The commercial paper programme was entirely unused on 31 December 2015. In addition to the commercial paper programme, the company may use the existing financing limit agreements for financing the need for working capital.
Long-term capital funding:
To secure its long-term financing needs, Alma Media uses capital market instruments, leasing or other financial arrangements.
The table describes the maturity distribution of the Group’s interest-bearing debts:
MEUR Balance sheet value Cash flow 0–6 months 6 months –
1 year
1-2 years 2-5 years Over 5 years
Commercial papers
Loans from financial institutions 25.6 25.6 18.9 3.5 3.2
Finance lease liabilities 65.0 79.4 3.4 3.4 11.0 11.1 50.6
Total 90.6 105.0 22.2 6.9 14.2 11.1 50.6
Credit risk
The Group’s credit policy is described and documented in the Group credit management policy. The Group does not have significant risks of past due receivables, because it has a large customer base and no individual customer will comprise a significant amount. During the financial period, impairment losses of MEUR 0.5 were recognised through profit or loss. These impairment losses were caused by an unexpected change in customers’ economic environment. The ageing structure of trade receivables is presented in Note 19, Trade and other receivables.
Capital management
The aim of the Group’s capital management is to support business operations through an optimal capital structure and to secure normal business preconditions. The capital structure is influenced through dividend distribution, for example. The development of the Group’s capital structure is continuously monitored with gearing and equity ratio key figures. The following describes the values of these key figures in 2014 and 2013:
MEUR 2015 2014
Interest-bearing liabilities 90.6 83.0
Cash and cash equivalents 14.4 12.0
Interest-bearing net debt 76.2 71.1
Shareholders’ equity 128.7 103.7
Gearing, % 59.2 68.5
Equity ratio, % 42.5 42.6