Financing and financial risk management
Sponda’s financing strategy aims to secure the financing needed to carry out the company’s business operations and manage Sponda Group’s financial risks. Under uncertain market conditions, the company’s reputation as a trustworthy debtor has made refinancing arrangements easier.
Managing financial risks
Sponda’s financial risk management aims to minimise the unfavourable impacts of changes in the financial markets on the company’s profits and cash flow. Risk management objectives and policy are set by the company’s Board of Directors, which is also responsible for monitoring risk management. The company’s main financing risks are interest rate risks, risks related to the availability of financing, currency risks and credit risks. According to Sponda’s risk management policy, the hedging level of the debt portfolio’s interest rate risk is at least 60 per cent and at most 100 per cent. At the end of 2013, the hedging level of the debt portfolio was 79 per cent.
Sponda’s strengths in financial risk management include the active identification of risks and reacting to them, the company’s reputation as a trustworthy debtor and the diversity of its financing instruments. The management of risks is also supported by the company’s broad base of financiers. As in the previous year, the financier base was further strengthened in 2013 through a bond issue directed at institutional investors. The relative share of the total debt portfolio represented by bonds rose from 19 per cent to 26 per cent during the year.
Sponda’s creditors are protected by covenants included in financial contracts. The most important covenants are:
- Interest cover ratio, which must be at least 1.75. At the end of 2013, the interest cover ratio was 3.1.
- Equity ratio, which must be at least 28 per cent. At the end of 2013, the equity ratio was 41 per cent.
The company’s Russian business operations are subject to currency risks resulting from fluctuations in the exchange rate between the Russian rouble and the euro and between the US dollar and the euro. Sponda manages currency risks by hedging the foreign currency denominated cash flow from its Russian operations for six months in advance. No substantial exchange rate fluctuations occurred in 2013.
The company has SEK denominated loans, the currency risk of which is fully hedged with cross currency swaps.
Sensitivity to interest rate risk
The effect of a one percentage point change in short-term market rates on the company’s result and the fair value reserve in shareholders’ equity.
|31 Dec 2013||31 Dec 2012|
|Income statement||Fair value Reserve||Income statement||Fair value Reserve|
One percentage point rise in market rates (M€)
0,1 percentage point fall in market rates (M€)
The calculation does not include the impact of any deferred tax liability or credit.
Sponda’s strengths in financial risk management include the active identification of risks and reacting to them.