Financial Risk Management

The main objective of the Group's financial risk management is to reduce the impact of price fluctuations in financial markets and other factors of uncertainty on earnings, cash flow and balance sheet, as well as to ensure sufficient liquidity. The Board has approved the Group's risk management policy and the CEO is responsible, together with the Group's finance management, for development and implementation of the financial risk management procedures. Group Risk Management reviews financial risks on regular basis to manage Group's financial risk position and decide on necessary actions to manage financial risks.

Financial risks consist of market risks, credit and default risks and liquidity risks.
The Group's market risks are mainly caused by changes in foreign exchange and interest rates.

Foreign Exchange Risks

The Group has a foreign exchange risk policy approved by the Board of Directors. The risk policy defines the framework for foreign exchange hedging. Foreign currency net transactions are hedged in all significant currencies for the next 12-15 months. The hedging policy is dynamic and provides certain ranges for the hedge ratio depending on market conditions and maturity.

Interest Rate Risks

The Group funds itself mainly in Euros and US dollars, but may use other currencies as well to utilize favorable market conditions. Group Risk Management decides the duration of the loan portfolio and cross currency swaps as well as interest rate swaps are used to manage currency and interest rate exposures of the Group.

Commodity Risks

The Group purchases some raw-materials, which are priced on global financial markets. These include commodity metals such as copper, zinc and lead, and some plastics. The value of these purchases is still relatively low and market price risk management actions are done in each manufacturing unit locally. No commodity hedging is currently carried out.

Liquidity Risks

Generally, the seasonality of the Group's cash flow is fairly predictable and Group's finance management monitors Group's liquidity position using cash pooling systems as well as regular cash flow and liquidity reporting.

Credit and Default Risk

The Group's accounts receivables are generated by a large number of customers worldwide. Consequently, the credit risk is spread against multiple counterparties. The credit risk management is delegated to each operative business unit. Before providing credit to any new customer, background checks are carried out. Cash, advance payments and letters of credit are also applied with new and existing customers. Customer specific credit limits and financial situation of the existing credit customers are monitored and set locally in each business unit. Customers' payment behavior is monitored regularly and delays in payments may trigger payment reminders, stopping the shipments, requirements for advance payments for future shipments and eventually legal collection procedures. In significant cases, business units consult with the Group's finance management before final decisions. In exceptional cases, payment terms may be renegotiated.
Group Risk Management manages most of the credit and default risk related to financial instruments. Group seeks to reduce these risks by limiting the counterparties to banks, which have a high credit rating. Majority of the Group's bank deposits and derivative contracts have been made with the Group's house banks, whose credit ratings are strong. Group's all investments related to liquidity management are made in liquid instruments with low credit risk. For instance, commercial paper investments are not made.