Risk Management

The Group`s risk management principles and treasury policy are adopted by Stromsdal`s Board of Directors. The company conducts risk mapping and evaluation according to the company’s risk management scheme. According to this necessary actions are determined.  

The company’s business activities are subject to various kinds of business risks, risks of loss and financial risks. The company endeavours to manage and limit the effects of risk through its own actions. Other risks which impact on the company’s financial performance have also been identified.

These include the general economic outlook in Europe and elsewhere, paperboard production capacity in the marketplace, and product demand. The European board market in particular was fiercely competitive in 2007 and is expected to remain challenging also in future.  

A few major customers account for nearly half of the company’s net sales and the loss of one or more key accounts would have an adverse impact on the company’s operations, performance and financial standing. Nonetheless, on the whole Stromsdal has been able to develop and cultivate sustained customer relationships.  

Most of the company’s sales are denominated in euro, yet a significant proportion of output is sold also in US dollars and pounds sterling. Any violent long-standing fluctuation in exchange rates affects substantially the company`s business operations and profitability. The company uses forward contracts in respect of part of the planned trade receivables denominated in foreign currencies to hedge against exchange rate fluctuation.  

Crucial raw materials in the paperboard manufacturing process include pulp, pulpwood and chemicals of various kinds. Any increases in the prices of these rapidly erode the company`s profitability. The company is also a major consumer of energy and transportation services and any changes in the prices of electricity, steam energy or transportation are thus quickly reflected in profitability. Forward electricity contracts have been used to a certain extent to hedge against increases in the cost of electricity. The company seeks to compensate for upward pressures in other manufacturing costs with investments and higher efficiency in the logistics, sales and production processes.  

Movements in market interest rates and interest margins may impact on the costs of the company’s financing. During the financial restructuring of summer 2007, the company and main financial sponsor Svenska Handelsbanken AB (Publ) agreed i.e. on deferral of loan repayments and reduced interest rates.  

The company hedges against credit risk by taking out credit insurance on most of its sales. In the event of a typical credit loss event, credit insurance secures 90 percent of the value of the trade receivable.  

Insurance policies have been taken out to cover property loss, business interruption, business liability and product liability as well as environmental liability, goods in transit and travel accident liability. The company engages the services of an insurance broker to assess its need for insurance coverage and to coordinate policies.  

Should the company`s profitability and cash flow fail to improve in 2008, its financial standing and liquidity may deteriorate substantially and the investments which are planned to be implemented after spring 2008 may have to be postponed.