43. Risk management

43.1. General remarks

The Nordzucker Group has a comprehensive system in place throughout the company for the early identification and permanent monitoring of risk as well as for risk measurement and limitation. The integrated risk management system is used to identify risks and the appropriate steps fully and to include them in operational and strategic planning. Potential risks such as default and credit risks, commodity, liquidity, exchange rate and interest rate risks are assessed permanently as part of risk management, whereby appropriate steps are developed and implemented. Operating and strategic decision-making always takes risk aspects into account. The Group-wide reporting and controlling system ensures that all the responsible decision makers are continually informed.

By the nature of its business, the Nordzucker Group is exposed to default and credit risks, commodity, liquidity and exchange rate risks as well as interest rate risks. These are controlled by means of suitable risk management processes. The Nordzucker Group uses derivative financial instruments to hedge against interest and exchange rate fluctuations and to hedge costs of raw materials. The use of these instruments is governed by Group guidelines and restricted to the hedging of existing transactions or those which are sufficiently likely to take place. The guidelines define the individuals responsible, the limits and reporting and stipulate a strict separation between trading and clearing. This transparent and functional manner of organising risk management processes applies to all types of risk.

43.2. Default risk

Credit or default risk is the risk that business partners do not meet their contractual payment obligations, causing the Nordzucker Group to suffer a loss as a result. As part of credit risk management, business partners are subject to a credit scoring in order to reduce default risk. Identifiable default risks are accounted for by impairments, whereby the risk of default on receivables is in part limited by trade credit insurance.

The Nordzucker Group does not see itself as exposed to a significant default risk from any individual counterparty. As the customer structure for the Nordzucker Group is diverse, there is only a limited concentration of credit risk. There is therefore no special monitoring and management on the basis of specific risk categories to avoid a concentration of risk.

The maximum default risk corresponds to the carrying amounts of the financial assets on the balance sheet at the end of the relevant reporting period.

The following table shows total carrying amounts, the carrying amounts for financial assets which are neither overdue nor impaired and the age structure of financial assets which are not impaired but past due, for the financial assets:

Age structure of financial assets
Enlarge table XLS Download

in EUR thousands

Total carrying amount

Neither impaired nor past due at the end of the reporting period

Not impaired at the end of the reporting period and past due as follows:

Less than 30 days

Between 30 and 60 days

Between 61 and 90 days

Between 91 and 180 days

More than 180 days

As of 28/2/2014

 

 

 

 

 

 

 

Other financial investments

23,818

23,818

0

0

0

0

0

Financial assets (excluding derivative financial instruments), receivables from related parties

30,727

30,727

0

0

0

0

0

Trade receivables

186,282

169,354

10,231

2,393

202

2,083

2,019

Total

240,827

223,899

10,231

2,393

202

2,083

2,019

 

 

 

 

 

 

 

 

As of 28/2/2013

 

 

 

 

 

 

 

Financial investments

23,536

23,536

0

0

0

0

0

Financial assets (excluding derivative financial instruments), receivables from related parties

16,125

16,125

0

0

0

0

0

Trade receivables

212,424

191,083

15,143

1,535

1,316

1,271

2,076

Total

252,085

230,744

15,143

1,535

1,316

1,271

2,076

For the portion of the receivables portfolio which has neither been impaired nor is past due there is no indication as of the end of the reporting period that Nordzucker Group’s debtors will not fulfil their payment obligations.

Financial assets that are shown in the table above under ‘Financial investments’, ‘Financial assets (excluding derivative financial instruments), receivables from related parties’ or ‘Trade receivables’ have a gross carrying amount (i.e. carrying amount before impairments) of EUR 242,743 thousand (previous year: EUR 254,145 thousand). Impairments of EUR 588 thousand (previous year: EUR 2,059 thousand) were made in the reporting period.

The Nordzucker Group did not use financial assets as collateral either in the reporting period or the comparative period.

43.3. Liquidity risk

Liquidity risk is the risk that the company cannot meet its payment obligations at the contractually agreed time. To ensure the Nordzucker Group’s liquidity, the liquidity needs are monitored and planned centrally. Sufficient cash is held to be able to meet all obligations when they are due. Current lines of credit, which can be drawn down as needed, provide additional liquidity.

The following table shows contractually agreed (undiscounted) interest and capital repayments – also categorised by remaining term – for the non-derivative financial liabilities and for derivative financial instruments:

Payments from financial instruments by remaining term
  XLS Download

in EUR thousands

Carrying amount

Gross
inflow/
outflow

Remaining term of up to one year

Remaining term of 1–5 years

Remaining term of more than five years

As of 28/2/2014

 

 

 

 

 

Financial liabilities

5,939

–6,263

–539

0

–5,724

Trade payables

399,325

–399,325

–398,529

–796

0

Other financial liabilities, liabilities towards related parties

44,247

–44,998

–39,498

–5,500

0

Derivative financial liabilities

6,669

–6,669

–6,669

0

0

Derivative financial assets

–3,692

3,692

3,692

0

0

Total

452,488

–453,563

–441,543

–6,296

–5,724

 

 

 

 

 

 

As of 28/2/2013

 

 

 

 

 

Financial liabilities

70,684

–71,359

–65,284

0

–6,075

Trade payables

465,425

–465,425

–465,425

0

0

Other financial liabilities, liabilities towards related parties

25,806

–26,250

–20,750

–5,500

0

Derivative financial liabilities

5,033

–5,033

–5,033

0

0

Derivative financial assets

–2,615

2,615

2,615

0

0

Total

564,333

–565,008

–553,433

–5,500

–6,075

The term to maturity analysis includes all instruments held for which payments have been contractually agreed as of the end of the reporting period.. Forecast payments on expected future liabilities are not included. Floating-rate interest payments on financial instruments are determined using the last interest rates set before the balance sheet date. Financial liabilities repayable at any time are categorised in accordance with remaining term according to their estimated repayment dates.

43.4. Market risks

Market risks arise from potential changes in risk factors, which lead to fluctuations in market values or alterations in future cash flows. The relevant risk factors for the Nordzucker Group are exchange rate and interest rate fluctuations, as well as changes in the price of commodities.

a. Exchange rate risk

Due to its business operations in different countries which are not part of the Eurozone, the Nordzucker Group is exposed to an exchange rate risk.

IFRS 7 requires the disclosure of a sensitivity analysis to illustrate the dimensions of exchange rate risks. The application of sensitivity analyses enables the calculation for this type of risk of the effects that a change of the given exchange rate at the end of the reporting period would have on net income for the period and on the equity of the Nordzucker Group. The effects are determined by applying a hypothetical change of 10 per cent in the exchange rates to the amount of the relevant items in foreign currencies (the net risk position in the foreign currency) at the end of the reporting period. It is assumed that the exposure at the end of the reporting period is representative of the whole reporting period.

The net risk position is adjusted for planned transactions within the next twelve months and for existing hedging instruments (even if no hedging relationship in accordance with IAS 39 exists).

Foreign currency positions in Danish Crowns and Lithuanian Litas are only exposed to an insignificant exchange rate risk as these states are part of the European Union’s exchange rate mechanism. The exchange rate risk from foreign currency positions in US Dollars is also insignificant as the amounts are minor and are hedged directly.

Furthermore, the Nordzucker Group hedges a large proportion of actual currency risks using the natural hedge approach and by using derivatives, so that the remaining net risk exposure is insignificant.

b. Interest rate risk

Due to its borrowing activities, the Nordzucker Group is exposed to interest rate risk. Financing is arranged in various currency areas, although the most frequent currency is the Euro. Interest rate risks from financing activities denominated in Hungarian Forints, Swedish Crowns, Lithuanian Litas, Polish Zloty or Danish Crowns are insignificant as the amounts involved are minor.

As of the reporting date, Group companies hold a total of EUR 0 (previous year: EUR 65,200 thousand) in interest-bearing or interest-rate-sensitive instruments. These were fully assigned to floating-rate instruments in the comparative period.

In accordance with IFRS 7, interest rate risks are illustrated using sensitivity analyses. The sensitivity analysis determines the effect that a change in market interest rates at the end of the reporting period would have on net income for the period and on equity.

In the reporting and in the comparative period, no cash flow hedges were used to hedge the interest rate risk of floating-rate instruments, since these funds are scheduled to be repaid shortly and no further loans are to be taken out at floating rates of interest thereafter. In view of the remaining duration of the derivatives, a hypothetical change in the relevant interest rates for floating-rate instruments of +/– 50 basis points would therefore not have a significant effect in relation to the Group’s equity and net interest.

c. Commodity risk

As a result of its business activities, the Nordzucker Group is exposed to various price risks for commodities. These primarily relate to world-market sugar and energy prices.

d. Hedging activities

The Nordzucker Group uses derivative financial instruments solely to hedge interest rate and exchange rate risks as well as price risks for raw materials.

As a rule, the existing interest rate risk for floating-rate loans is reduced by means of interest rate derivatives. All interest rate derivatives are designated as cash flow hedges in hedging relationships under IAS 39. As of the end of the reporting period, the Nordzucker Group had not taken out any interest rate derivatives, since based on its financial planning it could not identify any exposure to interest rate risk as of this date.

It is generally assumed that the hedged transactions will actually take place. If a hedging transaction is cancelled, the amounts accumulated in other comprehensive income during the term of the transaction are reversed when the hedged item is recognised in profit or loss or if it no longer takes place.

In addition to the natural hedge approach for Poland and Sweden, the gross positions are hedged to reduce exchange rate risk. Exchange rate risks are also hedged by means of appropriate derivatives such as currency futures – including for periods of less than a year.

At the end of the reporting period, the Group holds derivative financial instruments aimed at hedging currency risks and price risks for sugar and energy (CO2). Almost all of the derivative financial instruments mature within one year.

A sensitivity analysis for the market values in the balance sheet would not produce a significant effect in relation to the Group’s equity and net income.

The effective portion of changes in the market value of derivative financial instruments integrated in cash flow hedges is recognised in other comprehensive income (i.e. in the statement of comprehensive income) with no effect on profit or loss. In the reporting period, EUR –3,552 thousand (previous year: EUR 930 thousand) was recognised in the statement of comprehensive income.

The Group does not measure the derivatives itself. The fair value determination is carried out by the contracting banks using accepted financial methods and observable input factors (level 2 of the fair value hierarchy).