Risk management
As a result of its international operations, Swedish Match is exposed to financial risks.
The term "financial risks" refers to the fluctuations in Swedish Match's cash flow that are caused by changes in foreign exchange rates and interest rates, and to risks associated with refinancing and credit.
To manage its financial risks, Swedish Match has a finance policy that is established by the Board of Directors. The Group's finance policy comprises a framework of guidelines and rules governing the management of financial risks and finance operations in general.
Currency risks
Swedish Match's policy for managing the Group´s transaction exposure is to hedge inward and outward flows in foreign currency within certain limits. The hedging transactions are, if any, mainly initiated via currency forward contracts with durations of up to 12 months and relate to forecasted currency flows.
When the net assets of foreign subsidiaries are translated to SEK, translation differences arise that are recognized directly in shareholders´ equity. Swedish Match does not, as a general rule, hedge the net investments in foreign subsidiaries.
Interest-rate risk
The Swedish Match Group's sources of financing mainly comprise shareholders' equity, cash-flow from current operations and borrowing. Interest-bearing loans expose the Group to interest-rate risk. Changes in interest rates have a direct impact on Swedish Match's net interest expense.
Swedish Match's policy is that the average interest duration should be less than 5 years.
Refinancing risk and liquidity
Refinancing risk is defined as the risk of that funds become scarce and thus more expensive than expected, and liquidity risk is defined as not being able to make regular payments as a consequence of inadequate liquidity or difficulty in raising external loans.
The refinancing risk is reduced by the Group´s available liquid funds and committed credit facilities.
Swedish Match strives to limit its refinancing risk by having a good distribution and a certain length on its gross borrowing, and not to be dependent on any individual source of funding.
Liquidity risks and Credit risks
To limit liquidity and credit risks, investments and transactions in derivatives may be made only in instruments with high liquidity and with counterparties having high credit ratings.
The Group's finance policy regulates the maximum credit exposure to various counterparties. The aim is that counterparties to Swedish Match in financial transactions should have a credit rating of at least BBB+ from Standard & Poor's or Baa1 from Moody's.