ANNUAL REPORT 2012

Financials

22. Finance


Non-current interest bearing debt






2012 2011





Fair Carrying Fair Carrying
EUR million value amount value amount
Loans from credit institutions 63.9 63.9 66.5 66.5
Financial leasing debt 5.5 5.5 8.8 8.8
Other non-current debt

0.1 0.1
Total, Dec 31 69.3 69.3 75.4 75.4









All interest-bearing debts are valued at amortized cost. The fair values of interest-bearing debts have been calculated by discounting the cash flow of the debt by the market rate at the end of reporting period (fair value hierarchy level 2).


Finance lease debt

EUR million 2012
2011
Finance lease liabilities are payable as follows:

Less than one year 2.1
2.1

Between one and five years 5.0
6.7

More than five years 1.4
4.2
Minimum lease payments in total 8.5
12.9









Minimum lease payments, principal

EUR million 2012
2011

Less than one year 1.6
1.5

Between one and five years 4.1
5.5

More than five years 1.3
3.3
Present value of minimum finance lease payments 7.1
10.3









Future finance charges 1.5
2.6









Current interest bearing debt






2012 2011





Fair Carrying Fair Carrying
EUR million value amount value amount
Bank overdrafts 12.9 12.9 8.9 8.9
Commercial papers 5.0 5.0 72.0 72.0
Financial leasing debt 1.6 1.6 1.5 1.5
Other 0.9 0.9 0.0 0.0
Total, Dec 31 20.4 20.4 82.5 82.5

Maturity of liabilities

As of December 31, 2012 the Group has unused credit facilities EUR 430 million (455) at its disposal to guarantee its liquidity. The average maturity of the credit limit agreements as of December 31, 2012 was 2.9 years (3.2). Agreements concerning credit facilities and long term loans include among others covenants for the solidity. Incompliance with the covenants would lead to a premature expiry of the agreements. Potential default would require considerably deterioration of the solidity from the current level.


2012
EUR million 2013 2014 2015 2016 2017 Later years Total
Bank overdrafts 12.9




12.9
Commercial papers 5.0




5.0

interests 0.0




0.0
Other debt 0.9




0.9
Loans from credit institutions
11.4 22.5

30.0 63.9

interests 1.0 1.5 1.2 0.7 0.7 0.4 5.6
Financial leasing 1.6 1.7 1.1 0.7 0.6 1.3 7.1

interests 0.5 0.4 0.3 0.1 0.1 0.0 1.5
Trade payables 49.7




49.7
Derivative liabilities 0.2 0.1 1.3

0.6 2.3
Total, Dec 31 71.9 15.1 26.4 1.6 1.4 32.4 148.8


48.3% 10.2% 17.8% 1.0% 0.9% 21.8% 100.0%









2011
EUR million 2012 2013 2014 2015 2016 Later years Total
Bank overdrafts 8.9




8.9
Commercial papers 72.0




72.0

interests 0.5




0.5
Other debt




0.1 0.1
Loans from credit institutions

14.0 22.5
30.0 66.5

interests 1.5 1.8 1.7 1.2 0.7 1.1 8.0
Financial leasing 1.5 1.7 1.8 1.0 0.9 3.3 10.3

interests 0.5 0.4 0.3 0.3 0.2 0.8 2.6
Trade payables 51.6




51.6
Derivative liabilities 1.1




1.1
Total, Dec 31 137.7 4.0 17.8 25.0 1.8 35.4 221.6


62.1% 1.8% 8.0% 11.3% 0.8% 16.0% 100.0%

Sensitivity analysis of currency exposure

The exchange rate sensitivity analysis in accordance with IFRS 7 has been carried out by examining how the profit before taxes or consolidated group equity would be impacted by a 10% devaluation of a currency against all other currencies. Impact from a 10% appreciation of a currency against all other currencies would be opposite. The analysis of impact on profit includes internal and external foreign currency denominated financial items of the parent company in the selected currencies. Commercial cash flows consist of net foreign currency flows of purchases and sales estimated to take place during the following year by the business units and hedged internally. Financial items include foreign currency denominated loans, deposits and external derivatives. The selected currencies represent approximately 90% of the commercial net foreign currency flows. The sensitivity analysis on the group consolidated equity illustrates translation risk related to the foreign currency denominated equity.




2012
2011


Impact on result

Impact on result


before taxes

before taxes


Estimated Other Impact
Estimated Other Impact


commercial financial on group
commercial financial on group
EUR million cash flows items equity
cash flows items equity
CAD -0.6 0.6 -1.7
-0.6 0.6 -0.6
DKK -0.9 0.2 -0.8
-1.0 1.4 -1.9
GBP -0.5 0.5 1.3
-0.8 0.8 0.6
NOK -1.5 1.5 -1.9
-1.4 1.4 -1.3
SEK -2.0 2.1 -2.1
-1.6 1.6 -1.5
USD 2.7 -2.8 -3.5
2.6 -2.6 -13.5









Average interest rates and sensitivity analysis of interest expenses

The sensitivity of interest expenses on changes in interest rates has been presented by simulating a permanent one percentage unit raise in interest rates at the end of the reporting year. The Corporation's net interest bearing debt as of December 31, 2012 was EUR 72.4 million (150.8) and the average interest reset period was 11 months (8). A permanent one percentage point raise in all interest rates would increase the corporation's annual interest costs by EUR 0.3 million (1.0) assuming no change in the amount of the net debt.


The table below shows the Corporation's net interest bearing debt, currency derivatives, average interest rates on loans and interest rate sensitivity by major currencies.


2012
EUR million EUR USD GBP SEK Other Total
External loans and deposits 52.1 26.8 0.2 -0.8 -5.9 72.4
Currency derivatives -4.0 -37.5 26.3 2.3 12.5 -0.4
Net debt and currency derivatives 48.1 -10.7 26.6 1.6 6.6 72.0
Average interest rate on loans (p.a.) 1.8% 3.0%


2.2%
Interest rate sensitivity 0.2 -0.2 0.3 0.0 0.0 0.3
2011
EUR million EUR USD GBP SEK Other Total
External loans and deposits 121.0 24.8 0.1 0.9 4.0 150.8
Currency derivatives 103.9 -143.0 25.5 3.4 9.0 -1.1
Net debt and currency derivatives 224.9 -118.1 25.6 4.2 13.1 149.7
Average interest rate on loans (p.a.) 2.0% 3.2%


2.3%
Interest rate sensitivity 1.9 -1.2 0.2 0.0 0.1 1.0









Operating lease obligations

EUR million 2012 2011
Payments next year 12.8 12.5
Payments later 28.5 34.0
Total, Dec 31 41.3 46.5









Contingencies and pledged assets

EUR million 2012 2011
Guarantees as security for subsidiaries' commitments 12.2 13.0
Lease commitments 41.3 46.5
Other contingencies 1.8 1.9
Total pledged assets and contingencies, Dec 31 55.2 61.4









Litigation

Fiskars is involved in a number of legal actions, claims and other proceedings. The final outcome of these matters cannot be predicted. Taking into account all available information to date the outcome is not expected to have material impact on the financial position of the Group. The court case related to Iittala in the Market Court was closed in 2012.


Nominal amounts of derivatives

EUR million 2012 2011
Derivatives not designated in hedge accounting:

Forward exchange contracts 107.4 207.5

Electricity forward agreements 2.9 2.5
Cash flow hedges:

Interest rate swaps 32.5 22.5

Fair value of derivatives

EUR million 2012 2011
Derivatives not designated in hedge accounting:

Forward exchange contracts 0.4 1.1

Electricity forward agreements -0.4 -0.3
Cash flow hedges:

Interest rate swaps -1.9 -0.8









The fair values of derivatives have been determined by using generally accepted valuation techniques supported by observable market data (fair value hierarchy level 2). Derivatives are recognised at fair value through profit and loss except for cash flow hedges, which are recorded in equity.


Maturity of derivatives

2012
EUR million 2013 2014 Later years Total
Forward exchange contracts 107.4

107.4
Electricity forward agreements 1.1 0.9 0.9 2.9
Interest rate swaps

32.5 32.5
Total, Dec 31 108.5 0.9 33.4 142.8









2011
EUR million 2012 2013 Later years Total
Forward exchange contracts 207.5

207.5
Electricity forward agreements 1.1 0.9 0.4 2.5
Interest rate swaps

22.5 22.5
Total, Dec 31 208.6 0.9 22.9 232.5









Fair value of financial instruments

2012
EUR million Level 1 Level 2 Level 3 Total
Investments at fair value through profit and loss

9.7 9.7
Other investments

0.8 0.8
Derivative assets
0.4
0.4
Total assets
0.4 10.5 10.9









Derivative liabilities
2.3
2.3
Total liabilities
2.3
2.3
2011
EUR million Level 1 Level 2 Level 3 Total
Investments at fair value through profit and loss

8.9 8.9
Other investments

1.2 1.2
Derivative assets
1.1
1.1
Total assets
1.1 10.1 11.2









Derivative liabilities
1.1
1.1
Total liabilities
1.1
1.1









For the definition of fair value category levels please see the accounting principles in note 1.

 

Financial risk management

Financial risks are managed by Corporate Treasury, in accordance with a set of risk management principles approved by the Board of Directors.

Currency risk

Currency risk is linked to changes in the value of Fiskars’ cash flows, its balance sheet, and/or its competitiveness resulting from changes in exchange rates. Fiskars’ currency position is split between its transaction position and translation position, both of which are managed separately.

Transaction risk results from the possibility that the value of expected cash flow denominated in a particular currency may change as a result of changes in exchange rates. Translation risk refers to the impact that changes in exchange rates can have on the consolidated balance sheet, and which can affect the value of balance sheet assets, equity, and debt liabilities. In addition to balance sheet values, changes in exchange rates can also result in changes in key indicators, such as the Group’s equity ratio and gearing.

Fiskars aims to manage its currency risks primarily through business means. Acquisition of production inputs and sale of products are primarily denominated in the local currencies of the Group companies, of which the euro (41% of consolidated net sales), the US dollar (32%), the Swedish krona (8%), the Norwegian krone (4%), The Danish krone (4%) and the pound sterling (3%) are the most important. Higher levels of imports indirectly expose Fiskars to risks linked to changes in the local currencies of its suppliers, of which the most important are the Chinese renminbi and the Thai baht.

Transaction risk

The objective of Fiskars’ approach to managing its transaction risk is to reduce the impact of changes in exchange rates on the Group’s budgeted profitability and cash flows. Business units are responsible for managing the currency risks associated with their projected and agreed commercial cash flows. Units hedge their exposure using currency forwards with the Corporate Treasury.

Transaction risk is measured by net of the Group’s commercial and financial receivables and liabilities denominated in foreign currencies. The net position is hedged by currency derivatives in accordance with the Treasury Policy approved by the Board of Directors. Currency forwards and swaps are the most widely used instruments in hedging currency risks. Derivatives are used solely for hedging purposes.

Fiskars does not apply hedge accounting as defined under IAS 39 for transaction risk purposes. All gains and losses made on currency derivatives are booked in the income statement. If hedge accounting had been applied to currency derivatives Fiskars’ consolidated profit before tax for 2012 would have been EUR 0.6 million above the reported figure (2.9 million below).

Interest rate risk

Interest rate risk refers to possible changes in cash flow or in the value of assets or liabilities resulting from changes in interest rates. Interest rate risk is measured by the average reset period of interest rates of financial assets and liabilities. The average reset period reflects the time it takes on average for the change in interest rates to effect on the interest costs of net debt portfolio. The risk is quantified in monetary terms as the change in interest costs during the observation period caused by a permanent one percentage point rise in interest rates. The shorter the average reset period, the more unpredictable are the interest costs and thus the higher the interest rate risk.

Derivatives are used in the management of interest rate risks. The objective is to maintain the average reset period within the agreed limits of 4 to 18 months as set in the Treasury Policy. As of December 31, 2012 the nominal amount of outstanding interest rate derivatives was EUR 32.5 million (22.5).

The Group’s interest-bearing net debt as of December 31, 2012 was EUR 72.4 million (150.8). 44% (78) of the net debt was linked to variable interest rates and including effect from interest rates derivatives 56% (22) to fixed interest rates. The average interest rate reset period of interest-bearing debt was 11 months (8).

Sensitivity of interest expenses on changes in market rates has been calculated by assuming permanent one percentage unit increase change in market rates and assuming no change in the net debt during the year. The calculated impact on the consolidated result before tax would be EUR 0.3 million (1.0) in 2013.

Liquidity and re-financing risk

Liquidity risk refers to the possibility of the Group’s financial assets proving insufficient to cover its business needs or a situation in which arranging such funding would result in substantial additional costs. The objective of liquidity management is to maintain an optimal amount of liquidity to fund the business operations of the Group at all times while minimizing interest costs. Liquidity is considered to be the sum of cash and cash equivalents and available committed credit lines.

Re-financing risk refers to the possibility of such a large amount of liabilities falling due over such a short space of time that the re-financing needed might be unavailable or prohibitively expensive. The objective is to minimize the re-financing risk by diversifying the maturity structure of the debt portfolio.

The Group has extensive unused credit facilities at its disposal to guarantee its liquidity. As of the end of the year, the aggregate of unutilized committed revolving credit facilities and overdraft facilities totaled EUR 442.1 million (471.1). In addition, the Group’s parent company in Finland has a commercial paper program with a number of leading banks amounting to EUR 400.0 million, of which EUR 5.0 million (72.0) was utilized as of the end of the year.

Commodity risk

Fiskars may use derivatives to hedge its exposure to commodity price fluctuations where appropriate. As of the end of the year, the Group held no commodity derivative contracts other than electricity futures with a nominal value of EUR 2.9 million (2.5) recognized at market value through the Income Statement.

Credit risk

Corporate Treasury is responsible for evaluating and monitoring financial counterparty risk. The Group minimizes this risk by limiting its counterparties to a limited number of major banks and financial institutions and by working within agreed counterparty limits. Business units are responsible for monitoring customer credit risks. The Group’s clientele is extensive and even the largest customer represent less than 10% of the outstanding receivables. As of the end of the year, the Group’s sales receivables totaled EUR 101.0 million (111.0), and the financial statements include provisions for bad debts related to sales receivables totaling EUR 3.2 million (3.4).


Management of Capital

Fiskars is not subject to any externally imposed capital requirements (other than eventual local company law requirements effective in the jurisdictions where Fiskars Group Companies are active).

The Group’s objectives when managing capital are:

  • to safeguard the Corporation’s capacity to fund its operations and take care of its obligations under all business conditions
  • to maintain a balanced business and investment portfolio that provides return both on short and long term to its shareholders
  • to maintain possibilities to act on potential investment opportunities