Metsä Board Annual and sustainability report 2022

the policy, the management of commodity risks with regard to financial hedges is accomplished centralized by Metsä Group Treasury based on the strategy approved by Board of Directors of Metsä Board. The commodity hedging policy is applied to the management of the price risks of electricity, natural gas, propane and fuel oil and also transactions related to Emission allowances are managed by Metsä Group Treasury. Metsä Board has abandoned the hedging of electricity and propane and all hedges matured during year 2022. Hedge accounting in accordance with IFRS 9 has been applied to all commodity hedging. According to the commodity hedging policy an 80 per cent hedge level of the estimated net position during the first 12 month period has been set as a hedging norm and the hedge ratio can vary by 20 per cent in either direction. Hedges based on previous pol- icy are gradually maturing. The Group Board of Directors makes significant strategic decisions. Metsä Board’s commodity risk management has electricity risk had a key role. The electricity exposure of Metsä Board is stabilizing after Olkiluoto 3 -project and investment in Husum pulp mill are getting ready. Therefore the need to hedge the electricity exposure ended and all electricity hedges matured during year 2022. Part of Metsä Board’s mills’ purchase of fuel is based on natural gas and the company is hedging the price risk of natural gas purchases by using financial hedges. Metsä Board is hedging also the gas oil, heavy fuel oil and 0.5% fuel oil price risk related to logistics costs (sea freights) based on commodity risk policy by using financial hedges. Metsä Board is not hedging its pulp price risk. Liquidity risk Liquidity risk is defined as the risk that funds and available funding become insufficient to meet business needs, or costs that are incurred in arranging the necessary financing are unreasonable high. Liquidity risk is monitored by estimating the need for liquidity needs 12–24 months ahead and ensuring that the total liquidity available will cover a main part of this need. According to the financial policy, the liquidity reserve must at all times cover 100 per cent of the Group’s liquidity requirement for the first 12 months and 50–100 per cent of the following 12–24 months liquidity requirement. The objective is that at the most 20 per cent of the Group’s loans, including committed credit facilities, are allowed to mature within the next 12 months and at least 25 per cent of the total debt must have a maturity in excess of four years. The target is to avoid keeping extra liquid- ity as liquid funds and instead maintain a liquidity reserve as committed credit facilities outside the balance sheet. The cornerstone of liquidity risk management is to manage the Group’s operative decisions in such a way that targets concerning indebtedness and sufficient liquidity reserve can be secured in all economic conditions. Liquidity risk is also managed by diversifying the use of capital and money markets to decrease dependency on any single financing source and the optimisation of the maturity structure of loans is also emphasized in finan- cial decisions. Metsä Board is using short-term working capital financing related to accounts receivables and accounts payables. Metsä Board has for Husum investments Finnvera 95% guaranteed loan agreement of EUR 100.0 million, of which remaining EUR 66.8 was drawn down in May 2022. Metsä Board’s liquidity is good. At the end of the review period, available liquidity was EUR 556.2 million (916.0), consisting of following items: liquid assets and investments of EUR 356.2 million (524.2), a syndicated credit facility (revolving credit facility) of EUR 200.0 million (200.0), and other

committed credit facilities of EUR 0.0 million (191.8). Of the liquid assets, EUR 338.6 million consisted of short-term deposits with Metsä Group Treasury (496.4), and EUR 17.6 million were cash funds and investments (27.8). Other interest-bearing receivables amounted to EUR 2.7 million (2.7). In addition, Metsä Board’s liquidity reserve is complemented by Metsä Group’s internal undrawn short-term credit facility of EUR 150.0 million (150.0) and undrawn pension premium (TyEL) funds of EUR 227.6 million (215.9). At the end of 2022, the liquidity reserve covers the forecasted financing need of 2023–2024. 3 per cent (2) of long-term loans and committed facilities fall due in a 12 month period and 75 per cent (69) have a maturity of over four years. The average maturity of long-term loans is 4.0 years (4.7). The share of short-term financing of the Group’s interest bearing liabilities is 0.1 per cent (0.0). Counterparty risk Financial instruments carry the risk that the Group may incur losses should the counterparty be unable to meet its commitments. The Group is managing this risk by entering into financial transactions only with most creditworthy counterparties and within pre-determined limits. Cash and cash equivalents, and other investments have been spread to several banks, commercial papers of several institutions and money market funds. During the reporting period, credit risks of financial instruments did not result in any losses. Counterparty limits have been revised during the year by taking into account the needs of the company and the view on the finan- cial position of the used counterparties. Derivatives trading is regulated by the standardised ISDA contracts made with the counterparties. Main part of financial credit risks are in the balance sheet of Metsä Group Treasury and not directly in the balance sheet of Metsä Board. The Group has applied expected credit loss model in accordance with IFRS 9 to calculate the impairment of financial assets. The Group’s accounts receivable carry a counterparty risk that the Group may incur losses should the counterparty be unable to meet its commitments. Credit risk attached to accounts receivable is managed on the basis of the credit risk management policies approved by operative management. Accounts receivable performance is followed by Group Credit Risk Management Team and reported monthly to Customer Credit & Compliance Committee and operative management. Credit quality of customers is assessed at regular intervals based on the customers’ financial statements, payment behaviour and credit ratings agencies. Credit limits are approved according to credit risk management policy with approval limits of varying values across the Group. Individual credit limits are reviewed at least annually. Letters of Credits, bank and parent company guarantees, and Credit insurance are used to mitigate credit risk according to management decisions. The Customer Credit & Compliance Committee reviews and sets all major credit limits which are not supported by credit insurance and / or other security. Metsä Board implements regular impairment tests for customer accounts receivables. Credit loss impairment is booked when a customer enters legal bankruptcy or becomes past due for more than 6 months (180 days) without a valid payment plan or other acceptable reasons. New net credit loss provisions for the year were 239 thousand euros (2021: nil), of which 98% occurred as a result of war actions of Russia. The portion of overdue client receivables of all accounts receivable is at the time of financial statements 7.4 per cent (2.1), of which 0.0 per cent (3.8) is


Consolidated financial statements | METSÄ BOARD ANNUAL AND SUSTAINABILITY REPORT 2022

Powered by