Foreign Exchange Risk Management
The FX risk management in Neste shall focus on transaction exposure, forecasted cash flow exposure and net investment exposure. All material transaction exposures excluding base inventories shall be hedged. The net investment exposure is managed at Neste level only and the main principle is not to hedge.
All material forecasted cash flow exposures shall be hedged on rolling basis:
- On average 80 % of the next 6 months
- On average 40 % of the following 6 months
- Both option and forward strategies in use.
Interest bearing debt by currency is EUR 79%, USD 11% and others 10%.
Interest Rate Risks
The interest rate risk management activities focus on the external financial items, including derivatives, which together create Neste interest rate exposure. The objective of interest rate risk management is to optimize the balance between minimizing uncertainty caused by fluctuations in interest rates and minimizing the consolidated net interest expense within risk limits.
- Average Interest Rate of the loan portfolio is 1.50 %
- Flow Risk is EUR 2 million (The change in interest expenses within one year if interest rates change 1 percentage point)
- Duration benchmark of the loan portfolio is 12 months
Capital Structure and Financing
The aim of Neste is to maintain a sufficiently strong balance sheet and capital structure to ensure its capacity to fund the business operations in all conditions. The optimal capital structure is also dependent on the prevailing business mix. The objective is to remain leverage below 40% in addition to keeping sufficient liquidity in the form of financial investments and committed and unused credit facilities.
Currently available liquidity consists of the following facilities:
- EUR 1.2 billion Revolving Credit Facility signed in 2019 and having 5 year tenor with two 1-year extension options at the approval of the banks.
- Overdraft facilities totaling EUR 150 million.
- EUR 400 million domestic commercial paper programme.
Risk Management Limits
- Amount of short term financing (with a tenor less than one year) is limited to the greater of the following: a) EUR 500 million or b) 30% of the total interest bearing debt.
- The Group shall at all times have access of unused committed credit facilities together with excess cash:
- in minimum EUR 500 million
- sufficient to cover all forecasted negative free cash flow and interest bearing liabilities maturing within the next 12 month period.
Credit Risk Management
The purpose of Treasury credit risk management is to minimize credit losses arising from financial investments and derivative transactions.
Hazard Risk Management
The objective of hazard risk management is to mitigate the adverse impact on operating profit by covering identified exposures to loss.