Management of SCA’s financial risks is concentrated in a central treasury function.
SCA’s financial policy forms a framework of guidelines and regulations for the management of financial risks and finance activities in general. SCA’s treasury function is responsible for the Group’s capital procurement, liquidity management and currency and interest-rate risk management.
SCA’s treasury function is responsible for the Group’s capital procurement, liquidity management and currency and interest-rate risk management.
It is also responsible for financial policy issues, central supervision of funds invested in SCA’s defined benefit pension plans and it serves as an internal bank for the Group’s subsidiaries.
SCA incurs currency risks due to its international business activities. The transaction exposure created by payments received and made in foreign currencies is hedged at a minimum amount corresponding to booked accounts receivable and accounts payable. Within established parameters, longer periods may be hedged when it is believed that negative effects on income can be limited.
The goal for financing the Group’s foreign assets is to match capital employed in foreign currencies to such an extent that the Group’s debt/equity ratio is unaffected by exchange rate fluctuations. The distribution of the SCA’s net sales and operating costs in different currencies shows the Group’s long-term currency sensitivity.
Primarily, SCA applies a floating rate policy for all funding currencies. It is SCA’s understanding that a short interest-rate adjustment term leads to lower funding costs over the long term.
Capital Procurement and Refinancing Risks
SCA’s policy is to maintain a favourable distribution and a certain term on financial liabilities. The objective is that the financial liabilities average remaining maturity should exceed three years. Furthermore, a financial readiness shall be maintained in the form of centrally available liquid funds and committed credit facilities amounting to not less than 10% of the Group’s projected annual sales.
SCA has good access to international and domestic capital markets. SCA has a European and a Swedish Medium-Term Note program for the issue of bonds.
Short-term borrowing is mainly covered through the issue of commercial paper. The refinancing risk in short-term borrowing is limited through medium-term credit lines from banks with high credit ratings. It is SCA’s policy that loan documentation may not contain clauses that provide the lender with opportunities to terminate the loans or change coupon interest rates when changes occur in SCA’s financial key ratios or credit ratings.
Financial risk management exposes SCA to credit risks. In accordance with SCA’s counterparty regulations, maximum credit exposure is stipulated for different counterparties, depending on their creditworthiness. An objective is that all counterparties have at least an A minus credit rating from Standard & Poor’s or Moody’s.
SCA has a long-term credit rating of Baa1/BBB+ and a short-term rating of P2/A2 from Moody’s and Standard & Poor’s, respectively, and a short-term K1 credit rating from Standard & Poor’s in Sweden.
In addition to defined-contribution pension schemes, SCA also has defined-benefit pension plans. These plans are financed largely with independent assets invested in equities and fixed-income instruments. SCA’s treasury function has been assigned to centrally monitor these plans and assist each pension board in matters related to management of the pension plan assets. The guidelines for asset management are specified in a Group policy.
Risk Management and Insurance
The objective of the Risk Management function in SCA is to minimize the total cost of the Group’s loss risks and to optimize the financing of those risks. This is achieved by continuous improvement of loss prevention and mitigation measures in the operations and by the development and implementation of Group-wide insurance programs. The Group’s captive insurance and reinsurance companies play an important role in these efforts.