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Interest rate risk

Interest rate risk arises when changes in market interest rates and interest margins influence finance costs, returns on financial investments and valuation of interest bearing items. The interest rate risk is managed and controlled by the Treasury. The interest rate risks are managed through balancing the ratio between fixed and floating interest rates and duration of debt and investment portfolios. Additionally, Valmet may use derivative instruments such as forward rate agreements, swaps, options and futures contracts to mitigate the risks arising from ‘Interest bearing assets and liabilities’. The ratio of fixed rate debt of the ´Total debt´ is accepted to stay within the 10-60% range including the interest rate derivatives. The duration of the ‘Non-current debt’ including the ‘Current portion of non-current debt’ and the interest rate derivatives is accepted to deviate between 6–42 months.

The fixed rate interest proportion of total debt portfolio was 29 percent (27%), the duration was 1.5 years (1.5 years) and the EUR denominated debt was 100 percent (100%) of the entire gross debt at the end of 2016.

The basis for the interest rate risk sensitivity analysis is an aggregate Group level interest rate exposure, composed of interest bearing assets, interest bearing liabilities and interest rate swaps, which are used to hedge the underlying exposures. The sensitivity analysis does not include interest rate impact from foreign exchange derivatives when an impact of 1 percentage point change in interest rates is not significant, assuming similar change in all currency pairs at the same time. For all interest bearing debt, assets and interest rate derivatives to be fixed during the next 12 months a change of 1 percentage point upwards or downwards in interest rates with all other variables held constant would have an effect, net of taxes:

 Valmet has used the interest rate derivatives to hedge the interest rate risk of debt portfolio. All interest rate swaps have been accounted in accordance with the principles of hedge accounting as cash flow hedges. The nominal and fair values of the outstanding interest rate derivative contracts are presented in Financial Statements 2016 Note 8.

Updated; Mar 2, 2017