Financial risk management

As a global company, Nokian Tyres is exposed to a variety of financial risks, such as currency, interest rate, liquidity and credit risks. The objective of financial risk management is to protect Nokian Tyres’ planned profit development from adverse movements in financial markets.

At Nokian Tyres, financial risk management and financing activities are centralized to the parent company Treasury. Treasury acts as a primary counterparty to business units in financing activities like funding, foreign exchange transactions and cash management. In addition, Treasury executes financing and hedging transactions with external counterparties. The Board has approved Nokian Tyres’ Treasury Policy, which defines the company’s principles and targets of financial risk management.

Nokian Tyres Group Credit Committee makes credit decisions that have a significant impact on the credit exposure of the Group.

Sensitivity analysis

Sensitivity analyses presented in connection with financial risks are based on the risk exposures at the balance sheet date. Sensitivities are calculated by assuming a change in one factor affecting the value of a financial instrument, such as interest rate, foreign exchange rate or electricity price, with all other variables held constant.

Interest rate risks

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax through the impact on floating rate borrowings and interest rate hedges measured at fair value through profit or loss and the Group’s equity due to changes in the fair value of cash flow hedges. A reasonably possible change is assumed to be a 1%-point increase or decrease of the market interest rates.

Foreign currency risk

The following table demonstrates the sensitivity to a reasonably possible change in the base currency against the quote currency, with all other variables held constant, of the Group’s profit before tax and equity due to changes in the fair value of financial assets and liabilities. A reasonably possible change is assumed to be a 10% base currency appreciation or depreciation against the quote currency. A change of a different magnitude can also be estimated fairly accurately because the sensitivity is nearly linear.

Electricity price risk

The following table demonstrates the sensitivity to a reasonably possible change in electricity price, with all other variables held constant, of the Group’s profit before tax and equity due to changes in the fair value of the electricity derivatives. A reasonably possible change is assumed to be a 5 EUR/MWh increase or decrease of the electricity market prices. A change of a different magnitude can also be estimated fairly accurately because the sensitivity is nearly linear.