Liquidity and refinancing risks
The power and heat business is capital intensive. Consequently, Fortum has a regular need to raise financing.
In order to manage these risks, Fortum maintains a diversified financing structure in terms of debt maturity profile, debt instruments and geographical markets. Fortum manages liquidity and refinancing risks through a combination of cash positions and committed credit facility agreements with its
core banks. Fortum shall at all times have access to cash, bank deposits and unused committed credit facilities, including overdrafts, to cover all loans maturing within the next twelve-month period. Due to the volatile rouble develpoment and sanctions imposed, special attention has been paid to ensure that Russia Division has sufficient liquidity to undertake committed investments.
Interest rate risks
Fortum's debt portfolio consists of interest-bearing assets and liabilities on a fixed- and floating-rate basis with differing maturity profiles. Fortum manages the duration of the debt portfolio by entering into different types of financing contracts and interest rate derivative contracts, such as interest rate swaps and forward rate agreements (FRAs).
Fortum has cash flows, assets and liabilities in currencies other than the euro. Changes in exchange rates can therefore
have an effect on Fortum's earnings and balance sheet. The main currency exposures are EUR/RUB from translation exposure of OAO Fortum in Russia and EUR/SEK, arising from Fortum's extensive operations in Sweden. Due to the low oil prices and weakened Russian economy, also the rouble has weakened and volatility of the exchange rate versus the euro has increased in 2014. The weaker rouble is effecting Fortum's profit level and equity when translating the Russia Division results and net assets to euros.
Fortum's currency exposures are divided into transaction exposures (foreign exchange exposures relating to contracted cash flows and balance sheet items where changes in exchange rates will have an impact on earnings and cash flows) and translation exposure (foreign exchange exposure that arises when profits and balance sheets in foreign entities are consolidated at the Group level). For transaction risks, the main principle is that all material exposures are hedged while translation exposures are not hedged or are hedged selectively. The rouble exposures are monitored continuously.