AGRANA is subject to risks from movements in exchange rates, interest rates and product prices. To hedge these risks arising from operating and financing activities, AGRANA to a limited extent employs derivative financial instruments. AGRANA uses derivatives largely to hedge the following risks:
Interest rate risks
Interest rate risks represent the risk that financial instruments will fluctuate in value as a result of changes in market interest rates; this is referred to as interest rate price risk, and affects mainly fixed interest investments. By contrast, floating rate investments or borrowings are subject to minimal price risk, as their interest rate is adjusted to market rates very frequently. However, the fluctuation in the short-term interest rate creates risk as to the amounts of future interest rate payments; this is referred to as interest rate cash flow risk. In accordance with IFRS 7, a sensitivity analysis was conducted with regard to interest rate movements, which is presented in detail in the notes to the consolidated financial statements.
Currency risks
Currency risks arise mainly from the purchase and sale of goods in foreign currencies on the world market and from financing in foreign currencies or local financing in euros. Due to the global orientation of the AGRANA Group, these risks relate primarily to the exchange rates between the euro and the US dollar, Hungarian forint, Polish zloty, Romanian leu, Ukrainian hryvnia and Russian ruble.
Product price risks
Product price risks arise from price fluctuation on the world market and on energy and relevant raw material markets. The Group companies in Romania and Bosnia-Herzegovina are subject to additional currency risk from raw sugar purchases made in US dollars.
Liquidity risks
Liquidity risks arising from fluctuations in cash flows are detected through liquidity planning, which forms an integral part of the Group’s corporate planning and of the reporting system. This allows timely measures to be taken in response to such risks. Sufficient credit lines committed by banks assure the liquidity of the AGRANA Group at all times.
Risks of default on receivables
Risks of default on receivables are mitigated by the ongoing monitoring of the credit quality and payment behaviour of customers as well as by setting strict upper limits on receivables balances. To some extent, the Group holds credit insurance against customer defaults. Particular emphasis is placed on dealing with business partners and banks that have excellent credit ratings. The residual risk is covered by raising appropriate amounts of provisions.
For hedging, AGRANA primarily employs forward foreign exchange contracts (also referred to as currency forwards). With these, the value of cash flows denominated in foreign currencies is protected against exchange rate fluctuation. When entering into sales contracts in countries with volatile currencies, additional attention is paid to the shortening of credit periods, indexing of foreign currencies to the euro or US dollar at the time of payment, higher up-front payments and similar methods of risk mitigation. A detailed presentation of the financial risks outlined above is provided in the notes to the consolidated financial statements.