The ROTO risk policy can be characterised as risk-averse. ROTO uses derivative financial instruments to hedge its exchange, zinc price, steel price and interest rate risks.
ROTO operates mainly in the European Union. Future foreign currency transactions are partially hedged based on a risk analysis. This involves using forward exchange contracts.
Zinc and steel price risk
ROTO is exposed to a price risk associated with the zinc and steel stocks. The price risks for the zinc stocks are covered in part with hedging contracts and in part by current sales contracts. The price risk for part of the steel stocks is covered with sales contracts that have already been concluded.
“ ROTO is adequately protected thanks to its risk-averse policy.
Interest rate risk
ROTO is exposed to an interest rate risk associated with the interest-bearing loans and current liabilities. The interest rate risk on long-term liabilities are partly hedged through interest rate swaps.
ROTO has no specific credit risks, which is partly due to the spread in its customer portfolio. The creditworthiness test of customers and suppliers is conducted based on limit applications lodged with the credit insurer, information from credit rating agencies and based on experiences and internal assessments.
For outstanding accounts receivable, a strict debtor policy is in place, with credit risks being hedged through credit insurance. The risk mitigated by the insurance is therefore often limited to the deductible.
Liquidity and cash flow risk
Under its current credit facility, ROTO has sufficient credit to finance its operational and financing activities. Liquidity forecasts are drawn up to manage the short-term financing position. When necessary, scenario analyses are implemented.
The risk-averse approach and the hedging or mitigation of the risks mentioned above have ensured that the impact of undesirable changes in commodity and exchange markets were manageable for ROTO in 2020. The continuation of this policy will ensure that ROTO is adequately protected against these types of risks.