Financial risk

The Śnieżka Group has credit and financial lease liabilities with a variable interest rate and is therefore exposed to the risk of an increase in interest rates. As at December 31, 2023, the Group’s total liabilities on loans and borrowings and financial leasing amounted to PLN 282,853 thousand.

In 2023, interest rate fluctuations stabilized, which led to their reduction compared to 2022. The reference WIBOR 1M interest rate decreased from 6.93% as of December 29, 2022 to 5.80% as of December 29, 2023. In the reporting period, the Group did not apply interest rate risk hedging, and the Hungarian daughter company signed a loan agreement based on a fixed interest rate.

More details, including sensitivity analysis, can be found in note 3.25.1 Objectives and principles of financial risk management in the Consolidated Financial Statements for 2023.

In its activity, the Śnieżka Group is exposed to the risk of fluctuating exchange rates. The Group imports raw materials used for the production of paint and varnish products, which are mostly paid in Euro.  Therefore, the greatest currency risk for the Group is related to the strengthening of the EUR – PLN/HUF exchange rate.  The Group exports products mainly to the countries of Central and Eastern Europe, where settlements are made in currencies most commonly used in international trade (USD, EUR), as well as in PLN.  The risk may materialize if it is not possible to transfer higher costs of imported raw materials to the price of products manufactured by the Group.

In order to minimize the negative impact of currency exchange rate fluctuations on the generated revenues and profits, the Group monitors its currency exposure on an on-going basis, conducts currency risk analysis and makes decisions on the use of appropriate mechanisms limiting the impact of exchange rate fluctuations.

The mechanisms limiting the impact of exchange rate fluctuations used by the Group include hedging transactions, optimal arrangement of cash flows between the Group companies and appropriate pricing. In 2023, the Group concluded forward transactions that hedged cash flows resulting from the purchase of raw materials in EUR.

Moreover, the currency risk resulting from the Group’s capital investments in foreign companies should be taken into account. The most important exposures in this respect are investments in companies in Hungary and Ukraine. More details, including sensitivity analysis, can be found in note 2.2.7. Impairment of Group’s assets in the Consolidated Financial Statements for 2023.

High volatility on the currency market is conditioned, inter alia, by the pending conflict in Ukraine. Also, macroeconomic indicators of the Polish economy affect the value of PLN in relation to other currencies.

The purpose of the currency risk analysis is to identify the importance of exchange rate volatility for the Group’s revenues and profits. These include: standard deviation over the period, net exposure value, deviation from the adopted budget rate.

More details on the exchange rate risk for financial instruments can be found in note 3.25.2 Objectives and principles of financial risk management in the Consolidated Financial Statements for 2023.

The Group actively manages the contractors’ credit risk, comprehended as contractors’ failure to comply with their obligations toward the Group.  In order to reduce the credit risk of contractors, the Śnieżka Group develops and improves tools used to support the adopted receivables management policy based on cooperation mainly with reliable partners.

The Śnieżka Group concludes transactions with reputable companies which have a good credit rating.   All customers willing to take advantage of trade credit, are subject to procedures of initial verification. In addition, owing to current monitoring balances of receivables, the Group’s exposure to the risk of non-collectible debts is insignificant.

More details can be found in note 3.25.3 Objectives and principles of financial risk management in the Consolidated Financial Statements for 2023.

Liquidity risk is related to the company’s ability to repay current liabilities and the ability to obtain funds to finance its operations, both from the banking system and trade credit.

In order to minimize such risk, the Group companies (mainly FFiL Śnieżka SA) continue loan agreements ensuring a financing period of several years.

The Group constantly monitors the due dates of receivables and liabilities, striving to maintain a liquidity buffer by using various sources of financing (bank loan, factoring, leasing, trade credits). As part of the monitoring and analysis of due receivables and liabilities, the Group focuses on the following parameters: liquidity buffer in the appropriate maturity period and forecast of financial flows from operating activities.

The Group actively manages liquidity risk by:

• limiting and monitoring trade credit to individual clients depending on their financial condition and development dynamics
• applying financial instruments (e.g. factoring).

In this process, the Group takes advantage of modern tools and procedures as well as cooperation with business intelligence agencies.  The policy of establishing trade credit limits and payment terms and conditions is closely related to bonuses granted to customers for timely payments, which additionally protects the Group’s interests.  Trade credit limits and other risks related to sales development are secured by:

• real estate mortgages;
• statements on submission to enforcement,
• bill of exchange;
• Bank guarantees.

As at December 31, 2023, the Group settled its liabilities in a timely manner, which is confirmed by the liquidity ratios presented in the Report.

More details can be found in note 3.25.4 Objectives and principles of financial risk management in the Consolidated Financial Statements for 2023.