Risk management

Tornator’s risk management is aimed at securing profitable business in the long term and creating opportunities for well-managed risk taking in line with the strategy. The Board of Directors determines the company’s risk management guidelines, and is responsible for the monitoring of risk management results and activities and the annual evaluation of risk management processes. The Management Group is responsible for the organisation and implementation of risk management.

Strategic risks

  • Fluctuation in wood demand is naturally a risk for a forestry company. Demand risk has decreased as the uses of wood have diversified, and many new innovations are as yet unknown. Tornator has also secured a high demand for wood by certifying all of its forests.
  • Volatility of of wood prices is a significant risk factor in terms of Tornator’s results. If prices go down, Tornator can temporarily increase the volume of cutting right sales or plot and forestland sales or both. However, the company aims to follow the sustainable annual cut, thereby trying to optimise annual cash flows in the long term.
  • Tornator controls risks concerning roundwood quantity and quality through long-term forest resource management planning and by focusing operations. To support planning, Tornator regularly commissions an independent study on the structure of its forests and long-term felling potential. The latest forest inventory by the Finnish Forest Research Institute and the cutting budget based on it are from 2016.
  • In plot sales, Tornator monitors economic trends and the general interest in leisure construction.
  • Tornator protects profitability rather than gross profits, but can cut profit losses as necessary by increasing sales of timber or forestland.
  • Tornator controls factors that might impede operations by working with authorities, various NGOs and its own employees. Tornator is prepared for increasing retirement by signing on new contractors and increasing mechanised work.

Operational risks

  • Tornator manages internal business risks with functional and auditor-approved processes. Tornator has protected its forestland in Finland by insurance. However, the forest holdings abroad are not insured for reasons of profitability, because the target countries presently lack an operational forest insurance market.

Financial risks

  • Tornator is hedged against market rate changes with swap agreements and plain vanilla options. Liquidity management is based on advance payments and up-to-date cash management. Cash reserves are invested in bank deposits and short-term, highly rated funds. The company’s long-term debt with different maturities disperses the risk related to funding timing.
  • Tornator manages customer risks by advance payments based on sales agreements.