Risk management

Tornator’s risk management is aimed at securing profitable business in the long term and to create opportunities for well-managed risk taking using the selected strategy. It is based on the systematic identification and analysis of all significant risks to the company. Tornator’s risks are divided into three main categories: strategic risks, operational risks and financial risks.

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.
  • Forestland purchasing includes risks, and the success of investment is often discovered after a long time. The forest resources and structure of the estate to be purchased are determined using highly advanced technology, but some decisions must still be based on estimates. The pricing
    of estates is based on clear criteria, but pricing and the underlying appraisals may have an effect on the success of purchases in terms of returns.
  • In plot sales, Tornator monitors current 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

  • To manage internal business risks, Tornator has operational processes that are approved by the Board of Directors and senior management. Operational work is increasingly carried out with entrepreneur resources, which poses challenges in terms of control of issues such as environmental damage and occupational safety.
  • Greater frequency of natural disasters due to climate change pose an ever-greater risk to forest assets. For Tornator, the size and geographic extent of its holdings, the good health and growth of its forests, and the measures required by the Act on Prevention of Forest Damage form
    an intrinsic risk management tool.
  • 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.
  • The threat of a cyber attack on corporate information systems may also be considered a risk.
    Tornator is prepared for this by utilising advanced security technology and by providing instructions and training to users.

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.