107 / 143
NOTES
Consolidated financial statements • 105
NET INTEREST-BEARING DEBT, CONTINUED
SECTION 4: CAPITAL STRUCTURE AND NET FINANCIALS, CONTINUED
4.3
4.4 FINANCIAL RISKS
As a consequence of its operations, investments and financing,
PANDORA is exposed to a number of financial risks that are
monitored and managed by PANDORA’s Group Treasury.
To manage financial risks, PANDORA uses a number of
financial instruments, such as forward contracts, silver and
gold swaps, currency and interest rate swaps, options and
similar instruments within the framework of its current policies.
Financial risks are divided into commodity price risk, foreign
currency risk, credit risk, liquidity risk and interest rate risk.
Commodity price risk
Raw material risk is the risk of fluctuating commodity prices
resulting in additional production costs. The most important
raw materials are silver and gold, which are priced in USD.
It is the policy of PANDORA to ensure stable, predictable
raw material prices. Based on a rolling 12-month production
plan, the policy is for Group Treasury to hedge around
100%, 80%, 60% and 40% of the risk for the following
1-3 months, 4-6 months, 7-9 months and 10-12 months
respectively. Any deviation from the policy must be approved
by the Group CFO and the Audit Committee. Commodity
hedging is updated at the end of each month or in connection
with revised 12-month rolling production plans. Actual
production may deviate from the 12-month rolling production
plan. In case of deviations, the realised commodity hedge
ratio may deviate from the estimated hedge ratio. For the fair
value of hedging instruments, see note 4.5.
Hedge ratio for the coming 12 months
Months ahead
Commodity All major currencies
1-3
90-100%
90-100%
4-6
70-90%
70-90%
7-9
50-70%
50-70%
10-12
30-50%
30-50%
Foreign currency risk
PANDORA’s presentation currency is DKK, but the majority
of PANDORA’s activities and investments are denominated
in other currencies. Consequently, there is a substantial
risk of exchange rate fluctuations having an impact on
PANDORA’s reported cash flows, profit (loss) and/or
financial position in DKK.
The majority of PANDORA’s revenue is in USD,
CAD, AUD, GBP and EUR. A drop in the strength of
these currencies against DKK will result in a decline in
the translated future cash flows. A substantial portion of
PANDORA’s costs are related to raw materials purchased in
USD. PANDORA also purchases raw materials and pays other
costs in THB. Exchange rate increases will result in a decline
in the translated value of future cash flows. PANDORA
finances the majority of its subsidiaries’ cash requirements
via intercompany loans denominated in the local currency
of the individual subsidiary. A drop in the strength of these
currencies against DKK will result in a foreign exchange loss
in the Parent Company. PANDORA owns foreign subsidiaries
where the translation of equity into DKK is influenced by
exchange rate fluctuations. Declining exchange rates will
result in a foreign exchange loss in the Group’s equity.
Exchange rate fluctuations may lead to a decrease
in revenue and an increase in costs and thus declining
margins. In addition, exchange rate fluctuations affect the
translated value of the profit or loss of foreign subsidiaries
and the translation of foreign currency assets and liabilities.
It is PANDORA’s policy to hedge foreign currency risks
related to the risk of declining net cash flows resulting from
exchange rate fluctuations. PANDORA basically does not
hedge balance sheet items or ownership interests in foreign
subsidiaries. It is PANDORA’s policy for Group Treasury
to hedge around 100% of the risk 1-3 months forward,
80% of the risk 4-6 months forward, 60% of the risk 7-9
months forward and 40% of the risk 10-12 months forward,
based on a rolling 12-month liquidity budget. Foreign
currency hedging is updated at the end of each month or in
connection with revised 12-month rolling cash forecasts.
by means of the estimated present value of the expected cash
outflows required to settle the put options. The value is based
on projected revenue and assuming that the put options are
exercised by the non-controlling interests at year end in the
current financial year. Changes in the value of these liabilities
as well as differences on settlement between actual cash
outflows and expected cash outflows are accounted for as a
transaction directly in equity.
Subsidiaries whose non-controlling shareholdings are
subject to put options are fully consolidated, i.e. with no
recognition of a non-controlling interest.