Financial risks

The Group’s operations are exposed to the risk of changes in currency 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 annual value of purchases in EUR accounts for approximately EUR 54 million. Other costs in foreign currencies are not material to currency risk since they are of low value.

The risk may materialize if the Group fails to pass on the increase in the costs of imported raw materials to the price of its products.

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 applied by the Group include hedging transactions, optimal arrangement of cash flows between the Group companies and appropriate shaping of product price lists. In 2024, the Group executed forward transactions to hedge cash flows resulting from the purchase of raw materials in EUR.

Additionally, the currency risk related to capital investments of the parent company Śnieżka SA in foreign companies should be taken into account. The most important exposures in this respect are investments in companies in Hungary and Ukraine. 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. More details, including sensitivity analysis, can be found in the Consolidated Financial Statements of the Śnieżka Group, note 2.2.7. Impairment of Group’s assets.

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 Currency risk in the Consolidated Financial Statements of the Śnieżka Group for 2024.

Liquidity risk relates to a company’s ability to repay current liabilities and its 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 ensure good financial standing, which allows for the continuation of credit agreements providing a multi-year financing period. The agreements primarily concern FFiL Śnieżka SA.

As of 31 December 2024, the Group settled its liabilities in a timely manner, which is confirmed by the liquidity ratios presented in the Report.

The Group has interest-bearing loans and finance lease liabilities and is therefore exposed to the risk of changes in interest rates. As at 31 December 2024, the Group’s total interest-bearing loan liabilities, together with interest due as at the reporting date and lease liabilities, amounted to PLN 262,436 thousand.

The Group identifies interest rate risk as part of financial liquidity risk.

In 2024, PLN interest rate fluctuations were virtually eliminated, which contributed to rates stabilizing at the comparable level of 2023. The WIBOR1M reference interest rate was 5.80% as at December 29, 2023 and 5.82% as at December 31, 2024.

During the same period, the level of EUR interest rates stabilised and then decreased. The EURIBOR1M reference interest rate decreased from 3.85% as at December 31, 2023 to 2.85% as at December 31, 2024.

During the same period, there was a reduction in the fluctuations of HUF interest rates, which consequently resulted in a reduction of interest rates compared to the end of 2023. The BUBOR1M reference interest rate was 10.60% as at December 29, 2023 and 6.50% as at December 31, 2024.

In the reporting period, the Group did not hedge against interest rate risk, and the Hungarian subsidiary continued the loan agreement based on a fixed interest rate and also started using a loan based on a variable interest rate.

More details, including sensitivity analysis, can be found in note 3.25.1 Interest rate risk and 3.25.4 Liquidity risk in the Consolidated Financial Statements of the Śnieżka Group for 2024.

Macroeconomic risks related to economic indicators are described in the report on the Group’s operations (chapter on the macroeconomic environment). At the same time, the Group recognises macroeconomic risks related to the consumer sector, including:

• changes in consumer sentiment and consumer purchasing power,
• the general condition of the renovation market and consumers’ willingness to invest in this area.

In the Group’s opinion, consumer sentiment and the purchasing power of households are strongly linked to the economic results described in the financial statements, and the main parameters in this area include: inflation, GDP, wage and unemployment rates. However, the general condition of the renovation market is, in the Group’s opinion, strongly linked to consumer confidence indicators and the availability of financing sources for renovations (which is influenced, i.a., by the level of interest rates). The renovation market is crucial for the Group since the vast majority of consumer purchases come from renovation and refurbishment needs, not new construction investments.

The Group closely monitors the above risks, as renovation purchases do not constitute necessities and in a situation of deterioration of the macroeconomic parameters of the economy, consumer investments in these areas are limited. The Group has observed an increase in consumer purchasing power over recent years, but inflationary phenomena of recent periods have significantly weakened consumer confidence, which continues to result in caution in purchasing decisions in the renovation area. Regardless of the generally available macroeconomic reporting (GUS, NBP, GUNB), the Group conducts a number of its own studies in the area of ​​investments and renovation plans of consumers. The Group is constantly intensifying its efforts to ensure that its product offering and product availability are adapted to current market conditions in the above areas.

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 Group develops and improves tools used to support the adopted receivables management policy based on cooperation mainly with reliable partners.

The 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 Currency risk in the Consolidated Financial Statements of the Śnieżka Group for 2024.