17. Financial instruments and risk management

17. Financial instruments and risk management

(i) Capital

Capital is managed to ensure that the Group remains a going concern. Capital comprises equity and net interest-bearing borrowings. At reporting date, total available capital equals €2,845 (31 March 2025: €2,938 million). In the reporting period, capital decreased due to the financial performance, which has led to a decrease in retained earnings. In addition, net debt changed into net cash. The Group, however, remains sufficiently capitalised to continue its operations.

(ii) Financial assets and financial liabilities recognised in the balance sheet

The carrying amounts of the Group’s financial assets and financial liabilities (excluding derivative assets and liabilities) are:

The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values with the exception of current and non-current borrowings. The fair value of these are €23 million (2025: €45 million) and €228 million (2025: €453 million) respectively. The fair value of borrowings would be classified as Level 3 within the fair value hierarchy. The fair value is based on discounted cash flows and reflects changes in applicable interest rates and credit spreads.

(iii) Fair value measurements recognised in the balance sheet

The following table categorises the Group’s financial instruments held at fair value by the valuation methodology applied in determining this value. Where possible, quoted prices in active markets for identical assets and liabilities are used (Level 1 and this includes the Group's holdings of listed investments). Where such prices are not available, the asset or liability is classified as Level 2, provided all significant inputs to the valuation model used are based on observable market data. The Group’s derivative financial assets and liabilities are categorised as Level 2 and their valuation is based on future cash flows (estimated from observable data such as forward exchange rates and yield curves) which are, where material, discounted at a rate which reflects the credit risk of counterparties. If one or more of the significant inputs to the valuation model is not based on observable market data, the instrument is classified as Level 3. The derivative financial assets and liabilities follow from the hedging activities, through which the Group aims to manage its price risks, and include forward foreign exchange transactions, forward commodity contracts (for raw material and base metals) as well as the forward contracts for CO₂ allowances (EUA).  

There were no transfers between any of the levels during the periods represented above.

The reported fair values reflect the price levels at reporting date relative to the contracted price of the derivative transactions. For forward purchases, a positive value indicates a price increase since transaction date, whereas a negative value reflects a price decrease since transaction date.

(iv) Financial risk management and financial instruments

The Group uses a variety of financial instruments, including derivatives, to finance its operations and to manage risks arising from those operations. The principal financial risks to which the Group is exposed are market risk (related to price movements of foreign exchange, commodities and CO₂ allowances), credit risk and liquidity risk. These risks are managed by TSN’s treasury function, whose activities are governed by policies and procedures approved by the TSN Board. Performance is periodically reviewed and monitored against applicable policies.

(a) Market risk: Foreign exchange risk and management

It is the Group’s policy that substantially all net currency transaction exposure arising from contracted sales and purchases over a 6-month time horizon is hedged by selling or purchasing foreign currency forwards. At 31 March 2026, the absolute notional amount of outstanding contracts to purchase or sell foreign currencies was €760 million (2025: €497 million). This position mainly relates to forward purchases of US Dollars, needed for raw material purchases, traded in US Dollar. The increase of the notional position is the result of lower expected sales in US Dollar, higher raw material prices and higher sales in other currencies. The net fair value of these positions reflect an asset of €13 million (2025: €5 million asset).

As at 31 March 2026, a 10% appreciation of the Euro against the US Dollar would decrease the net assets of TSN by approximately €5 million (2025: €2 million), decrease equity by approximately €5 million (2025: €2 million) and have no impact on the operating profit (2025: no impact). The sensitivity analysis has been based on the composition of the dollar denominated financial assets and liabilities of the Group at 31 March, excluding trade payables, trade receivables, other non-derivative financial instruments not in debt, and financial lease obligations, all of which do not present a material exposure.

As at 31 March 2026, a 10% appreciation of the Euro against the Sterling would decrease the net assets of TSN by approximately €nil (2025: €5 million), decrease equity by approximately €nil (2025: €5 million) and have no impact on the operating profit (2025: no impact).

The net positions of the Euro versus other currencies are of less importance and the sensitivity of a 10% weakening/strengthening of the Euro is therefore not significant.

(b) Market risk: Commodity risk and management

The Group makes use of commodity forward contracts and commodity option contracts to manage its purchase price risk for raw materials and base metals. Forward purchases are made for iron ore, bunker, freight, zinc, tin and nickel to cover a portion of the exposures related to forecasted liquid steel production and sales contracts with fixed prices. Using target hedge ratios for different periods, the required hedge position is determined.

At 31 March 2026, the Group had commodity forward contracts with a total notional value of €260 million (2025: €220 million) and a net fair value asset of €16 million (2025: €5 million asset).

As at 31 March 2026, a 10% decrease of the market prices of iron ore, bunker, freight, zinc, tin and nickel would decrease the equity of TSN by approximately €4 million (2025: €26 million). There was no significant market risk relating to the income statement since commodity derivatives are designated as hedging instruments in cash flow hedge relationships with movements being reflected in equity and the timing and recognition in the income statement depending on the point at which the underlying hedged transactions are also recognised.

(c) Market risk: CO₂ allowances

As the Company falls within scope of the EU Emissions Trading System (EU ETS), it needs to ensure it has sufficient CO₂ allowances to cover its CO₂ emissions. As the Company’s requirement for CO₂ allowances is larger than the allocated free allowance, it is exposed to price movements of the CO₂ allowances. Consequently, the EU ETS has introduced an additional market risk related to the volatility of the price of CO₂. The price risks originates as there is a considerable time lag between actual emissions, measured per calendar year, and the required delivery of CO₂ allowances (in September of the following calendar year).

The Company hedges its exposure to the price of CO₂ allowances by executing forward contracts for CO₂ allowances based on its forecasted volume of CO₂ emissions. Through these hedging instruments, it aims to limit the impact of price volatility in reported cost price of CO₂ emissions.

At 31 March 2026, the Group had forward contracts for CO₂ allowances with a total notional value of €454 million (2025: €300 million) and a net fair value liability of €12 million (2025: €26 million liability). The notional position increased as it includes both the hedges for the calendar year 2025, which will be settled in September 2026, as well as the hedges for future periods. The negative fair value is a reflection of the recent price decrease for CO allowances in the market, after reaching a peak in January 2026, bringing the mark-to-market price slightly below the average contract price.

As at 31 March 2026, a 10% decrease of the market price of CO₂ allowances would increase the equity of TSN by approximately €30 million (2025: €11 million increase). There was no significant market risk relating to the income statement since the CO₂ allowance derivatives are designated as hedging instruments in cash flow hedge relationships with movements being reflected in equity and the timing and recognition in the income statement depending on the point at which the underlying hedged transactions are also recognised.

(d) Market risk: Interest rate risk and management

The financial structure of the Group includes only a small percentage of net assets that have been financed by loans. During 2026 and 2025, most of the Group’s borrowings were denominated in euros. The Group did not enter into interest rate swap contracts or forward rate agreements. For further details of the borrowings, such as maturity and interest rates, see Note 15.

As at 31 March 2026, the Group had fixed rate borrowings of €130 million (2025: €159 million), floating rate borrowings €110 million (2025: €332 million) and no zero rate borrowings (2025: nil).

Based on the composition of net debt at 31 March 2026, a 100 basis points increase in interest rates over the 12-month period would decrease the Group’s net finance expense by approximately €3 million (2025: €3 million) and increase equity by approximately €3 million (2025: €3 million).

(e) Credit risk

Cash deposits, trade receivables and other financial instruments give rise to credit risk for the Group with respect to the related counterparties.

The credit risk on short-term deposits is managed by limiting the aggregate amounts and duration of exposure to any one counter party, depending on its credit rating and other credit information, and by regular reviews of these ratings. The possibility of material loss arising in the event of non-performance is considered unlikely.

Trade receivables follow from commercial operations. Individual operating units are primarily responsible for controlling the credit risk arising from their activities. This is done within a framework of counterparty credit risk policies and guidelines. Trade receivables are, where appropriate, covered by the Group’s credit insurance program, and regular reviews are undertaken of exposure to key customers and those where known risks have arisen or persist. Any impairment to the recoverability of debtors is reflected in the income statement.

Credit risk also arises from the possible failure of counterparties to meet their obligations under currency and commodity hedging instruments. However, counter parties are established banks and financial institutions with high credit ratings and the Group continually monitors each institution’s credit quality and limits as a matter of policy the amount of credit exposure to any one of them. The Group’s theoretical risk is the cost of replacement at current market prices of these transactions in the event of a default by a counterparty. The Group believes that the risk of incurring such losses is remote and underlying principal amounts are not at risk.

(f) Liquidity risk

Liquidity risk is defined as the risk that the Group would not be able to provide sufficient and suitable sources of funding for its business activities. The Treasury department is responsible for liquidity and funding management and manages the liquidity risk by maintaining a sufficient cash position and additional liquidity buffers through available committed and uncommitted credit facilities. For further information on available credit lines see Note 15.

The following table is a maturity analysis of the anticipated contractual cash flows including interest payable for the Group's derivative and non-derivative financial liabilities on an undiscounted basis, which therefore differs from both the carrying value and fair value. Floating rate interest is estimated using the prevailing interest rate at the end of the reporting period. Cash flows in foreign currencies are translated using the period end spot rates at 31 March 2026.

Maturity of contractual undiscounted cash flows

(v) Derivative financial instruments

Derivative financial instruments used by the Group include forward exchange contracts, forward commodity contracts and commodity options. These financial instruments are used to hedge future transactions and cash flows, and are subject to hedge accounting under IFRS 9. All transactions in derivative financial instruments are undertaken to manage risks arising from underlying business activities. The Group does not execute derivative financial instruments for speculative or trading purposes.

The following table sets out the fair values of derivatives held by the Group at the end of the reporting period:

The fair value of derivative financial instruments that were designated as cash flow hedges at the balance sheet date was:

Amounts recognised in the cash flow hedge reserve, excluding deferred tax, are expected to affect profit or loss within one year.

At the balance sheet date the notional amount of outstanding foreign currency and commodity contracts that the Group has committed to is as follows:

The notional amount of outstanding commodity derivative contracts decreased during the period, primarily driven by reduced hedge volumes for iron ore and zinc and the depreciation of the US Dollar against the Euro. This effect was partially offset by higher underlying commodity prices, which increased the value of the remaining outstanding positions. The total position in EUA contracts has increased due to the need to purchase additional allowances to meet the total requirement. The position in foreign currency contracts has increased due to the need to purchase more US Dollar, following the introduction of US steel tariffs and the increase in the forward sale of the Sterling position. All derivative positions presented above are designated in hedge relationships.

There was no ineffectiveness on cash flow hedges recognised in the income statement in 2026 (2025: nil).