Annual Report 2008 - Securitas

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Annual report
Notes and comments to the consolidated financial statements
Transaction risk
Transaction risk is the risk that the Group’s net income will be affected by
changes in the value of commercial flows in foreign currencies due to fluctuating
exchange rates. The nature of the business is domestic rather than
cross-border and consequently foreign currency transaction risk is not
significant.
Financing and liquidity risk
The Group’s short-term liquidity is ensured by maintaining a liquidity reserve
(cash and bank deposits, short-term investments and the unutilized portion
of committed credit facilities), which should correspond to a minimum of 5
percent of consolidated annual sales. As of December 31, 2008 the shortterm
liquidity reserve corresponded to 15 percent (13) of the Group’s annual
sales.
The Group’s long-term financing risk is minimized by ensuring that the
level of long-term financing (shareholders’ equity, long-term committed
loan facilities and long-term bond loans) at least matches the Group’s capital
employed. Per December 31, 2008 long-term financing corresponded to
157 percent (163) of the Group’s capital employed. Long-term financing
of the Group should be well balanced among different sources. The aim is
that long-term committed loan facilities and long-term bond loans should
have an average maturity of more than three years. As per December 31,
2008 the average maturity was two years and four months. The following
tables summarize the Group’s liquidity risk at end 2008, 2007 and 2006
respectively.
LIqUIDITy rEPOrT AS PEr DEcEMBEr 31, 2008
MSEK Total < 1 year
Between
1 year and
5 years > 5 years
Borrowings –13,522 –2,315 –11,207 0
Derivatives outflows –5,309 –5,242 –67 0
Total outflows –18,831 –7,557 –11,274 0
Investments 3,978 3,978 0 0
Derivatives receipts 5,241 5,175 66 0
Total inflows 9,219 9,153 66 0
Net cash flows, total 1 –9,612 1,596 –11,208 0
1 Variable rate cash flows have been estimated using the relevant yield curve.
LIqUIDITy rEPOrT AS PEr DEcEMBEr 31, 2007
MSEK Total < 1 year
Between
1 year and
5 years > 5 years
Borrowings –17,206 –9,306 –7,900 0
Derivatives outflows –8,304 –8,157 –147 0
Total outflows –25,510 –17,463 –8,047 0
Investments 4,541 4,541 0 0
Derivatives receipts 9,937 9,792 145 0
Total inflows 14,478 14,333 145 0
Net cash flows, total –11,032 –3,130 –7,902 0
LIqUIDITy rEPOrT AS PEr DEcEMBEr 31, 2006
MSEK Total < 1 year
Between
1 year and
5 years > 5 years
Borrowings –12,982 –5,905 –7,077 0
Derivatives outflows –20,546 –16,163 –4,383 0
Total outflows –33,528 –22,068 –11,460 0
Investments 829 829 0 0
Derivatives receipts 21,972 16,416 5,556 0
Total inflows 22,801 17,245 5,556 0
Net cash flows, total –10,727 –4,823 –5,904 0
Securitas Annual report 2008
Long-term committed loan facilities consist of a MUSD 1,100 Multi currency
revolving credit Facility that was arranged in June 2005 with a syndicate
of international banks and that matures in June 2012. Drawings under this
facility are priced at the relevant prevailing market interest rate for the term
selected.
Securitas also has a Euro Medium Term Note Program (EMTN) with a
limit of MEUr 1,500 under which public and private funding can be raised
on international capital markets. On March 14, 2008 the MEUr 500 Eurobond
matured and was repaid in full. As of December 31, 2008 there was
one outstanding bond loan: a MEUR 45 Floating Rate Note with a bullet
maturity in July 2013. On February 5, 2009, Securitas issued another
MEUr 45 Floating rate Note under the same EMTN Program. This note
has a five year bullet maturity in February 2014.
In May 2007 Securitas arranged a three year syndicated term loan facility
for MEUr 550. The facility is fully drawn as at December 31, 2008 and is
repayable in May 2010.
In addition to the above, Securitas has access to committed financing
through a MSEK 3,000 club deal maturing in 2010 and through a
MSEK 1,500 bilateral revolving credit Facility maturing in 2009. The purpose
of these two facilities is to provide Securitas with headroom while
evaluating alternatives for refinancing.
The MUSD 250 U.S. securitization program matured in June 2008 and
was repaid in full.
In January 2002, Securitas established a short-term Swedish commercial
paper program in the amount of MSEK 5,000. The objective was to obtain
access to short-term financing at competitive prices. Pricing is based on the
prevailing market rates at time of issuance.
In combination with Securitas’ strong cash flow, these sources of financing
provide liquidity on a short and long-term basis as well as flexibility to finance
the Group’s expansion.
Credit/Counterparty risk
Counterparty Risk – Accounts Receivable
Securitas has generally low risk in the accounts receivables for a number of
reasons. A large proportion of sales are based on contracts with well known
large and medium sized customers with an established and long term relationship.
This provides for transparent and safe collection of invoices. New
customers are duly reviewed in terms of credit worthiness.
The contract portfolio sales are also diversified in several ways, of which
the most important is that there are few/no clients that represent a significant
portion of total sales. Default by a single customer then has little overall
effect. In addition, Securitas provides its services to geographically dispersed
customers in a large number of sectors including governments, utilities,
financial sector, travel, logistics and industrial. Hence, the exposure to financial
distress in any particular sector or region is relatively limited.
Securitas’ services are also, although vital in many aspects, mostly ancillary
to the business of the customers. This means that the cost of security services
represents a small fraction of total costs of running clients’ business,
making Securitas less exposed to payment defaults than suppliers of services
or goods more directly involved in the value chain.
All of this provides for secure collection of incurred revenues, which is
evidenced by low bad debt losses averaging below 0.2 percent of sales
over the past three years.