Notes and comments to the consolidated fi nancial statements CONT. NOTE 5 FINANCIAL RISK MANAGEMENT Table 1A December <strong>2005</strong> Total Group Interest-bearing liabilities and assets Size, Duration Current book cost (incl. credit Interest Interest Currency MSEK (days) margin) rates, +1% rates, –1% USD liabilities –7,308 176 4.57 5.00 4.12 EUR liabilities –6,523 335 2.51 3.64 2.58 GBP liabilities –1,571 23 4.81 5.81 3.81 SEK liabilities Other currencies –6,010 27 2.19 3.19 1.19 liabilities –422 22 2.74 3.74 1.74 Total liabilities –21,834 178 3.28 4.11 2.77 USD assets 1,986 27 4.85 5.85 3.85 EUR assets 1,729 8 2.73 3.73 1.73 GBP assets 397 7 4.58 5.58 3.58 SEK assets Other currencies 5,488 29 2.46 3.40 1.51 assets 289 9 2.53 3.53 1.53 Total assets 9,889 24 3.07 4.04 2.10 Total –11,945 – 3.46 4.14 3.31 Table 1B Interest rate fi xing It is the policy of <strong>Securitas</strong> to use interest rate derivatives if required to manage its interest rate risk and as a consequence the cost of fi nance in the Group. The duration for these derivatives are normally between three and four years. Group policy allows for the use of both options based and fi xed rate products, however as per December 31, <strong>2005</strong> the derivatives portfolio did not contain any options products. 2. Foreign currency risks Financing of foreign assets – translation risk Translation risk is the risk that the SEK value of foreign currency equity will fl uctuate due to changes in foreign exchange rates. <strong>Securitas</strong>’ foreign currency capital employed as of December 31, <strong>2005</strong> was MSEK 25,452. Capital employed is fi nanced by loans in local currency and shareholders’ equity. This means that <strong>Securitas</strong>, from a Group perspective, has shareholders’ equity in foreign currency that is exposed to changes in exchange rates. Because of this, a translation risk can arise since unfavourable changes in exchange rates could have a negative effect on the Group’s foreign net assets when translated to SEK. Table 2A below shows how the Group’s capital employed is distributed by currency and its fi nancing: Table 1B Table 2A MSEK EUR USD GBP Other currencies The Consolidated statement of income is affected by the translation to SEK of the statements of income of foreign subsidiaries. Since these subsidiaries essentially operate only in local currency their competitive situation is not affected by changes in exchange rates and since the Group as a whole is geographically diversifi ed, this exposure is not hedged. Group internal currency fl ows between holding companies and subsidiaries in relation to dividends, trademarks and interest are normally hedged to SEK immediately the amount is agreed between the internal parties. Transaction risk Transaction risk is the risk that the Group’s net income will be affected by changes in the value of commercial fl ows in foreign currencies due to fl uctuating exchange rates. The exposure arises from the export and import of goods and components in the security systems operations and payments of central insurance premia. The size of the exposure, as indicated in the table below, is limited. Hedging is done for our import/export related exposure on a continuous basis over the course of the year. On average fl ows for six months are hedged. Table 2B. Net transaction exposure per currency Currency Net transaction exposure currency EUR 49 USD –16 GBP 3 NOK –10 Other currencies –23 Net Total 3 3. Financing 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 fi ve percent of consolidated annual sales. As of December 31, <strong>2005</strong> the short-term liquidity reserve corresponded to 13 percent of the Group’s annual sales. The Group’s long-term fi nancing risk is minimized by ensuring that the level of long-term fi nancing (shareholders’ equity, convertible debenture loans with maturities of at least one year, long-term committed loan facilities and long-term bond loans) at least matches the Group’s capital employed. Per December 31, <strong>2005</strong> long-term fi nancing corresponded to 110 percent of the Group’s capital employed. Long-term fi nancing of the Group should be well balanced among different sources. The aim is that long-term committed loan facilities and longterm bond loans should have an average maturity of more than three years. As per December 31, <strong>2005</strong> the average maturity was two years and nine months. Table 3A on the next page shows the maturity structure of the Group’s committed loan facilities as of December 31, <strong>2005</strong>. Dec 31, <strong>2005</strong> Dec 31, 2006 Dec 31, 2007 Amount Rate1 Amount Rate1 Amount Rate1 Final Currency MSEK MLOC % MSEK MLOC % MSEK MLOC % maturity USD 3,876 487 4.45 759 100 4.53 – – – April 2007 EUR 2,515 268 2.92 2,515 268 2.92 497 53 2.81 October 2008 Total 6,391 3,274 497 1 Average rate including credit margin. Total Foreign currencies SEK Total Group Capital employed 11,100 11,250 2,574 528 25,452 1,340 26,792 Net debt 4,794 5,322 1,175 132 11,423 522 11,945 Minority interests 1 – 0 0 1 0 1 Net exposure 6,305 5,928 1,399 396 14,028 818 14,846 Net debt to equity ratio 0.76 0.90 0.84 0.33 0.81 0.64 0.80 86 SECURITAS <strong>2005</strong>
Table 3A. Maturity structure of issued bonds and committed loan facilities 1 Maturity
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