Annual Report 2010 - Falck

44 Falck Annual Report 2010 | Management review
Financial risks
Interest rate and foreign exchange risk
The Group’s interest rate risk is mainly affected by the Group’s
overall financing. Based on the current market situation, the
Executive Management Board and the Board of Directors have
decided that the financing is to be based on short-term interest
rates.
Interest collars covering DKK 1,709 million with a floor of 3.25%
and a cap of 5.5% have been entered into to hedge interest rate
risks.
Credit institutions, floating-rate loans
DKK million 2010 2009
DKK 2,271 1,595
EUR 855 999
USD 249 249
Other - 30
Total 3,375 2,873
The Group is therefore sensitive to fluctuations in market interest
rates, and a fluctuation by 1% would change the Group’s
interest expense by DKK 13 million as the market rate for the
current year is below the floor of the interest rate collars. Without
an interest rate collar, a fluctuation by 1% would change the
Group’s interest expense by DKK 34 million.
Sensitivity analysis, market-rate fluctuations of 1%
DKK million 2010 2009
DKK 7 7
EUR - 1
USD 2 2
Total 9 10
The Group monitors developments in market interest rates closely
in order to be able to react if the market situation changes.
The exchange rate exposure of the Group’s transactions is
limited since subsidiaries outside Denmark largely operate in
local currencies, to the effect that the revenues and most of
the expenses of the individual subsidiaries are denominated in
the same currency. The main exchange rate exposure faced by
the Group relates to the translation into Danish kroner of the
financial results and equity of subsidiaries.
In the event of a concurrent fall in all exchange rates by 1%, this
would reduce revenue by DKK 31 million, EBITA by DKK 3 million
and equity by DKK 17 million.
In the event of a change in the DKK/EUR exchange rate by 1%,
the Group’s debt would change by DKK 9 million, which would
be recognised in the income statement. Fluctuations in the
DKK/USD exchange rate have no impact on the income statement
or equity as the Group’s debt is hedged.
The Group regularly assesses its foreign exchange risks in order
to determine whether the exposure should be hedged by loans
in the same currencies or forward exchange contracts.
Credit risk
When entering into significant contracts, the Group makes a
credit assessment of the customer in order to assess the potential
credit risk. Trade receivables are monitored and evaluated
on a continuing basis in order to assess any need to make
provisions for bad debts.
The Group’s credit exposure to large customers is considered
low as the Group’s large customers are, to a great extent, public
authorities.
Subscription sales to private and corporate customers are not
deemed to involve material risks to the Group as the amounts
are small for the individual subscriptions, and general as well
as individual write-downs are made for anticipated bad debts.
As at 31 December 2010, receivables from such subscriptions
totalled approximately DKK 76 million (2009: DKK 45 million).