Annual Report 2010 - Falck

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Notes to the Group financial statements Note DKK million 36 Financial instruments (continued) Group | Falck Annual Report 2010 91 Interest rate risk The Group’s interest rate risk is mainly affected by the Group’s overall financing. Based on the current market situation, the Group's Executive Management Board and Board of Directors have resolved that the financing is to be based on short-term interest rates. The Group is therefore sensitive to fluctuations in market interest rates, and a fluctuation by 1% would change the interest expense for the year by DKK 13 million (2009: DKK 10 million) as the market rate for the current year is below the floor of interest rate collars. Without an interest rate collar, a fluctuation by 1% would change the Group's interest expense by DKK 34 million (DKK 29 million). The Group monitors developments in market interest rates closely so that it can react if the market situation changes. In order to hedge interest rate risk, the Group has entered into an interest rate collar which hedges a substantial part of the increased interest exposure if market interest rates exceed 5.5%. The interest rate collar also includes a floor rate fixed at 3.25% and thereby resulting in the hedged amount at all times being subject to interest in the range of 3.25% to 5.5%. Assumptions regarding sensitivity information: The sensitivity stated has been determined based on the recognised financial assets and liabilities as at 31 December 2010. No adjustment has been made for servicing and raising of debt, or the like in 2010. Furthermore, it is assumed that all hedges of floating-rate loans are effective. Credit risk The Group’s credit risk primarily concerns primary financial assets. Credit risk related to financial assets equals the values recognised in the balance sheet. The Group is not exposed to significant risks concerning individual customers or business partners. When entering into significant contracts, the Group makes a credit assessment of the customer in order to reduce the potential credit risk. The Group’s credit exposure to large customers is generally considered to be low as the Group’s large customers are typically 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 provisions are made for anticipated bad debts. As at 31 December 2010, receivables from such subscrioption sales were in the region of DKK 76 million (2009: DKK 45 million). Liquidity risk The Group’s liquidity risk primarily concerns its ability to meet its obligations to pay its employees and creditors and to service its debts. See note 27 for a breakdown of maturities of liabilities to credit institutions. In addition to its recognised liabilities, the Group also has the option to draw on short-term credits. The Group continuously monitors its free cash flow in order to assess its liquidity risks. At year-end 2010, the Group’s unused credit and other facilities were at the level of DKK 720 million (2009: DKK 542 million). With the addition of available cash and cash equivalents of DKK 745 million (2009: DKK 625 million), total cash resources were at the level of DKK 1,465 million (2009: DKK 1,167 million). Certain of the Group’s loans, including the debt of Falck A/S, are subject to certain loan covenants, and the Group continuously monitors whether the covenants are observed. Derivative financial instruments recognised in the balance sheet are stated at a value equivalent to the market value.
92 Falck Annual Report 2010 | Group Notes to the Group financial statements Note DKK million 36 Financial instruments (continued) maturity analysis of financial assets and liabilities Assumptions applied in the maturity analysis: The maturity analysis is based on all undiscounted cash flows, including estimated interest payments. Interest payments are estimated based on the current market conditions. The undiscounted cash flows from derivative financial instruments are presented gross, unless the parties have a contractual right/obligation to settle net. Due Due Due Contrac- within between between Due tual Total one 1 and 3 3 and 5 after 5 cash carrying market Contractual cash flows including interest 2010 year years years years flows amount value Financial assets: Trade receivables 1,088 - - - 1,088 1,088 1,088 Receivables from associates 21 - - - 21 21 21 Other receivables 246 - - - 246 246 246 Cash and cash equivalents 439 - - - 439 439 439 Loans and receivables 1,794 - - - 1,794 1,794 1,794 Securities 372 - - - 372 372 372 Available-for-sale financial assets 372 - - - 372 372 372 Derivative financial instruments to hedge net investments in foreign subsidiaries 5 - - - 5 5 5 Total financial assets 2,171 - - - 2,171 2,171 2,171 Financial liabilities: Credit institutions 687 2,895 35 488 4,105 3,760 3,789 Provision for acquisitions of operations and non-controlling interests 71 90 171 191 523 457 457 Trade payables 581 - - - 581 581 581 Other payables 733 - - - 733 733 733 Financial liabilities measured at amortised cost 2,072 2,985 206 679 5,942 5,531 5,560 Derivative financial instruments to hedge future cash flows 32 25 - - 57 64 64 Derivative financial instruments to hedge net investments in foreign subsidiaries 6 - - - 6 6 6 Financial liabilities used as hedging instruments 38 25 - - 63 70 70 Total financial liabilities 2,110 3,010 206 679 6,005 5,601 5,630
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