Annual Report 2009 - Husqvarna Group

40 Husqvarna Annual Report 2009 Report by the Board of Directors
Risk management
All business operations involve risks. Creating awareness of such risks enables
them to be limited, controlled and managed, while business opportunities can
be utilized in the interest of increasing income and profitability.
Risks associated with Husqvarna’s operations can be classed
for the most part as operational risks related to business operations,
and financial risks related to financing operations, most
of which are conducted outside Sweden. External risks which
could affect the Group include changes in legislation and
regulations.
The President and CEO is responsible for ongoing risk management
in accordance with the Board of Directors’ guidelines
and instructions. Functional heads are responsible for operational
risk management. Group Staff Legal Affairs includes a
central risk-management function which coordinates risks that
are subject to insurance. Management of financial risks is
essentially centralized to the Group Treasury.
The Internal Audit function is tasked with ensuring the quality
over financial reporting and is also responsible for performing
an annual assessment of the Group’s commercial, operational
and financial risks. Identification and evaluation of risks
in this assessment provide support for management’s strategic
decision-making. The assessment also aims at generating
enhanced awareness of risks in various parts of the organization,
including everyone from operational decision-makers to
the Audit Committee and the Board of Directors.
Highlights of risk management in 2009
• The Safety@Work initiative in North America resulted in
reduction of workplace injuries by nearly 50%.
• Comprehensive property inspections were conducted at all
major facilities with an emphasis on potential damage from
fire, wind and flood.
• Insurance language and coverage requirements in supplier
agreements were standardized to ensure consistent and
adequate protection and risk transfer when appropriate.
• Risks related to financial reporting were identified and
evaluated.
Operational risks
Husqvarna’s long-term profitability depends, among other
things, on the company’s ability to successfully develop,
launch and market new products. Other vital factors for profitability
include flexible, cost-efficient production and rational
management of fluctuations in the prices of raw materials and
components.
Product life-cycles are becoming shorter, which makes product
development increasingly more important. Many of the
Group’s products require a good deal of time for development
from concept to final product, which means that it is essential
to understand the actual needs of end-users in order to ensure
that the product will be in demand. In order to maintain competitiveness,
the Group’s new products must satisfy or preferably
surpass the expectations of consumers and professional
users. The Group must also be a leader in terms of more efficient
and environmentally adapted products, in order to differentiate
the Group’s offering from those of its competitors.
Weather conditions
Demand for the Group’s products is also dependent on the
weather. Unexpected or unusual weather conditions in specific
areas or regions can affect sales either adversely or positively.
Dry weather can reduce demand for products such as lawn
mowers and tractors, but can stimulate demand for irrigation
systems. Demand for chainsaws normally increases after
storms, and during cold winters.
Markets and competition
Husqvarna operates in competitive markets, most of which are
relatively mature, which means that underlying demand is relatively
stable under normal economic conditions. Price competition
is intense, particularly for low-end consumer products
Sensitivity analysis
• A change of 1% in the costs for wages, salaries and remuneration
would affect operating income by approximately SEK
40m (40).
• A decline of 10 percentage points in the value of the
Swedish krona against the US dollar would have an adverse
effect on operating income of approximately SEK –220m*,
of which SEK –265m would refer to negative effects of transactions
and SEK 45m to positive translation differentials.
• A decline of 10 percentage points in the value of the
Swedish krona against the euro would have a positive effect
on operating income of approximately SEK 260m*, of which
SEK 245m would refer to effects of transactions and SEK
15m to translation differentials.
• A decline of 10 percentage points in the value of the Swedish
krona against all currencies, including USD and EUR, would
have a positive effect on operating income of approximately
SEK 470m*, of which SEK 335m would refer to effects of
transactions and SEK 135m to translation differentials.
• A change of 1 percentage point in the interest rate on loans
would affect net income by approximately SEK 40m, on the
basis of outstanding loans at year-end 2009.
• An increase or decrease of 10 percentage points in the price
of steel would affect operating income by –/+ SEK 220m.
• An increase or decrease of 10 percentage points in the
price of aluminum would affect operating income by –/+
SEK 60m.
• An increase or decrease of 10 percentage points in the price
of plastics would affect operating income by –/+ SEK 80m.
* Excluding hedging effects