Annual Report 2009 - Husqvarna Group

42 Husqvarna Annual Report 2009 Report by the Board of Directors
Risks related to restructuring
The Group is currently undertaking a number of structural
changes of the manufacturing footprint and the sales organization,
as well as implementing a new organization. Restructuring
and organizational changes always involve the risk of creating
higher costs than anticipated and losing key personnel, or
that estimated savings deviate, both up and down, from
announced targets.
Financial risks
Husqvarna’s financial risks are managed on the basis of the
Group’s financial and credit policies, which are annually
updated and authorized by the Board of Directors. Management
of such risks is based largely on the use of financial
instruments and is mainly centralized to Group Treasury, which
operates in accordance with specified risk mandates and limits.
For more information on risk management, risk exposure
and accounting principles, see Notes 1 and 2.
Currency exposure
The goal of Husqvarna’s currency management is to minimize
the short-term adverse effects of currency exchange-rate fluctuations
on the Group’s earnings and financial position. As
Husqvarna sells its products in approximately 100 countries,
the Group is exposed to such fluctuations. They affect the
Group’s earnings in terms of translation of income statements
in foreign subsidiaries, i.e. translation exposure, as well as the
sale of products on the export market and purchases of materials
in foreign currencies, i.e. transaction exposure.
Translation exposure is related primarily to earnings in USD,
EUR, PLN, RUB and GBP. The Group’s globally widespread
production and sales enable the various exchange-rate effects
to offset each other to some extent.
Changes in exchange rates also affect Group equity. The
difference between the assets and liabilities of foreign subsidiaries
in foreign currencies is affected by such changes, which
generate translation differences that impact equity. At yearend
2009, most foreign net assets were in USD and EUR. For
more information on risks related to currency exposure, see
Note 2.
Hedging of currency exposure
Husqvarna uses currency derivatives to hedge estimated
transaction exposure on a horizon of 0–12 months. Normally,
75–100% of the invoiced and estimated currency flow for the
next 6 months is hedged, and 50–75% for the next 6–12
months. At year-end 2009 the market value of the Group’s
hedges referring to transaction exposure amounted to
SEK –68m (–35).
In accordance with the Group’s financial policy, certain foreign
net assets are hedged through loans in the respective
country’s currency, as well as through currency derivatives.
Currency gains and losses on net assets and hedges are
booked directly to other comprehensive income. Interest
income and expense related to hedging are reported under
net financial items.
Costs for hedging of foreign net assets in 2009 amounted
to SEK –18m (21).
Interest-rate risk
At year-end 2009, the average interest rate on external borrowings
was 3.2% (4.3) and the average fixed interest-term was
2.2 years (0.4). On the basis of the volume of borrowings and
the fixed interest-term at year-end, a one percentage point
shift of the interest rates would impact group income in the
amount of –/+ 38m (80). For more information on interest rate
risk, see Note 2.
Financing risks
Financing risks refer to possible delays, increased costs or
cancellations related to financing of Husqvarna’s capital
requirements and refinancing of outstanding loans.
Financing risks can be reduced by maintaining an evenly distributed
maturity profile for loans, and by ensuring that shortterm
borrowings do not exceed current liquidity. The Group’s
financial policy stipulates that net debt should be long-term,
without reference to seasonal variations. The Group’s goal is
for the average maturity period of long-term loans to be not
less than two years and to show an evenly distributed maturity
profile. Loans with maturity periods of less than 12 months are
normally maximized to SEK 3,000m.
Net sales and exchange rates
Net sales, SEKm 2009
Average exchange rate, SEK
Year-end exchange rate, SEK
2009 2008 2009 2008
USD 13,689 7.63 6.59 7.18 7.70
EUR 7,938 10.63 9.67 10.30 10.94
CAD 1,619 6.67 6.21 6.85 6.25
GBP 1,138 11.84 12.11 11.39 11.20
JPY 1,063 0.08 0.06 0.08 0.09