Annual Report 2009 - Husqvarna Group

Notes Husqvarna Annual Report 2009 59
Amounts in SEKm unless otherwise stated.
NOTE 2
Financial risk management and financial instruments
Financial instruments are defined in accordance with IAS 32,
Financial Instruments: Presentation and presented in accordance
with IFRS 7 Financial Instruments: Disclosure. Additional
and complementary information disclosing the accounting
and valuation policies adopted is presented in the Note 1,
Accounting and valuation principles.
Financial risk management
Financial risk management for Husqvarna entities has been
undertaken in accordance with the Group Financial Policy.
Described below are the principles of financial risk management
applicable to Husqvarna.
Husqvarna is exposed to a number of risks relating to
financial instruments including, for example, liquid funds,
trade receivables, trade payables, borrowings, and derivative
instruments. The primary risks associated with these
instruments are:
• Financing risks in relation to the Group’s capital
requirements.
• Interest rate risks on liquid funds and borrowings.
• Foreign exchange risks on export and import flows plus
earnings and net investments in foreign subsidiaries.
• Commodity price risks affecting expenditure on raw
ma terials and components for goods produced.
• Credit risks relating to financial and commercial activities.
The Board of Directors of Husqvarna has adopted a Group
financial policy, as well as a Group credit policy, to regulate
the management and control of these risks. These risks are to
be managed according to the limitations stated in the Financial
Policy. The Financial Policy also describes the management
of risks relating to pension fund assets. The purpose of
the policy is to have enough funding available to minimize the
Group’s cost of capital and to achieve an effect ive management
of the Group’s financial risks.
The management of financial risks has largely been centralized
to Husqvarna Group Treasury. The measurement and control
of financial risks within Group Treasury is performed on a
daily basis by a separate risk control function. Furthermore,
the Husqvarna Group’s policies include guidelines for managing
operating risk relating to financial instruments, e.g.
through the clear assignment of responsibilities and the allocation
of powers of attorney. Proprietary trading in currencies
and interest-bearing instruments is permitted with tight limits
set within the framework of the Financial Policy. The primary
aims of such trading are to maintain a flow of high quality information
and market knowledge, as well as to contribute to the
proactive management of the Group’s financial risks.
Capital structure
Husqvarna’s target is for the capital structure of Husqvarna to
correspond to a long-term creditworthiness at least equivalent
to BBB rating, according to the principles for credit
assessment of Standard & Poor’s or a similar agency’s. Currently,
this is interpreted to imply that seasonally adjusted net
debt, in proportion to the earnings before interest, tax,
depreciations and amortizations (EBITDA) should not be
higher than 2.5 in the long-term. This target for financial
indebtedness may be adjusted in the event of changes to the
macroeconomic situation, or allowed to deviate for a shorter
period of time due to acquisitions.
Husqvarna defines its equity as the sum of share capital,
other reserves and retained profits less minority interests.
Adjusted financial debt, when assessing the capital structure,
is defined as net debt adjusted for pension liabilities. Given
the seasonality of the business, this key ratio varies substantially
during the year. Husqvarna has not breached any
external capital requirements during the year.
31 Dec 2009 31 Dec 2008
Interest-bearing liabilities 9,094 16,287
Less: liquid funds –2,745 –2,735
Net debt 6,349 13,552
Total equity excl. minorities 12,082 8,772
Total assets 30,229 34,337
Net pension liabilities 999 1,034
Adjusted financial debt* 7,348 14,586
EBITDA (12m)* 3,060 3,524
Adjusted financial debt/
EBITDA* 2.40 4.14
Adjusted equity/assets ratio 40.0% 25.5%
* Adjusted financial debt and EBITDA have in the table above not
been adjusted for acquisitions and extraordinary items.
Borrowings and financing risk
Borrowings
The debt financing of Husqvarna is managed centrally by
Group Treasury in order to ensure efficiency and risk control.
Debt is primarily raised at Parent Company level and transferred
to subsidiaries as internal loans or capital injections. In
this process, various derivatives are used to convert the funds
to the required currency. Financing is also undertaken locally,
mostly in countries in which there are legal restrictions preventing
financing through the Parent Company. The bulk of
the Group’s financing is currently conducted through bilateral
loan agreements and through a Swedish Medium Term Note
program. In addition, the Group has SEK 10,000m of unutilized
committed revolving credit facilities. The major part of
these facilities matures in 2013. Due to the nature of its business,
the Group has major seasonal variations in its funding
needs. These variations have during 2009 been managed primarily
by utilizing the revolving credit facilities, trade receivables
sales programs and to a smaller extent by using the
Group’s commercial paper program.
Financing risk
Financing risk refers to the risk that the financing of the
Group’s capital requirements and the refinancing of existing
loans could become more difficult or more costly. This risk
can be decreased by ensuring that maturity dates are evenly
distributed over time, and that total short-term borrowings do
not exceed available liquidity. Disregarding seasonal variations,
net debt shall be long-term, according to the Financial
Policy. The Group’s goals for long-term borrowings include an
average time to maturity of at least two years, and an even