Annual Report 2009 - Husqvarna Group

62 Husqvarna Annual Report 2009 Notes
Amounts in SEKm unless otherwise stated.
Cont. Note 2
Transaction exposure from commercial flows
The Financial Policy stipulates hedging of forecasted sales
and purchases in foreign currencies taken into consideration
the price fixing periods and the competitive environment.
Normally, 75–100% of the invoiced and forecast flows are
hedged up to 6 months, while forecast flows for 6–12 months
are hedged between 50% and 75%. Group subsidiaries primarily
cover their risks in commercial currency flows through
Group Treasury. Group Treasury assumes the currency risks
and covers such risks externally by utilizing currency derivatives,
for which hedge accounting is applied.
The table below shows the forecasted transaction flows
(imports and exports) for the 12-month period of 2010 and
hedges at year-end 2009.
Commercial flows
Currency
2010
Forecast
flow SEKm
31 Dec 2009
Total hedge
amount
SEKm
2009
Forecast
flow SEKm
31 Dec 2008
Total hedge
amount SEKm
EUR 2,473 –2,266 2,597 –2,370
CAD 1,017 –633 1,043 –771
RUB 598 –390 542 –362
PLN 385 –275 459 –345
GBP 365 –265 410 –335
Other 1,193 –586 1,652 –628
USD –2,667 2,035 –2,174 1,802
SEK –3,364 2,380 –4,529 3,009
The effect of hedging on operating income amounted to
SEK –109m (–89) during 2009. At year-end 2009, the unrealized
exchange rate result on forward contracts amounted to
SEK –57m (–23), all of which will mature in 2010.
Translation exposure on consolidation
of entities outside Sweden
Changes in exchange rates also affect the Group’s income on
translation of income statements of foreign subsidiaries into
SEK. Husqvarna does not hedge such exposures. The translation
exposure arising from income statements of foreign subsidiaries
is included in the sensitivity analysis below.
Foreign exchange sensitivity from transaction
and translation exposure
Husqvarna is particularly exposed to changes in the exchange
rates of SEK and EUR. Furthermore, the Group has significant
exposures to USD, CAD, GBP and a number of other currencies.
A 10% increase or decrease in the value of USD, EUR and
CAD against SEK, disregarding any effects from hedges,
would affect the Group’s income before financial items and
tax by approximately SEK +/– 133m (276) for one year, using a
static calculation. This assumes the same distribution of earnings
and costs as in 2009 and does not include any dynamic
effects, such as changes in competitiveness or consumer
behavior arising from such changes in exchange rates. It is
also worth noting that, due to the seasonality in Husqvarna’s
sales, these flows and results are not distributed evenly
throughout the calendar year.
Exposure from net investments (balance sheet exposure)
The net assets and liabilities in foreign subsidiaries constitute
a net investment in foreign currency, which generates a translation
difference in connection with consolidation. In order to
limit negative effects on Group equity resulting from translation
differences, hedging is conducted based on borrowings
and foreign exchange derivative contracts. This means that
the decline in value of a net investment, resulting from a rise
in the exchange rate of SEK, is offset by the exchange gain on
the Parent Company’s borrowings and foreign exchange
derivative contracts, and vice versa. The Financial Policy stipulates
the extent to which the net investments can be hedged
and also sets the benchmark for risk measurement. Group
Treasury is allowed to deviate from the benchmark under a
given risk mandate. The effect of the hedging is included in
the analysis of the currency compos ition of the Group’s net
debt, as shown on page 61.
Hedge accounting of currency risk
Husqvarna applies hedge accounting for its commercial flows
and for the hedging of net investments in foreign currency.
The total market value for hedges of commercial flows
amounted to SEK –68m as of December 31 2009, of which
SEK –43m is reported in the hedge reserve. Assuming an
unchanged exchange rate, the effects on income after financial
items for 2010 would be SEK –10m for Q1, SEK –25m for
Q2, SEK – 8m for Q3 and SEK 0m for Q4, 2010. During the
year, no ineffectiveness has occurred in relation to the hedging
of net investments while a minor degree of ineffectiveness
has occurred in the hedging of commercial flows in foreign
oper ations. A total amount of SEK 0.2m (0.9) has negatively
affected profit and loss. See Note 16 for the effect on equity
of hedge accounting.
Commodity price risks
Commodity price risk is the risk that the cost of direct and
indirect materials could increase as underlying commodity
prices rise on the global markets. Husqvarna is exposed to
fluctuations in commodity prices through agreements with
suppliers, whereby the price is linked to the raw material price
on the world market. This exposure can be divided into direct
commodity exposures, which refer to pure commodity exposures,
and indirect commodity exposures, which are defined
as exposures arising from only a portion of a component.
Commodity price risk is managed through contracts with the
suppliers rather than through the use of derivatives. A ten per
cent rise or fall in the price of steel used in Husqvarna’s products
will affect the Group’s results before financial items and
tax by approximately –/+SEK 223m (208), everything else
being equal. The same effect on the price of aluminum
would impact the results by –/+SEK 60m (74) and a 10%
change in the price of plastics would give an effect on results
of SEK –/+ 80m (92).