Annual Report 2003 - Nobel Biocare Corporate

NOBEL BIOCARE ANNUAL REPORT 200349NOTESNOTE 26 Risk management and hedging activitiesCredit riskNobel Biocare is very conservative regarding financial credit risk and involvestherefore only with counterparties with very high credit ratings.All excess cash in local companies is placed intra-group, either throughthe usage of cash pools or by doing an investment with the TreasuryDepartment.No external investments longer than 12 months are permitted.Regarding the commercial credit risk, no individual customers representa significant portion of the Group´s revenue.Interest riskThe policy of the Group is that the interest exposure, calculated as theremaining average fixed interest period, must not exceed 360 days.Liquidity riskIn order to have liquid funds on hand at all times, the Group should alwayshave funds corresponding to one month of total expenses available.The funding policy limits the refinancing risk by not permitting refinancingof more than 50 percent of the debt portfolio during the following 12 months.Currency riskThe transactional exposure is defined as the net result of all invoiced,confirmed and forecasted commercial and financial incoming and outgoingpayments in a currency other than the local currency. The transactionalexposure is summarized for all entities and managed at a central level at theTreasury Department at Nobel Biocare AB.According to the finance policy, forecasted net exposure in the upcoming6 months should be hedged on average to a minimum of 50 percent andmay be hedged up to 90 percent per currency.Forecasted net exposure in the following 7–12 months should behedged on average to a minimum of 25 percent and may be hedged up to50 percent per currency. The EUR exposure is the main currency exposurewithin the Group since the USD exposure to a large extent is internallyhedged by the production facilities in the US.Derivative instrumentsDerivative financial instruments are initially recognized at cost. Subsequentto initial recognition, derivative financial instruments are stated at fair valueand are recorded under prepaid expenses and accrued expenses, respectively.Fair value has been determined by reference to the market at the balancesheet date.As of 31 December, there were open currency hedging contracts with the following notional amounts:2003Notional amount with remaining life ofFair valuein EUR'000 Less than 3 months 3 months – 1 year More than 1 year Total Cash flow hedge Other TotalCurrency instrumentsCurrency hedging contracts 25 205 31 530 - 56 735 461 1 406 1 867Total derivative assets included inprepaid expenses and accrued income 25 205 31 530 - 56 735 461 1 406 1 8672002Notional amount with remaining life ofFair valuein EUR'000 Less than 3 months 3 months – 1 year More than 1 year Total Cash flow hedge Other TotalCurrency instrumentsCurrency hedging contracts 19 778 25 334 - 45 112 - 1 725 1 725Total derivative assets included inprepaid expenses and accrued income 19 778 25 334 - 45 112 - 1 725 1 7252003Notional amount with remaining life ofFair valuein EUR'000 Less than 3 months 3 months – 1 year More than 1 year Total Cash flow hedge Other TotalCurrency instrumentsCurrency hedging contracts 4 408 18 171 - 22 579 71 354 425Total derivative liabilities included inaccrued expenses and deferred income 4 408 18 171 - 22 579 71 354 4252002Notional amount with remaining life ofFair valuein EUR'000 Less than 3 months 3 months – 1 year More than 1 year Total Cash flow hedge Other TotalCurrency instrumentsCurrency hedging contracts 4 436 16 493 - 20 929 - 230 230Total derivative liabilities included inaccrued expenses and deferred income 4 436 16 493 - 20 929 - 230 230The carrying amounts of other financial assets and liabilities, other than derivative instruments, approximate fair value.