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Wavin Annual Report 2010 | page 97Interest rate riskIt is Wavin’s policy to limit exposure to interest rate risks, to ensure fi nancing costs are limited and to maintain interestcoverage ratios in line with covenants. The Group’s Treasury Committee is responsible for managing interest rate risks withinthe framework specifi ed by the corporate fi nancing policy.The Group’s credit facility has an interest rate based on variable inter-bank offered rates. To limit the exposure to a risein interest rates, the Group has entered into interest rate swaps, which convert the variable rates into fi xed rates.At 31 December 2010, the Group had effective interest rate swaps outstanding with a total notional amount of € 259.8 million(2009: € 272.0 million) with remaining duration of 0.8 years and an average interest rate of 3.9% (2009: 1.8 years and 3.9%respectively). In addition, the Group has entered into forward starting interest rate swaps for the period October 2011 –October 2015 with a total notional amount of € 208.2 million and an average interest rate of 3.7%. In addition to theaforementioned interest rate swaps, the Group also had interest rate swaps outstanding per 31 December 2010 for which nohedge relation exists anymore. The fair value of these interest rate swaps per 31 December 2010 amounts to € 1.4 million(31 December 2009: € 2.7 million). As a result of the above mentioned, the Group’s sensitivity to interest rate movementsis limited. The fair value of the fi nancial instruments per 31 December 2010 amounts to a € 13.9 million liability (2009:€ 17.2 million liability), of which € 12.4 million relates to effective hedges.The average payable fi xed interest rate under the interest rate swaps of 3.9% excludes the margin payable under the facilityagreement. The applicable margin is based on the leverage ratio. The margin is restated on a quarterly basis, following thecovenant reporting to the banking syndicate. The average margin for 2010 was 3.3% (2009: 2.2%). As of November 24 2010the margin was reduced resulting in a maximum margin of 400 basis points and a minimum of 175 basis points (2009:maximum of 505 basis points and a minimum of 217 basis points).Debt profileAt the reporting date the interest rate profi le of the Group’s interest-bearing fi nancial instruments was:(€ x 1,000) FACE VALUE2010 2009Fixed rate instrumentsFinancial liabilities (259,780) (272,031)Total (259,780) (272,031)Variable rate instrumentsFinancial assets 55,748 58,626Financial liabilities (63,836) (37,456)Total (8,088) 21,170Fair value sensitivity analysis for fixed rate instrumentsThe Group does not account for any fi xed rate fi nancial assets and liabilities at fair value through profi t or loss, and the Groupdoes not designate derivates (interest rate swaps) as hedging instruments under a fair value hedge accounting model.Therefore a change in interest rates at the reporting date would in principle not affect profi t or loss. The instruments that havebecome ineffective due to the refi nancing in 2009 are revaluated through the income statement instead of equity, resulting ina gain per 31 December 2010 of € 1.3 million (2009: € 0.6 million gain).It is estimated that a change of 100 basis points in interest rates would have increased or decreased equity by € 7.2 million(2009: € 9.9 million) and net profi t by € 0.5 million (2009: € 3.8 million), due to changes in the fair value of interest rate swaps.Sensitivity analysis for variable rate instrumentsAs 85.4% of the Group’s debt has been hedged (2009: 87.9%) it is estimated that a general increase in interest rates of 1.0%would have only a limited effect on the Group’s profi t before tax.This analysis assumes that all other variables, in particular foreign currency rates, remain unchanged. The analysis for 2010 isperformed on the same basis as for 2009.