Today, Wavin - Jaarverslag.com

Wavin Annual Report 2010 | page 92measurement date, exercise price of the instrument, expected volatility, weighted average expected life of the instruments,expected dividends and the risk-free interest rate. Service and non-market performance conditions related to the grant arenot taken into account determining the fair value.(iv) Pensions and other post-retirement benefitsRetirement benefi ts represent obligations that will be settled in the future and require assumptions to project benefi tobligations and fair values of plan assets. Retirement benefi t accounting is intended to refl ect the recognition of future benefi tcosts over the employee’s approximate service period, based on terms of the plans and the investment and funding decisionsmade by the Company. The accounting requires management to make assumptions regarding variables such as discountrate, rate of compensation increase, return on assets, mortality rates and future healthcare costs. Periodically, managementconsults with external actuaries regarding these assumptions. Changes in these key assumptions can have a signifi cantimpact on the projected benefi t obligations, funding requirements and periodic costs incurred. For details on key assumptionsand policies we refer to note 27.(ai) New standards and interpretations not yet implementedA number of new standards, amendments to standards and interpretations are not yet effective for the year ended31 December 2010, and have not been applied in preparing these consolidated fi nancial statements. None of these isexpected to have a signifi cant effect on the consolidated fi nancial statements of the Group, except for IFRS 9 FinancialInstruments, which is expected to become mandatory for the Group’s 2013 consolidated fi nancial statements and couldchange the classifi cation and measurement of fi nancial assets. The Group does not plan to adopt this standard early andthe extent of the impact has not been determined yet.4. Financial risk managementOverviewWavin is exposed to internal and external risks and uncertainties that may affect its business, fi nancial results or operationalperformance. To mitigate these risks, the Company has defi ned policies and guidelines that are followed throughout theorganisation. These policies and guidelines are translated into internal risk management and control systems aimed at theadequate and effective control of these identifi ed exposures. The Company regularly reviews the control systems to assesstheir adequacy. We feel that these policies and systems contribute to a more effective and transparent organisation.The Management Board has the overall responsibility for the Group’s risk management framework. The Audit Committeeoversees and reviews the adequacy of the risk management framework in relation to the risks faced by the Group and itsprocedures to control and to monitor compliance with the Group’s risk management policies. We refer to page 42 of theannual report for a description of major risk factors such as strategic, operational and fi nancial risks.This note covers the Group’s policies and procedures for controlling credit risk, liquidity risk and currency risk.First the impact of the credit crisis on fi nancial risks is highlighted followed by a description of our general fi nancial risks andinterest rate risks.The credit crisis and its impact on WavinAfter two years of contraction the Group realised an encouraging increase in revenue in 2010. Signifi cant growth in someregions compensated the sharp decline in construction markets in other regions. However, heavy price competition andsignifi cant price increases of our raw materials resulted in margin pressure which had a negative impact on our results in2010. Benefi ts from implemented cost reduction programmes partly offset the negative effect of margin pressure. Throughoutthe year we took additional steps to further optimise the cost structure of the Group.Capital StructureThe policy of Wavin is to deploy an effi cient capital structure that maintains investor, creditor and market confi dence andsupports future development of the business. The Management Board monitors the debt to equity ratio and return on capitalemployed closely.Periodically the Management Board evaluates the need to purchase own shares on the market. Primarily the shares areintended to be used for issuing shares for the Group’s Long Term Incentive Plan (see note 28). The Group does not have adefi ned share buy-back plan. Buy and sell decisions are made on a specifi c transaction basis by the Management Board afterapproval by the Supervisory Board.Wavin has set clear targets for its level of borrowings in relation to results (leverage) and interest cost (interest coverage).Despite the continued tight control of working capital management, working capital increased as a result of higher sales andhigher raw material prices. Also the change in geographical mix of our sales resulted in a further increase of the outstandingdebtor positions. Spending on investments increased slightly by € 2.6 million to € 43.2 million in 2010. Mainly as a result of