20% - Assa Abloy

Maturity – financial liabilities and derivatives, SEK M
Rating
< 1 year
Agency Short-term Long-term Outlook
Standard & Poor’s A2 A – Stable
Moody’s P2 n/a Stable
Ratings from both agencies remain unchanged from the
previous year.
Credit risk
Financial risk management exposes ASSA ABLOY to certain
counterparty risks. Such exposure may arise, for example,
from the placement of surplus cash, from accounts receivable,
and from the use of debt securities and derivative
financial instruments.
ASSA ABLOY’s policy is to minimize the potential credit
risk from cash surplus by having no cash in bank accounts
and by using cash available from subsidiaries to amortize
ASSA ABLOY debt. This objective is controlled primarily
through the cash pool network put in place by the internal
bank. About 80 (80) percent of commercial sales were settled
through cash pools in 2007. The Group may nevertheless
deposit surplus funds on a short-term basis with banks
in order to match debt maturities.
Derivative financial instruments are allocated to banks
according to risk factors set in the Group policy in order to
limit counterparty risk.
The internal bank enters into derivative contracts exclusively
with banks participating in the syndicated credit system
or with banks rated AAA and AA.
An ISDA (full netting of transactions in case of default by
one counterparty) is agreed in the case of interest derivatives.
Accounts receivable are spread over a large number of
individual customers, thus minimizing risk. Credit risk from
operating activities is monitored by local management at a
company level and reviewed by the respective division.
Commodity risk
The Group is exposed to price risk related to purchases of
certain commodities (primarily metals) used as raw materials
in its business. The Group’s policy is to not enter into
commodity hedge contracts.
31 December 2006 31 December 2007
> 1 year
< 2 years
> 2 years
5 years < 1 year
ASSA ABLOY
Annual Report 2007
65
Capital risk
The Group’s objectives regarding capital structure are to
safeguard the Group’s ability to continue as a going concern
in order to provide returns for its shareholders and
benefits for other stakeholders, and to maintain an optimal
capital structure to reduce the cost of capital. In order to
adjust the capital structure in response to need, the Group
can vary the amount paid as dividend to shareholders,
return capital to shareholders, issue new shares, or sell
assets to reduce debt. The Group monitors capital on the
basis of the ratio between net debt and equity.
Net debt is defined as interest-bearing liabilities less
interest-bearing assets. The table ‘Net debt / Equity’ below
shows the position at 31 December.
Net debt / Equity
> 1 year
< 2 years
> 2 years
5 years
Long-term loans, hedged –55 –55 –166 –1,212 –51 –51 –640 –412
Long-term loans, non-hedged –211 –271 –2,549 –3,820 –239 –1,813 –997 –3,601
Convertible debenture loans –47 –47 – 1,302 – –110 –1,029 –1,444 –
Other long-term liabilities – –23 –97 – – –25 –103 –
Short-term loans, non-hedged –5,821 – – – –5,088 – – –
Accounts payable and other shortterm
liabilities –2,824 – – – –3,060 – – –
Interest rate derivatives – – –12 –12 3 3 –8 1
Forward foreign exchange contracts – outflows –6,206 –12 –1 – –6,033 –1 – –
Forward foreign exchange contracts – inflows 6,202 14 1 – 6,064 1 – –
31 Dec 2006 31 Dec 2007
Net debt 13,560 12,953
Equity 13,645 15,668
Net debt / Equity 0.99 0.83
Financial instruments
Derivative financial instruments such as currency and interest
rate forwards are used to the extent necessary. The use
of derivative financial instruments is solely to reduce exposure
to financial risks. Derivative financial instruments are
not used with speculative intent.
The positive and negative market values in the table
‘Outstanding derivative financial instruments’ overleaf
show the market values of instruments outstanding at
year-end, based on available market values, and are the
same as the values reported on the balance sheet. The
nominal value represents the gross value of the contract.
For accounting purposes financial instruments are allocated
to categories based on IAS 39. The second table
overleaf provides an overview of financial assets and liabilities,
measurement categories and carrying value and
fair value per item.