Electrolux 1997 Annual Report Download - page 32

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Electrolux Annual Report 1997
refers largely to a higher proportion of
total borrowings for new markets in
Eastern Europe and Asia.
The Group’s financing policy was
adjusted during the year to enable a
higher degree of financing with floating
interest rates. The maturity profile for net
borrowings shall be longer than 2 years.
Ratings
Electrolux has an Investment Grade
rating from Moody’s, with a Baa2 long
rating, and a BBB+ rating from Standard
& Poor. The corresponding short ratings
are P-2 and A-2/K1, respectively.
Interest-rate risk
This risk refers to the adverse effects
of changes in market interest rates on
Group income.
As of December 31, 1997, the
Group’s total short- and long-term
interest-bearing liabilities amounted to
SEK 29,993m (32,954), of which the
Swedish pension liability in the Pension
Registration Institute (PRI) accounted
for SEK 1,514m (1,612) for the parent
company and Sweden in general.
The fixed-interest term for long-
term borrowings was 1.7 years as of
December 31, 1997. The fixed-interest
term for liquid funds is 126 days.
Derivatives are actively employed
to adjust interest-rate exposure, e.g.
by extending or abridging the term for
fixed rates without adjusting the under-
lying loans or placements. All figures
given above include the effects of deriv-
atives.
Currency risk
This risk refers to the adverse effects
of changes in currency rates on the
Group’s income and equity. In order to
avoid such effects, the Group covers
these risks with due consideration for
the impact of the coverage on costs,
liquidity and taxes.
Exposure arising from commercial flow
Transactions between Group companies,
suppliers and customers generate a flow
exposure. About 75% of the currency
flow is between Group companies. The
effect of changes in exchange rates is
reduced by the Group’s geographically
widespread production and the two-
way currency flows that it involves.
Internal exposure is also reduced by the
Group’s netting system. In addition, this
system enables the remaining currency
flow to be continuously monitored, so
that action can be taken to compensate
for changes in positions.
The table below shows the propor-
tions of Group external sales and oper-
ating expense in 1997 in the most
important currencies.
There was a good currency balance
during the year in the USD block.
In contrast, there was an imbalance in
other currencies, i.e. greater revenues
than costs, particularly in currencies
within the DEM block, and greater
costs than revenues primarily in ITL
and SEK.
Group subsidiaries cover their risks
in commercial currency flows through
the Group’s financial units. The finan-
cial operation thus assumes the currency
risks and can cover them externally
through forward contracts, borrowings
or deposits. Options and other derivative
instruments are also used. Exchange
differences arising from short-term
commercial receivables and liabilities
in foreign currencies are included in
operating income.
Report by the Board of Directors for 1997
Net sales and
expense, by currency Share of Share of
Currency net sales expense
SEK 5% 10%
USD block1) 41% 42%
DEM block2) 27% 21%
GBP 6% 4%
ITL 5% 15%
Other 16% 8%
Total 100% 100%
1) Includes currencies in Canada, Hong Kong,
Taiwan, Singapore, O ceania and the Latin
American countries where the Group operates.
2) Includes currencies in Benelux as well as
Denmark, Finland, France and Austria.
Loans raised during the year
During the year the major share of
the Group’s liquid funds was used for
redemption of long-term loans. Borrow-
ings during the year referred mainly to
new markets and comprised mainly
bank loans.
The Group’s interest-bearing bor-
rowings at year-end 1997 amounted to
SEK 29,993m (32,954), of which SEK
18,691m (22,432) comprised long-term
loans with an average duration of 3.3
years (3.4). Net borrowings, i.e. total
interest-bearing liabilities less liquid
funds, rose to SEK 20,159m (19,444).
The tables below show long-
term borrowings inclusive of swaps
and options, which are used to achieve
a balance between the different
currencies.
The average interest cost for the
Group’s interest-bearing borrowings was
8.4% (7.7) during 1997. The increase
Maturity dates for
long-term borrowings
Year Amount, SEKm
1998 3,647
1999 3,508
2000 3,310
2001 2,586
2002 1,536
2003 723
Thereafter, until 2007 3,381
Total 18,691
Long-term borrowings, by currency
Currency Amount, SEKm
USD 9,657
ITL 1,291
FRF 1,417
SEK 253
ESP 1,429
DEM 780
Other 3,864
Total 18,691