Electrolux 1998 Annual Report Download - page 34

Report by the Board of Directors for 1998
32
Electrolux Annual Report 1998
Note program in London and
Stockholm, but also comprised bank
loans as well as loans from the Nordic
Investment Bank and the European
Investment Bank.
The increased interest margins that
resulted from the financial crisis in
Russia have not affected the Group’s
financial costs.
In accordance with a decision by
the Board, two pension funds were
established in 1998 to secure pensions
in the parent company as well as PRI
pensions in the Swedish subsidiaries.
Establishment of the funds reduced the
Group’s PRI pension liability by a
corresponding amount, approximately
SEK 1,100m.
The Group’s total interest-bearing
borrowings at year-end 1998 amounted
to SEK 29,353m (29,993), of which
SEK 17,795m (18,691) comprised
long-term loans with an average lifetime
of 3.3 years (3.3). Net borrowings,
i.e. total interest-bearing liabilities
less liquid funds, declined to
SEK 17,966m (20,159).
The following tables show long-
term borrowings inclusive of the swaps
and options that are used to achieve a
balance between different currencies.
The average interest cost on the
Group’s interest-bearing borrowings was
7.4% (8.0). The decline in interest rates
from 1997 is traceable to generally
lower rates and an increased portion of
financing at floating interest rates.
The Group’s financing policy was
adjusted during the year to enable a
greater degree of financing at floating
interest rates. This policy stipulates that
the maturity profile for net borrowings
shall be more than two 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, 1998, the
Group’s total short and long-term
interest-bearing liabilities amounted to
SEK 29,353m (29,993), of which the
Swedish pension liability in the Pension
Registration Institute (PRI) accounted
for SEK 283m (1,514) for the parent
company and other Swedish subsidiaries.
The decrease in the PRI liability has
reduced the portion of Group borrow-
ings at fixed interest rates.
The fixed-interest term for long-term
borrowings was 1.1 years (1.7) as of
December 31, 1998. The fixed-interest
term for liquid funds is 147 days (126).
Derivatives are actively employed
to adjust interest-rate exposure, e.g. by
extending or abridging the term for
fixed rates without adjusting the
underlying loans or placements. All
figures given above include the effects
of derivatives.
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 effect 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
Maturity dates for
long-term borrowings
Year Amount, SEKm
1999 3,699
2000 3,005
2001 3,006
2002 1,866
2003 603
2004 2,903
Thereafter, until 2037 2,713
Total 17,795
Net borrowings declined to SEK 17,966m in 1998.
93 94 95 96 97 9889 90 91 92
Interest-bearing liabilities less liquid funds, SEKm
Interest coverage rate
30,000
20,000
15,000
10,000
5,000
Rate
6
5
3
2
1
00
Net borrowings
25,000
SEKm
4
Long-term borrowings, by currency
Currency Amount, SEKm
USD 9,200
ITL 1,893
FRF 1,576
SEK 272
ESP 1,000
DEM 824
Other 3,030
Total 17,795
Net sales and
expense, by currency
Share of Share of
Currency net sales expense
SEK 5% 9%
USD block1) 44% 45%
DEM block2) 29% 21%
GBP 6% 4%
ITL 6% 17%
Other 10% 4%
Total 100% 100%
1) Includes currencies in Canada, Hong Kong,
Taiwan, Singapore, Oceania and the Latin
American countries where the Group operates.
2) Includes currencies in Benelux as well as
Denmark, Finland, France, Spain and Austria.