Electrolux 1999 Annual Report Download - page 31

Electrolux Annual Report 1999 29
as hedges for foreign net assets amounted
to SEK 927m (6,196) at year-end 1999.
The risk mandate was applied in the
amount of SEK 217m (285).
Net translation differences arising
from consolidation of foreign subsidiaries
in 1999 amounted to SEK –1,761m
(+912). Of this amount, SEK –795m
referred to Brazil, whose currency was
sharply devalued early in the year. In
computing these differences, due consid-
eration is given to exchange differences
in the parent company referring to bor-
rowings and forward contracts intended
as hedges for equity in subsidiaries, less
estimated taxes.The above amount has
been taken directly to equity in the con-
solidated balance sheet in accordance
with applicable accounting principles.
However, translation losses referring to
countries with highly inflationary econo-
mies have been charged against operating
income. See “Accounting principles” on
page 36.
Credit risk
Credit risks within the financial opera-
tion arise from financing of sales, as
financial credit risks in connection with
placement of liquid funds, and as coun-
terpart risks related to derivatives. In
order to limit financial credit risks, a
counterpart guideline has been estab-
lished that defines the maximum permis-
sible exposure in relation to permissible
counterparts.
Growth markets
The Group’s expansion in various growth
markets is accompanied by greater finan-
cial risks.These risks arise on the basis of
regulated currency and credit markets and
relatively high probability of devaluations.
The finance staff works actively on analy-
sis, monitoring and management of risks,
which includes supporting subsidiaries in
these markets to the greatest possible
extent in both local and other currencies.
The Group’s financial operation
Electrolux maintains three financial oper-
ations, i.e. Electrolux Treasury, Electrolux
Financial Services and Electrolux Cash
Management Services. Geographically, the
operation is concentrated to Western
Europe and North America.The financial
operation employs about 220 people, of
whom about 50 in Stockholm.
Electrolux Treasury
Electrolux Treasury comprises eighteen
internal banks that are responsible for the
Group’s liquidity, borrowings, debt man-
agement, and payment system.
Long-term financing and the
Group’s overall currency and interest-rate
risk exposure are managed from Stock-
holm. Financial operations include active
cash management and comprehensive
currency trading, primarily in Sweden,
Italy and Singapore.
Euro cash pool and Global Clearing Center
The Group is in the process of establish-
ing a euro cash pool, in order to concen-
trate all European financial and commer-
cial flows in one place and manage them
centrally.
A payment system called the Global
Clearing Center has been developed and
will be used for all payments within
Europe.
Electrolux Financial Services
Electrolux Financial Services supports the
Group’s operations with financial solu-
tions for customers and suppliers, and
comprises about fifteen units.
This operation covers leasing, financ-
ing of projects, particularly for Profes-
sional Appliances, and financing of dealers
for Household Appliances and Outdoor
Products. Consumer financing is run
mainly in cooperation with financial
institutions.
Factoring for suppliers is a compre-
hensive activity mainly in southern
Europe. Demand for financial solutions is
growing, particularly within Professional
Appliances in Central and Eastern Europe.
Electrolux Cash Management Services
Electrolux Cash Management Services
runs three major programs in order to
assist and educate the operations in
rationalizing the use of capital, i.e. for
Accounts Receivable, Accounts Payable
and Inventory Reduction.
These programs are designed to min-
imize tied-up capital within the Group.
In addition, the Cash Management Ser-
vice performs specific analyses of Group
subsidiaries in order to free capital,
increase cash flow and improve adminis-
trative efficiency.