Billerud’s financial information is reported in SEK. Billerud is structurally exposed to currency fluctuations, because most of the Company’s income is invoiced in foreign currency or, where it is in SEK, it is closely related to market prices set in other currencies. Currency risk is the effect on earnings caused by a change in the exchange rate. The Group’s net currency exposure is considerable; the main currencies involved are USD, EUR and GBP. However, the majority of operating costs are in SEK. The main exceptions are freight costs and the costs of imported wood raw materials and chemicals, which are affected above all by fluctuations in EUR and USD exchange rates.
To reduce the effects of currency exposure, Billerud continuously hedges forecast net flows in foreign currencies. Under the finance policy adopted by the Board, around 50% of net flows over the coming 12-month period must always be hedged. However, this figure may rise to 100% of net flows over the coming 15 months if it is deemed appropriate with regard to profitability and the currency situation. At year-end 2009, foreign exchange contracts not yet recognised as income totalled a nominal SEK 2 558 million (3 439), of which foreign exchange contracts representing SEK 2 558 million (2 833) will be recognised as income in 2010. The corresponding net currency flows for the Group in 2010 are estimated at around SEK 4 500 million (5 000).
Billerud also has assets in foreign currency mainly through its ownership of Billerud Beetham Ltd. Net assets in GBP are partly hedged by loans in the same currency. A translation effect arises when the subsidiaries’ profit/loss in currencies other than SEK are translated into SEK.
Control of Billerud’s business areas is based on exchange rates current at any one time, to achieve continual adjustment of commercial terms with regard to the current currency situation.
The main target for each business area is the operating margin, which is measured net of the earnings effects of hedging currency flows. Since 2007, the earnings effects of currency changes in operating capital have been managed centrally and matched against corresponding earnings for currency hedging.
Forward contracts not corresponding to underlying accounts receivable on the closing date have not affected the profit and loss accounts.
| Nominal amount of foreign exchange derivatives |
2009 |
2008 |
| MEUR |
214 |
303 |
| MUSD |
104 |
136 |
| MGBP |
11 |
11 |
| MDKK |
10 |
14 |
| Market value of foreign exchange derivatives, MSEK |
2009 |
2008 |
| Forward foreign exchange contracts |
215 |
-306 |