Description of risk
Transaction exposure is the risk that changes in exchange rates for revenues from exports and costs of imports will negatively affect Billerud’s operating income and the acquisition cost of its property, plant and equipment. 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.
Risk management
To reduce the consequences 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.
Control of Billerud’s business areas is based on exchange rates current at any one time, in order to continually adjust commercial terms to the prevailing 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 exchange rate changes in operating capital have been managed centrally and matched against earnings for currency hedging.
Comments on 2010
At year-end 2010, foreign exchange contracts not yet recognised in profit/loss totalled a nominal SEK 2 633 million (2 558), of which foreign exchange contracts representing SEK 2 633 million (2 558) will be recognised in profit/loss in 2011. The corresponding net currency flows for the Group in 2011 are estimated at around SEK 5 800 million (4 500).
At 31 December 2010, the market value of Billerud’s outstanding forward currency contracts was SEK 202 million. The contracts matched by accounts receivable affected earnings. The market value of the remaining contracts was SEK 144 million.
| Nominal amount of foreign exchange derivatives |
2010 |
2009 |
| MEUR |
254 |
214 |
| MUSD |
136 |
104 |
| MGBP |
16 |
11 |
| MDKK |
1 |
10 |
| Market value of foreign exchange derivatives, MSEK |
2010 |
2009 |
| Forward foreign exchange contracts |
202 |
215 |