ASSA ABLOY is exposed to a variety of financial risks through its international business operations.

Organization and activities
ASSA ABLOY’S financial policy, which is reviewed annually by the Board of Directors, constitutes a framework of guidelines and regulations for the management of financial risks and financial activities in general. ASSA ABLOY’S financial activities are coordinated centrally within the subsidiary ASSA ABLOY Treasury s.a. in Switzerland, which functions as the Group’s internal bank. External financial transactions are conducted by the internal bank, which also handles transactions involving foreign currencies and interest rates. The internal bank achieves many economies of scale, for example concerning pricing of various interest rates.

Financing and liquidity risks
Financing and liquidity risks are defined as the risks of being unable to meet payment obligations as a result of inadequate liquidity or difficulties in obtaining credit from external sources. The internal bank is responsible for external borrowing and external investments. ASSA ABLOY strives to have access, on every occasion, to both short-term and long-term loan facilities appropriate to its anticipated needs for the year ahead, apart from major acquisitions.

Counterparty risks
Financial risk management exposes ASSA ABLOY to certain counterparty risks. This exposure arises, for instance, from the placement of surplus cash and through the use of derivative instruments. Group financial policy prescribes detailed rules for handling counterparty risks.

Interest-rate risks
Interest-rate fluctuations have a direct impact on ASSA ABLOY’S net interest expense, but there is also an indirect effect on the Group’s operating income as a result of the impact of interest rates on the economy as a whole.

The internal bank is responsible for identifying and managing the Group’s interest-rate exposure. Interest duration in the Group is generally short, with an average duration of less than a year. At year-end, the average interest duration was around 9 months.

Currency risks
Currency risks affect ASSA ABLOY mainly through translation of capital employed and net debt, through translation of income in foreign subsidiaries, and through flow of goods between countries (‘transaction exposure’).
Translation exposure. The effect arising on translation of capital employed is limited by the fact that financing is largely in local currency. The currency exposure and gearing per currency in the Group should generally reflect the overall exposure and gearing for the whole Group. This limits the effect from movements in individual currencies on the gearing for the Group.

Exposure of Group earnings. A general strengthening of the Swedish krona by one percent has a negative impact of about sek 250 m on Group sales and sek 7-8 m on Group earnings.
Transaction exposure. Currency risks in the form of transaction exposure, or the relative values of exports and imports of goods, are limited in the Group. The exposure that does exist relates in particular to VingCard’s exports from Norway, chiefly to the USA, Abloy’s exports from Finland to the USA and Besam’s exports from Sweden to eu countries and the USA. ASSA ABLOY’S policy is to keep transaction exposure within a specified framework.

Cash management
Cash management in subsidiaries focuses on minimizing operating capital employed. The internal bank manages a Group-wide netting system to minimize the number of payment transactions and related costs. In countries with several operating companies, surpluses and deficits are matched in the local subsidiaries at country level through cash pool solutions. The internal bank manages the investment or financing of these cash pools.

Financial derivative instruments
Financial derivative instruments such as currency and interest-rate forwards are used to the extent necessary. The object of using derivative instruments is solely to reduce exposure to financial risks. Financial derivative instruments are not used with speculative intent.