Description of risk
The interest rate risk is the effect on earnings that could be caused by a change in interest rates. The speed with which a change in the interest rate trend affects earnings depends on the refixing periods for interest rates on loans and investments.
Risk management
To ensure cost-efficient financing for the Group and avoid excessive impacts on earnings of large negative changes in interest rates, the norm for Billerud is that the average refixing period for the borrowing portfolio shall be 18 months, with a permitted deviation of +/-12 months. The interest refixing period for an individual loan or interest swap shall not exceed 10 years. To achieve this norm, interest rate derivatives, mainly interest rate swaps, are used. Price risk is defined as the effect on earnings that may be caused by changes in the prices of outstanding capital instruments. Billerud is a net borrower and does only to minor extent invest in listed instruments. Consequently, market risk on investments usually does not occur.
Even if Billerud’s exposure to interest rate fluctuations and other interest rate risks is to a certain extent reduced by these measures, there are no guarantees that the measures will be effective or sufficient to prevent Billerud’s financial position and results from being adversely affected.
Comments on 2010
If the Group’s entire borrowing portfolio had a variable interest rate, the effect on earnings for one year from a 1 percentage point change in interest rates would be SEK 9 million, based on liabilities of SEK 948 million at year-end.
The Group’s average interest rate refixing period was around 15 months at year-end. A 1 percentage point change in interest rates would have an annualised effect of SEK 3 million on earnings given the current refixing period.
| Nominal value of interest derivative instruments, MSEK (interest rate swaps) |
2010 |
2009 |
| Duration less than 1 year |
150 |
400 |
| Duration 1-2 years |
– |
150 |
| Duration more than 2 years |
525 |
525 |
| Total |
675 |
1075 |
| Market value of interest rate derivatives, MSEK |
2010 |
2009 |
| Interest rate swaps |
-9 |
-23 |