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SKF's operations are exposed to various types of financial risk. The Group's financial policy defines the main risks as currency, interest rate, credit and liquidity risks and defines responsibility and authority to manage these. The policy states that the objective is to eliminate or minimize risk and to contribute to a better return through active risk management. The responsibility for risk management and treasury operations are largely centralized to SKF Treasury Centre, the Group's internal bank.
Currency risk
SKF is subject to both transaction and translation exposure. The Group's principal commercial flows of foreign currencies pertain to exports from Europe to North America and Asia as well as intra- European business. SKF hedges 75% of the estimated net USD exposure for three to twelve months. This hedging corresponds to around 50% of the total net transaction flows. At year-end, the lengths of the actual forward contracts conformed to the Group policy. Translation exposure on Group accounts is hedged to some extent by borrowing in foreign currencies
Interest rate risk
Liquidity and borrowing are managed at Group level. By matching the maturity dates of investments made by subsidiaries with the borrowings of other subsidiaries, the interest rate exposure of the Group can be reduced.
Credit risk
The Group policy states that only well established financial institutions are to be approved as counterparties. Exposure per counterpart is continuously monitored. Liquidity risk In addition to its own liquidity, AB SKF had committed credit facilities of EUR 500 million at year end.
More details about risk management and hedging activities can be found in Annual Report 2008, Consolidated financial statements, Note 29. (Web version)
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