Ministerio de Desarrollo Social
ADMINISTRACIÓN GUBERNAMENTAL DE INGRESOS PÚBLICOS
a New York court rejected the asset management compa- ny’s request to start arbitration in the US. In October 2009, the Federal Appeals Court in New York ruled on the asset management company’s appeal against this decision, va- cated the case and remanded it back to the first instance court for further proceedings. Nobel Biocare rejects all claims by this company as lacking any legal basis and has filed a court case in Switzerland to establish this fact as well as for refund of certain unlawfully paid fees. On 14 Decem- ber 2009, the competent court in Zug decided to have jurisdiction over the case.
There are other minor disputes pending regarding contrac- tual obligations, including warranty- and labor-related dis- putes, arising from the ordinary business of the Nobel Bio- care and its subsidiaries.
In the opinion of the Management, and based on currently available information, the handling and settlement of these disputes will have no material adverse effect upon the finan- cial position or operation of the Group.
Risks related to financial instruments Risk management
Group Treasury is responsible for evaluating, monitoring and managing financial exposures within the parameters outlined in the Group Treasury Policy. The Audit Committee, on behalf of the Board, approved the annual update of the Group Treasury Policy in August 2009. It is binding on a Group-wide basis including all subsidiaries. The Group Treasury Policy provides written principles for overall risk management, as well as detailed written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, the use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. In 2009, the Group continued to centralize and professionalize its treasury function, in particular by tightening its foreign exchange risk management, as well as its liquidity and cash management.
Basic financial exposure management principles Management has to ensure that the number and experience of personnel, as well as infrastructure capacity, meet the requirements with respect to business volume and complex- ity, and that adequate internal control processes and mech- anisms are in place.
29
The Group evaluates the following financial exposures: Credit risk – Liquidity risk – Market risk – Currency risk –
Interest rate risk –
Other price risk –
Credit risk
Credit risk is the risk of financial loss to the Group if a cus- tomer or counterparty to a financial asset fails to meet con- tractual obligations.
The Group’s credit exposure with respect to financial instru- ments consists of cash and cash equivalents, derivative financial instruments and surplus liquidity invested in mar- ketable securities, as well as placements with banks. In addition, credit risk arises from credit exposure to custom- ers, including outstanding receivables and committed trans- actions. In order to minimize credit risk related to financial instruments, Nobel Biocare requires a strong credit rating for counterparties and ensures that the commitment terms of funds do not exceed 12 months. The minimum short-term rating for major financial counterparties is A1, and the min- imum long-term rating is single A. During 2009, when many banks were still suffering from the global financial and bank- ing crisis, more rigorous monitoring of financial counter- party risk was introduced and performed on a regular basis.
Financial assets
in EUR ’000 2009 2008
Non-current receivables 4’269 3’066
Trade and other receivables 136’614 141’347
Accrued income 34 6
Financial investments and derivatives 3’757 54’884
Cash and cash equivalents 241’617 165’063
139 Notes
Trade receivables
Nobel Biocare has an established credit policy under which each new customer is analyzed individually, and for each customer an individual credit limit is established. Such lim- its are reviewed periodically.
The Group’s customer base mainly consists of dentists, dental clinics and dental laboratories. The Group’s exposure to credit risk with respect to trade receivables is considered low compared with other industries. In 2009, write-offs of accounts receivable in the amount of EUR 1’513 k (2008: EUR 533 k) were recognized. This higher number follows some restructuring activities in Latin America and in se- lected Asian countries. In various Latin American countries,
Nobel Biocare has transferred its direct operations into dis- tributor businesses and also increased its pricing substan- tially to focus on its core customer segment – the premium segment. As a consequence of this focus strategy, the allow- ance for bad debt was adjusted to reflect the restructuring. On a global basis, no individual customer represents a sig- nificant portion of the Group’s revenue or a significant por- tion of the total trade receivables. The demographics of the Group’s customer base also has a low degree of influence on credit risk, again due to the very low default risk of the industry. The maximum exposure to credit risk for trade receivables as of 31 December 2009 by geographical region was (please refer also to note 14):
Concentration of credit risk
As of 31 December 2009, the positive value of derivative instruments amounted to EUR 3’757 k (2008: EUR 54’884 k). No major concentration of credit risk was reported. Of the total Group cash and cash equivalents, EUR 193.6 million (2008: EUR 121.8 million) was placed at major relationship banks, which are large international banks with a minimum credit rating of A. The highest cash amount deposited at a single bank was EUR 47.4 million (2008: EUR 61.3 mil- lion).
As of 31 December 2008, concentrations of credit risk were incurred with respect to the positive fair value (EUR 46’697 k) of a cross currency swap that hedged the outstanding con- vertible bond with an individual counterparty.
Liquidity risk
Liquidity risk is the risk that the Group would not be able to meet its financial obligations when they fall due. Such a
shortage of liquidity could arise from weak operational per- formance, insufficient cash holdings or limited access to external debt and equity financing, either through banks or capital markets.
During 2009, the Group maintained a strong focus on min- imizing any liquidity risk within more difficult credit markets. With the financial portfolio being completely monetized, cash management (including cash planning, monitoring and manual pooling) was further streamlined with the establish- ment of a European cash pool.
As of 31 December 2009, the Group held EUR 241.6 million (2008: EUR 165.1 million) liquidity in its balance sheet, thereof 186.5 million (2008: EUR 124.7 million) centrally. In addition to its on-balance sheet liquidity, as of 31 Decem- ber 2009, the Group had the following committed and uncommitted credit lines with various banks:
Net trade receivables by region
in EUR ’000 2009 2008
North America 32’039 27’091
Europe, Middle East and Africa 61’062 59’185
Asia/Pacific 26’370 30’920
Latin America/Rest of the world 9’308 19’426
On 18 March 2009, the Group signed a committed syndi- cated banking facility of EUR 330 million with six interna- tional banks and a maturity of three years. The facility is structured to optimize current funding and also as a back-up facility going forward. As of 31 December 2009, it was not drawn – however, it gives a higher degree of financial flex- ibility to the Group while allowing it to reduce cash hold- ings with a negative cost of carry.
Other committed credit lines totaled EUR 4’078 k. Of this amount, EUR 2’226 k were used as of 31 December 2009.
Of the uncommitted credit lines, no amount was drawn as of 31 December 2009.
In line with its liquidity planning and monitoring, the Group analyzes the entire liquidity/maturity profile of all existing financial assets and liabilities on a continuous basis, includ- ing derivatives (on a gross basis), which are needed for foreign exchange and interest rate hedging. The table below gives an overview of all contractual cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
Credit lines
in EUR ’000 2009 2008
Committed syndicated facility (six banks) 330’000 –
Other committed credit lines 4’078 114’559
Uncommitted credit lines 459 50’186
Total as of 31 December 334’537 164’745
Maturity analysis of financial assets and liabilities
in EUR ’000 Carrying amount Total contractual cash flow amount 6 month or less
6–12 months 1–2 years 2–5 years
as of 31 December 2009 Non-derivative financial assets
Net trade receivables 128’779 128’779 116’577 10’828 1’300 74
Other receivables 12’104 12’104 6’409 3’770 1’150 775
Cash and cash equivalents 241’617 241’617 241’617 – – –
Total non-derivative financial assets 382’500 382’500 364’603 14’598 2’450 849 Non-derivative financial liabilities
Convertible bond –236’962 –262’711 – –2’477 –260’234 –
Trade payables –22’158 –22’158 –21’885 –273 – –
Non-trade payables and other liabilities –18’776 –18’856 –18’058 –157 –158 –483
Accrued expenses –15’222 –15’222 –14’150 –1’072 – –
Borrowings –1’331 –1’331 –1’331 – – –
Bank overdraft –880 –880 –43 –837 – –
Total non-derivative financial liabilities –295’329 –321’158 –55’467 –4’816 –260’392 –483 Gross-settled derivatives
Outflow (at fair value through profit or loss) –322’618 –321’481 –1’137 – – Inflow (at fair value through profit or loss) 325’465 324’349 1’116 – –
Outflow (cash flow hedges) –60’962 –24’450 –36’512 – –
Inflow (cash flow hedges) 60’629 24’130 36’499 – –
Total gross-settled derivatives 789 2’514 2’548 –34 – – Total net-settled derivatives 185 185 185 – – – Net surplus/(exposure) 88’145 64’041 311’869 9’748 –257’942 366
141 Notes in EUR ’000 Carrying amount Total contractual cash flow amount 6 months or less
6–12 months 1–2 years 2–5 years
as of 31 December 2008 Non-derivative financial assets
Net trade receivables 136’622 136’622 110’850 19’112 6’600 60
Other receivables 7’791 7’791 2’734 971 1’972 2’114
Cash and cash equivalents 165’063 165’063 165’063 – – –
Total non-derivative financial assets 309’476 309’476 278’647 20’083 8’572 2’174 Non-derivative financial liabilities
Convertible bond –238’805 –269’082 – –2’586 –2’586 –263’910
Trade payables –28’330 –28’330 –28’330 – – –
Non-trade payables and other liabilities –19’320 –19’661 –10’886 –32 –8’743 –
Accrued expenses –13’764 –13’764 –8’258 –5’506 – –
Borrowings –26’434 –26’843 –2’790 –24’053 – –
Bank overdraft –1’691 –1’691 –1’691 – – –
Total non-derivative financial liabilities –328’344 –359’371 –51’955 –32’177 –11’329 –263’910 Gross-settled derivatives
Outflow (at fair value through profit or loss) –168’651 –152’280 –16’371 – – Inflow (at fair value through profit or loss) 162’354 145’379 16’975 – – Outflow (cash flow hedges) –297’433 –33’563 –48’809 –6’048 –209’013 Inflow (cash flow hedges) 335’460 30’934 40’746 2’586 261’194
Total gross-settled derivatives 38’069 31’730 –9’530 –7’459 –3’462 52’181 Net surplus/(exposure) 19’201 –18’165 217’162 –19’553 –6’219 –209’555
Except for its convertible bond, with a carrying amount of EUR 236’962 k, and other non-current liabilities of EUR 9’175 k (see note 23), the Group only had current liabilities (bank overdraft, trade payables and other liabilities, includ- ing derivative financial instruments) as of 31 December 2009 and 2008. For off-balance sheet commitments towards uni- versities and other institutions and for non-cancelable op- erating lease commitments, refer to note 27.
The conversion element of the convertible bond is covered by treasury shares and options booked into equity. For more details please refer to note 17.
Including all interest-bearing financial assets (cash and cash equivalents and derivatives) and all interest-bearing financial liabilities, the Group had a net cash position of EUR 1’867 k as of 31 December 2009, compared with a net debt position of EUR 65’345 k as of 31 December 2008.
Derivative instruments
Financial instruments held by Nobel Biocare comprise de- rivative financial instruments that are stated at fair value and are presented under “Financial investments” and under “Other liabilities”. As of 31 December 2009, these con- sisted of foreign exchange forwards and foreign exchange options. The full fair value of a derivative financial instrument is classified as a non-current asset or liability when the re- maining maturity period is more than 12 months, and as a current asset or liability when the remaining maturity period is 12 months or less.
The level in a fair value hierarchy under which a financial instrument is classified is determined based on the signifi- cance of the data used to calculate the fair value. The first level comprises quoted prices in active markets where arm’s-length transactions for identical items are conducted regularly. The second level comprises externally observable data. Such data may include the use of recent arm’s-length transactions, reference to other instruments that are sub-
stantially the same, discounted cash flow analysis and option-pricing models, while making maximum use of mar- ket inputs and relying as little as possible on entity-specific inputs. The third level comprises all other inputs not exter- nally observable.
At the balance sheet date, the fair value of derivative in- struments is determined using valuation techniques. These include spot and swap rates published by Bloomberg. There- fore, the fair value measurements of all financial instruments held by Nobel Biocare correspond to level two.
Market risk
Currency risk
Foreign exchange risk arises from future commercial trans- actions, recognized assets and liabilities and net invest- ments in foreign operations.
Foreign currency exposures of individual affiliates are man- aged and optimized against the functional currency of the respective entity. According to the Treasury Policy, Group Treasury has the mandate to hedge a minimum of 90 per- cent of committed balance sheet exposures. In addition to this, Nobel Biocare has continued to reduce future EBITDA volatility by hedging parts of its anticipated EBITDA for up to two years, on a rolling basis. While the effective hedging ratio is also impacted by the availability of transactional exposures that qualify for hedge accounting, near-term cash flows are hedged with a higher ratio than more future cash flows. Hedge accounting is applied whenever possible and feasible. At the end of 2009, cash flow hedges related to future sales had a maturity of less than one year.
Nobel Biocare designates certain derivatives as hedges of a particular risk associated with a recognized asset or liabil- ity or a highly probable forecasted transaction (cash flow hedge). At the inception of the transaction, the Group doc- uments the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. Also, the effectiveness of all hedges is documented at incep- tion and tested on a regular basis.
The Treasury Policy contains a list of approved hedging in- struments. Hedging of existing exposures in the balance sheet and of future (uncommitted) exposures is executed
with forward and option contracts. Combinations of plain vanilla options are also allowed as per Treasury Policy, but only on a neutral or net-long basis. The fair value of various derivative instruments used for hedging purposes is dis- closed in notes 11 and 23. Movements in the hedging re- serve in shareholders’ equity are shown in the consolidated statement of changes in equity. There was no ineffective- ness to be recorded from cash flow hedges related to sales.
During 2009, various internal funding structures were re- viewed, which resulted in the creation of a natural hedge to offset foreign currency risk from the convertible bond. Therefore, Nobel Biocare unwound a former cross currency swap that was in place to hedge foreign currency risk from the convertible bond on the balance sheet.
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency transla- tion risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. There is as yet no systematic hedging of translation risk by net investment hedges.
Foreign currency risk analysis
During 2009, Group Treasury further strengthened its risk and compliance function and implemented quantitative risk analysis models to monitor and control the Group’s cur- rency risks on a regular basis. A regular treasury and risk management record is compiled by the independent trea- sury controller and is distributed to Senior Management. The report contains state-of-the art quantitative risk manage- ment monitoring, as well as qualitative comments. Statisti- cal models of value at risk (VaR) and earnings at risk (EaR) build up the quantitative basis of analysis for currency trans- action and translation risks. Analysis of currency economic risk is performed on an ad hoc basis. Both VaR and EaR are similar techniques used to quantify the expected loss from an adverse market movement with a specified probability over a particular period of time. They reflect the interdepen- dencies between risk variables and provide management with a more comprehensive understanding of the Group’s risk profile. While the VaR measures the potential currency impact on the Group’s consolidated equity, the EaR measures such impacts on the Group’s consolidated profit or loss.
143 Notes
By assuming that past changes in risk factors reflect future movements of market rates, and by taking into account the current risk portfolio, the Group has chosen the historical simulation method to assess currency risks. Other major assumptions underlying the analysis include the following:
The calculation uses a 95 percent confidence level as –
defined in the Treasury Policy. Thus, on average, there is a 5 percent probability of market fluctuations affecting the Group’s net income or equity by more than the simu- lated net EaR or VaR during the holding period.
A holding period of 12 months has been applied as per –
Treasury Policy.
The portfolio, consisting of underlying currency exposures –
and hedges, is assumed to remain the same at the end of each holding period.
Historical market data for various risk factors (foreign –
exchange rates and interest rates) from the past three years is used.
However, as the results of the analysis largely rely on the chosen historical data, the model does not cover any event not occurring within the time period chosen. By choosing a longer or shorter time horizon of applied historical rates for risk factors, the output of the analysis may vary. There- fore, in the concrete risk management process, this meth- od is always used based on a thorough understanding of underlying exposures.
For the year 2009, the aforementioned risk analysis pre- sented the following results. The gross impact implies the potential adverse movement from the exposures only, whereas the net impact also includes the movement of the hedges in place. The diversification effect considers the correlations between different risk factors and the nature of underlying exposures in the portfolio, such as long and/ or short positions.
Earnings at risk for a 12-month holding period (currency transaction risk) – committed
As of 31 December 2009 2008
Currency/Swedish krona, in EUR ’000 Gross impact Net impact Risk reduction Gross impact Net impact Risk reduction
Swiss franc 4’682 628 86.6% 3’303 386 88.3%
Euro 3’101 120 96.1% 2’193 1’345 38.7%
Japanese yen 3’906 563 85.6% 7’494 1’134 84.9%
Swedish krona 7’636 53 99.3% – – –
US dollar 10’668 3’118 70.8% 13’797 7’797 43.5%
Other core currencies 2’248 601 73.3% 1’041 317 69.6%
Remaining currencies 2’339 1’469 37.2% 35’659 35’099 1.6%
Total undiversified 34’580 6’552 81.1% 63’487 46’078 27.4%
Diversification –13’280 –4’661 – –27’236 –16’451 –
Earnings at risk – committed 21’300 1’891 91.1% 36’251 29’627 18.3%
As of 31 December 2009, the potential adverse net impact in value (after hedging) of all committed cash flows, was EUR 1’891 k (2008: EUR 29’627 k) for one year ahead. The
decrease in net EaR as of 31 December 2009, compared with 31 December 2008, was mainly due to fully implement- ing hedging programs.
Earnings at risk for a 12-month holding period (currency transaction risk) – uncommitted
As of 31 December 2009 2008
Currency/Swedish krona, in EUR '000 Gross impact Net impact Risk reduction Gross impact Net impact Risk reduction
Swiss franc 23 23 – 227 227 –
Euro 409 319 22.0% 1’593 1’032 35.2%
Japanese yen 2’247 1’870 16.8% 4’667 4’195 10.1%
US dollar 13’455 11’281 16.2% 15’804 11’850 25.0%
Other core currencies 2’165 2’165 – 1’706 1’592 6.7%
Remaining currencies 3’934 3’934 – 2’929 2’929 –
Total undiversified 22’233 19’592 11.9% 26’926 21’825 18.9%
Diversification –4’676 –4’467 – –6’289 –5’418 –
Earnings at risk – uncommitted 17’557 15’125 13.9% 20’637 16’407 20.5%
As of 31 December 2009, the potential adverse net impact in value (after hedging) of all anticipated cash flows was EUR 15’125 k (2008: EUR 16’407 k) for one year ahead.
Value at risk for a 12-month holding period (currency translation risk)
As of 31 December 2009 2008
in EUR '000 Gross impact Gross impact
Swiss franc 13'228 14'186
Swedish krona 60'910 48'027
US dollar 17'640 19'337
Other core currencies 2'071 –
Remaining currencies 5'862 2'487
Total undiversified 99'711 84'037
Diversification –61'731 –72'205
Value at risk 37'980 11'832
As of 31 December 2009, the potential adverse impact on Group equity of all currency translation risk exposures was EUR 37’980 k (2008: EUR 11’832 k) for one year ahead. The increase in gross VaR as of 31 December 2009, compared with 31 December 2008, was mainly due to changes in internal financing structures.
Interest rate risk
Interest rate risk is the risk of the result and/or cash flows being negatively affected by changes in interest rates. At Nobel Biocare, borrowing and investment horizons have to be compatible with the needs and requirements of op- erational activities. Thus, duration gaps between assets and liabilities can occur. In 2009, Nobel Biocare did not system- atically hedge its net duration risk since the Group had only
a limited number of positions, which could be actively man- aged with respect to their duration. Also, the only material long-term financial liability consists of the convertible bond, which is measured at amortized cost. Accounting restric- tions make it difficult to manage that position more ac- tively.
Interest rate risks are presented by way of sensitivity analy- ses based on the following assumptions:
145 Notes
Fair value interest rate risk
Fixed-rate borrowings (including the convertible bond) are excluded from the sensitivity analysis as they are not mea- sured at fair value and, therefore, not subject to fair value interest rate risk. As of 31 December 2009 and 2008, the Group did not hold any significant fixed-rate financial instru-