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Liquidity risk
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. The available facilities should include a reserve (facilities confirmed but not used) equivalent to 10 percent of the Group's annual total sales.
Maturity structure
The column 'End of facility' in the table 'External funding / net debt' below shows that duration until repayment of debts contracted by the internal bank is not concentrated
in the short term. When there are many transactions with different maturities, the duration is computed by weighted average. At year-end, the average duration, excluding
pension liabilities, was 35 months. This is up from 2004
(14 months) because a refinancing was arranged in the second quarter in the form of a Private Placement in the USA for USD 330 M. The loan consists of five tranches with durations between seven and fifteen years.
Ratings

Agency Short term Long term Outlook
Standard & Poor's A2 A - Stable
Moody's P2 n/a Stable
Ratings from both agencies remain unchanged from the previous year.
Credit risk
Financial risk management exposes ASSA ABLOY to certain counterparty risks. Such exposure may arise, for example, from the placement of surplus cash, from trade receivables, and from the use of debt securities and derivative financial instruments.

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ASSA ABLOY's policy is to minimize the potential credit risk from cash surplus by having no cash in bank accounts and by using cash available from subsidiaries to amortize ASSA ABLOY debt. This objective is controlled primarily through the cash pool network put in place by the internal bank. About 80 percent of commercial sales were settled through cash pools in 2005. The Group may nevertheless deposit surplus funds on a short-term basis with banks in order to match debt maturities.
Derivative financial instruments are allocated to banks according to risk factors set in the Group policy to limit counterparty risk.
The internal bank enters into derivative contracts ex-clusively with banks participating in the syndicated credit system or with banks rated AAA and AA.
An ISDA (full netting of transactions in case of default by one counterparty) is agreed in the case of interest derivatives.
Trade receivables are spread over a large number of individual customers, thus minimizing credit risk.
Commodity risk
The Group is exposed to price risk related to purchases of certain commodities (primarily metals) used as raw materials in its business. To date, the Group has engaged in very limited hedging of materials traded on world markets through commodity forward contracts.
Financial instruments
Derivative financial instruments such as currency and interest-rate forwards are used to the extent necessary. The use of derivative financial instruments is solely to reduce exposure to financial risks. Derivative financial instruments are not used with speculative intent.
The positive and negative market values in the table below show the market values of instruments outstanding at year-end, based on available market values, and are the same as the values reported on the balance sheet. The nominal value represents the gross value of the contract.
External funding / net debt (in millions)

          Book           Interest  
    Amount   End of value,       Market   rate Average interest
Credit facilities   SEK   facility SEK   Currency Amount value, SEK   swap rate duration
Private Placement Program Confirmed 636   May-2012 634   USD 80 634   Yes* Fixed six-monthly
Private Placement Program Confirmed 636   May-2015 641   USD 80 641   Yes* Fixed six-monthly
Private Placement Program Confirmed 397   Apr-2017 397   USD 50 397   No Fixed quarterly
Private Placement Program Confirmed 397   May-2017 397   USD 50 400   No 11.5 years
Private Placement Program Confirmed 556   May-2020 556   USD 70 559   No 14.5 years
Incentive Program Committed 943   Jun-2009 943   EUR 100 943   No Fixed quarterly
Other long-term                        
interest-bearing loans   158   n/a 158       161      
Total long-term loans   3,723     3,726       3,735      
 
EMTN Program Confirmed 14,143   Dec-2006 2,829   EUR 300 2,828   Yes* 5 months
Global CP Program Confirmed 7,948   n/a 1,302   USD 180 1,311   No 15 days
Swedish CP Program Confirmed 5,000   n/a 399   SEK 599 400   No 16 days
Nordic MTN Program Confirmed 1,414   Jun-2006 943   EUR 100 943   No Fixed quarterly
Incentive Program Committed 943   Nov-2006 943   EUR 100 943   No Fixed quarterly
Bank loan Committed 477   Feb-2006 477   USD 60 477   Yes* 1 month
Bank loan Committed 536   Feb-2006 536   EUR 59 536   No 1 month
Other short-term                        
interest-bearing loans   208     208       210      
Overdrafts etc   1,223   n/a 272       272      
Total short-term loans   31,892     7,909       7,920      
 
Multi-Currency RF Committed 9,429   Dec-2010 0       0      
Total credit facilities   45,044     11,635       11,655      
 
Cash and cash equivalents         -958       -958      
Long-term interest-bearing investments       -71       -71      
Pension obligations         1,634       1,634      
Net debt         12,240       12,260      
* Hedge accounting.
Outstanding derivative financial instruments at 31 December (SEK M)

  Positive Negative   Positive Negative  
  market market Nominal market market Nominal
Instrument value 2005 value 2005 value 2005 value 2004 value 2004 value 2004
Foreign exchange forwards - funding 27 -40 8,417 63 -19 7,032
Foreign exchange forwards - transaction 7 -6 621 7 -26 452
Currency basket option 7 - 572 13 - 504
Interest rate swaps 2 -8 3,326 8 -88 4,823
Total 43 -54 12,936 91 -133 12,811