The following sections highlight financial risk areas that are relevant to Husqvarna Group.
General
The Group’s financial risks are managed on the basis of the Group’s financial and credit policies, which are updated annually and approved by the Board. Management of financial risks is based largely on the use of financial instruments and is mainly centralized within the Group Treasury function, which operates in accordance with specified risk mandates and limits. For more information on accounting principles and financial risk management and financial instruments, see notes 1 and 20. The Group operates within and closely monitors the difficult and volatile global macroeconomic climate and is robustly managing liquidity and financial charges.
Financing risk
Financing risk refers to possible delays, increased costs or cancellations related to financing of the Group’s capital requirements and refinancing of outstanding debt. Risks are reduced by maintaining an evenly distributed maturity profile of loans, maintaining access to credit facilities, maintaining an investment grade rating and ensuring that short-term borrowings do not exceed current liquidity reserve.
Interest-rate risk
Interest-rate risk refers to the adverse effects of changes in market interest rates on the Group’s net income. The main factor determining this risk is the interest-fixing period. The interest-rate risk is managed by changing the interest from fixed to floating or vice versa using derivatives uch as interest-rate swaps.
Foreign exchange risk
As Husqvarna Group sells its products in more than 100 countries, has production in approximately ten countries and sources raw materials and components from various countries across the globe, the Group is exposed to exchange-rate fluctuations. These fluctuations affect the Group’s earnings in terms of translation of income statements in foreign subsidiaries, i.e., translation exposure, as well as in the sale of products on the export market and purchases of materials in foreign currencies, i.e., transaction exposure and in terms of the translation of balance sheet items such as trade receivables and trade payables.
Changes in exchange rates also affect Group equity. Assets and liabilities of foreign subsidiaries are affected by changes in exchange rates, generating translation differences that impact equity. To limit negative effects on Group results and equity resulting from transaction exposure and translation differences, part of the Group’s transaction exposure and net investments in foreign operations is hedged using foreign-exchange derivatives.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group’s credit risks are managed on the basis of standardized credit ratings, credit limits, active monitoring of credits and routines for follow-up of trade receivables. The need for reserves for doubtful trade receivables is monitored continuously. Major credit limits are approved annually by the Board. The Group also utilizes credit insurance to reduce credit risk in trade receivables. Given the difficult macroeconomic climate, the Group is being extra vigilant in relation to customer payment performance, the build-up of aged debts and the risk of bad debt.
The Group’s financial assets are used primarily for the repayment of loans. Liquid funds are placed in highly liquid interest-bearing instruments issued by institutions with a credit rating of at least A–, according to Standard & Poor’s or similar agencies.
Tax risk
Husqvarna Group operates across multiple jurisdictions and undertakes a great number of cross-border transactions. As a result, the Group is subject to complex and evolving national and international tax rules. The dynamic nature of these tax rules, combined with the varied interpretations by local tax authorities, may create inherent tax risks for multinational corporations, including Husqvarna Group.
Husqvarna Group, like many multinational companies, employs a centralized transfer pricing model aligned with the Group’s operating model, which includes centralized functions and global divisions. The model is designed to ensure that intra-group transactions are conducted at arm’s length level and in compliance with the OECD Guidelines. However, the increased scrutiny from tax authorities worldwide, driven by the evolving regulatory framework, raises the risk of tax audits and potential disputes over the Group’s transfer pricing model. A successful challenge by tax authorities may lead to increased tax liabilities, incl. retroactive adjustments, penalties, and interest, impacting both current and prior periods.
As in many countries, restrictions on tax deductibility of interest expenses on intra-group loans apply in Sweden. Under the existing Swedish rules, interest expenses are deductible only if the recipient resides within the European Economic Area (EEA), or in a country with which Sweden has concluded a full scope tax treaty. Further, interest is deductible if it is subject to taxation at a rate of at least 10 percent. Nevertheless, even if these conditions are met, the deductibility is disallowed if the intra-group debt arrangement has been established exclusively, or almost exclusively, to secure a significant tax benefit for the Group. At present, it is not clear how these rules should be interpreted and if these restrictions on deducting interest expenses apply to Husqvarna Group’s internal debt structure. For this reason, the Group has made provisions to reflect potential exposure related to these restrictions.
The global regulatory landscape for taxation continues to evolve rapidly, leading to increased compliance requirements for multinational enterprises like Husqvarna Group. In light of these developments, the Group faces greater risk exposure related to compliance, including the risk of penalties and increased tax audit activity. Proactively managing these risks is essential to safeguard the Group’s financial position and to ensure compliance with increasingly complex tax obligations.
Find more in the 2024 Annual and Sustainability Report