Financial risks

In times of economic crisis additional attention is devoted to risk management towards financing, interest-rate and currency exposure.

Financing risks
Kendrion endeavours to maintain a financial position and a debt to EBITDA ratio that is compatible with the nature and risk profile of the company. Kendrion strives to maintain a solvency ratio of at least 30% and a net debt of a maximum of three times the twelve-month EBITDA. Within the context of financial risks Kendrion has ensured that financing of the company will continue to be safeguarded, in the event of a ruling against the company in its appeal against the fine imposed by the EU Competition Authority, by maintaining a higher solvency ratio and a lower maximum net debt/EBITDA ratio until such time as the definitive ruling is given.

Interest-rate risks
The majority of the financing raised by the company is of the form of variable interest-rate loans. These variable interest rates can fluctuate and detrimentally influence the results. In 2008 Kendrion hedged the majority of the interest-rate sensitivity by means of current interest rate swap contracts. If the average market rate of interest for 2008 had been 1 percent point higher or lower, whereby the other variables remained constant, then profit before income tax would have been EUR 0.1 million lower or higher respectively. Kendrion terminated the majority of the interest rate swap contracts running at 31 December 2007 during the course of 2008 in view of the anticipated lower debt financing following the sale of Distribution Services. If the average interest market rate for 2008 had been 1 percent point higher or lower then equity would have been EUR 0.2 million higher or lower respectively due to the movement in the market value of the interest rate swaps still outstanding on 31 December 2008.

In 2009 the impact of fluctuating market rates of interest will be limited due to the relatively low interest-bearing debt following the sale of Distribution Services. Kendrion has hedged the majority of the interest-rate sensitivity in 2009 by means of current interest rate swap contracts.

Fluctuations in the level of interest rates can also affect the assets of pension funds and result in higher pension costs and contributions. The majority of Kendrion’s pension schemes are defined contribution pension schemes, and the company is endeavouring to convert defined benefit pension schemes into defined contribution pension schemes.

Exchange rate risk
The majority of Kendrion’s revenue, costs, assets and liabilities are denominated in euros. In 2008 approximately 10% of the consolidated revenue was generated in currencies other than the euro. In addition, about 30% of the book value of the assets was held outside the euro zone. The current projects are expected