Risk management in Hydro is based on the principle that risk evaluation is an integral part of all business activities. The main responsibility for risk management is therefore placed with the business areas and coordinated by staff units at our corporate level. Policies and procedures have been established to manage risk. Hydro's Board of Directors regularly reviews and evaluates the overall risk management systems and environment within Hydro.
Hydro faces many risks and uncertainties within the global marketplace. We are facing challenging economic and market conditions and we may not succeed in reducing the cost of our smelter portfolio sufficiently to compensate for an extended period of weak aluminium prices. A deterioration of Hydro's financial position or downgrade of the company's credit ratings could increase our borrowing cost and cost of capital. We face an ongoing risk of counterparty default. Price volatility can have a significant impact on Hydro's reported and operating results. Hydro's reported operating results and competitive position are influenced by developments in currency exchange rates and in particular the US dollar, Euro and Norwegian krone.
Hydro's main strategy for mitigating risk related to volatility in cash flows is to maintain a solid financial position and strong credit worthiness. Economic developments in 2009 resulted in low funds from operations and we were not able to reach our target of 40 percent of adjusted interest-bearing debt for the year. However, we have initiated actions to improve our financial position in order to maintain our investment grade credit rating. The challenging market conditions during 2009 also led to greater attention on cash flow and credit risk throughout our entire organization, and Hydro is taking proactive measures toward customers to reduce credit risk.
In order to protect processing and manufacturing margins against raw material price fluctuations, our downstream and other margin-based operations are hedged to a certain extent. Hydro also uses derivatives to reduce its overall financial and commercial risk exposures. Forward US dollar currency contracts have been used and Hydro has, to a limited extent, entered into forward contracts in other currencies to hedge certain revenue and cost positions. No major currency contracts were outstanding at the end of 2009.
