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LISI 2011 —
44
— financial report
Consolidated financial statements
2.4
Financial risk management
The Group is exposed to the following risks arising from the use of
financial instruments:
– credit risk,
– liquidity risk,
– market risk,
– currency risk.
This note provides information on the Group’s exposure to each
of the risks listed above, its objectives, policies, measurement and
risk management procedures, as well as its capital management.
Quantitative information is provided in other parts of the consolidated
financial statements.
The aim of the Group’s risk management policy is to identify and
analyze risks which the Group faces, to define the limits within which
risksmust be confined and the controls to be implemented, tomanage
risk and to ensure compliance with the prescribed limits.
Cash flow management is centrally administered by the Financial
Department of the LISI Group. Cash flows are managed through a
convention on cash pooling with the objective of maximum liquidity
without risk. Current investments are monetary mutual funds,
structured investments and remunerated deposits.
Credit risk
Credit risk is the Group’s risk of financial loss in the event that a
customer or other party in a financial instrument fails to meet their
contractual obligations. This risk derives mainly from trade receivables
and securities held for sale.
Trade and other receivables
Group exposure to credit risk is mainly influenced by individual
customer profiles. The Group has a policy of monitoring trade
receivables, allowing it to constantly control its third party risk
exposure. The Group believes that the credit risk of write-off of past
due receivables is minimal.
Securities risk
LISI S.A’s share portfolio is not a speculative, rather of investments and
holdings, and accordingly no particular share represents a risk. As at
December 31, 2011, the Group’s balance sheet displays cash and cash
equivalents for €45.7m. The cash equivalents are made of marketable
securities represented by monetary mutual funds, invested in very
short maturity securities and representing no risk in capital, in
accordance with the Group’s cash management policy. In accordance
with accounting rules, these instruments are valued at their market
price at year-end.
In accordance with IAS 32, own shares are recognized upon their
acquisition. Their value is deducted from equity and changes in value
are not recorded. When own shares are acquired or disposed of, the
shareholders’ equity is adjusted by the amount of the fair value of the
securities bought or sold. The acquisition of 105,304 own shares and
the disposal of 147,376 own shares in 2011 result in a €0.3m reduction
of shareholders’ equity over the period.
Liquidity risk
Beyond maximizing the operating cash flows intended to fund its
expansion and the payment of dividends to shareholders, the LISI
Group insists upon maintaining very broad access to liquidity to face
its commitments and expenditure requirements. As at December 31,
2011, the LISI Group enjoyed several bank facilities confirmed for the
medium term and unused bank facilities for a total of €35m. Including
the net cash flow of €68m and the non-utilized short account at
€54m, the LISI Group has €157m at December 31, 2011. At year end,
the Group believes its liquidity risk is low insofar as it has cash of
€68.0m against €73m as at December 31, 2010. The ratio of net debt
to equity is 19% at December 31, 2011 against 3.6% at December 31,
2010, as indicated below. This increase resulted primarily from the new
€75m loan taken out in connection with the purchase of the CREUZET
AERONAUTIQUE arm on July 22, 2011.
At 19% at December 31, 2011, the net debt on equity ratio is far below
120%, a limit that would be likely, according to certain bank covenants,
to lead to the early repayment of past drawdowns.
(In €’000)
2011
2010
Other short-term financial assets
51,882 58,619
Cash and cash equivalents
45,675 22,261
Cash available [A]
97,557 80,880
Short-term banking facilities [B]
29,565 7,923
Net cash [A – B]
67,992 72,957
Medium term loans > 1 year
149,552 81,632
Other financial creditors
21,079 8,801
Debt [C]
170,631 90,433
Net debt [D = C + A – B]
102,638 17,475
Group equity [E]
541,054 489,463
Debt ratio (expressed as %) [D / E]
19.0% 3.6%
N.B.: Reminder 2009 debt ratio as a %: 6.3%.