Consolidated financial statements
1
3
46
I
LISI 2014FINANCIALREPORT
2.4.3Marketrisk
The main risks covered by the Group's financial instruments are the
foreigncurrency riskand the interest rate risk.ThevalueasatDecember
31, 2014 of the derivatives used in themanagement of market risks is
detailedbelow:
(in€'000)
12/31/2014
12/31/2013
On the
assets
side
On the
liabilities
side
On the
assets
side
On the
liabilities
side
Interestraterisk
management
Variable ratepayers
swaps
2,269
688
Currencyrate
management
Currencyoptions
1,493
4,831
3,430
2,621
Total
1,493
7,100 3,430
3,309
Market risk is the riskofvariation inmarketprices, suchas interest rates,
affecting the Group result or the value of financial instruments held.
Managingmarket risk involves controllingmarket risk andmaintaining
itwithinacceptable limits,whilstoptimizingtheprofitability:riskratio.
TheGroupbuys and sellsderivatives and supports financial liabilities in
ordertomanagemarketrisk.
Hedging and market operations on interest rates, exchange rates or
securities using futures instruments are recorded in accordance with
theprovisionsofCRBF rulesnos.88-02and90-15.Commitments relating
to these transactions are posted to off-balance sheet accounts for the
nominalvalueofthecontracts.AsatDecember31,2014, thesumofthese
commitments represented the volume of transactions that remained
unsettledatyear-end.
The accounting principles applied vary according to the nature of the
instrumentsandtheoperator’s initial intentions.
Thecommitmentsaredetailed inparagraph2.7.4.1ofthisannual report.
2.4.3.1 Interest rate risk
TheGroup’smainexposure in terms of interest rate riskarises from the
exposureof itsfinancialassetsand liabilitiesatvariableratestovariations
in interestrates,whichcouldhavean impactonthesecash flows.
Within the frameworkof itsoverall policy, theGrouppartly converts its
initially variable rate liabilities into fixed rate liabilities, using financial
instrumentssuchas interestrateswapsand interestrateoptions.
These hedging instruments are negotiated on OTC markets with
banking counterparts, in a centralizedmanner by theGroup's Financial
Department. They are not considered by the Group to be hedging
instrumentsandarerecordedat fairvaluetothe incomestatement.
In2014, theGroupdidnotputanynewhedges inplaceand theamount
of its unexpired instruments at December 31, 2014 covered a nominal
amount of €90.1M. The features of these instruments arepresented in
note2.7.4 "Commitments".
As at December 31
st
, theGroup’s net variable rate positionbroke down
as follows:
(in€'000)
12/31/2014
12/31/2013
Loans–variable rates
188,100
71,542
Short-termbanking facilities
10,066
8,224
Cashandcashequivalents
(105,967)
(78,600)
Netpositionpriortomanagement
92,199
1,166
Interest rateswap
90,128
56,491
Hedging
90,128
56,491
Netpositionaftermanagement
2,071
(55,325)
Theapproachtakenconsisted intaking intoaccountasacalculationbasis
forthesensitivitytoratesthenet, lendingandborrowingpositions.
As at December 31, 2014, the impact of the non-hedgedportionof 100
basepointsofvariableratechangewasnotsignificant.
2.4.3.2Commoditiesprice fluctuation risk
This issue isdealtwith inChapter5§4.6.1.
2.4.3.3Currency risk
Overall, theGroup issubjecttotypesof foreignexchangerisk:
■■
Outside the EUR and USD zones, it has production facilities in a
dozen countries, inwhich themajority of the sales of its subsidiaries
are denominated in EUR or in USD, whereas their costs are mainly
denominated in local currency, which is theGBP, CAD, TRY, CZK and,
to a lesser extent, theMAD, CNY, INR and PLN, giving rise to a cash
requirement in local currencies. A strengthening of these currencies
wouldaffectthebusinessperformanceofthegroup;
■■
TheUSD constitutes the second invoicing currencyof theGroup, after
the EUR, mainly in the LISI AEROSPACE division. Invoicing in other
currencies isnotsignificantat theGroupscale.Aweakeningof theUSD
wouldaffecttheGroup'seconomicperformance.
Inordertoprotect itsresults,theGroup is implementingahedgingpolicy
aimed at reducing the factors of uncertainty affecting its operational
profitabilityandat giving it the timenecessary toadapt its costs toany
unfavorablemonetaryenvironment.
Hedgingof the foreignexchangeonrisk local currencies
TheGrouphas verygood visibilityover its local currency requirements.
Also, its hedging policy is based on themanagement of a portfolio of
financial instruments suchas forwardpurchasewithaknock-inoption,
allowing it toprotect itselfagainsta rise in local currencies.Thehedging
horizon is12-24months.
HedgingofUSDcurrencyrisk
As indicated above, the generation of USD arises mainly from the
Group's Aerospace Division, which benefits from long-term contracts
providing for invoicing in this currency. The hedging policy is based
on the management of a portfolio of financial instruments such as
accumulators,whichenables it to secureaguaranteedaveragehedging
