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Within the framework of its overall policy, the Group partly converts
its initially variable rate liabilities into fixed rate liabilities, using
financial instruments such as interest rate swaps.
These hedging instruments are negotiated on OTC markets with
banking counterparts, in a centralized manner by the Group’s
Financial Department. They are not considered by the Group to be
hedging instruments and are recorded at fair value to the income
statement.
In 2017, the Group put new hedges in place and the amount of its
unexpired instruments at December 31, 2017 covered a nominal
amount of €66.8 million. The features of these instruments are
presented in note 2.7.4 “Commitments”.
As at December 31, the Group’s net variable rate position broke down
as follows:
(in €’000)
12/31/2017
12/31/2016
Loans – variable rates
100,052
133,500
Short-term banking facilities
16,441
15,984
Cash and cash equivalents
(180,174)
(123,314)
NET POSITION PRIOR
TO MANAGEMENT
(63,681)
26,170
Interest rate SWAP
66,797
73,660
HEDGING
66,797
73,660
NET POSITION AFTER
MANAGEMENT
(130,478)
(47,490)
The approach taken consisted in taking into account as a calculation
basis for the sensitivity to rates the net, lending and borrowing
positions.
At December 31, 2017, the impact on the unhedged portion of a 100
basis point change in the variable rates was €1,305 thousand.
2.4.3.2 Commodities price fluctuation risk
At December 31, the Group hedged the risk on its future purchases
of the raw material nickel. The fair value at December 31, 2017 of the
derivatives used (commodity swaps) was +€1,219,000.
More information is provided in chapter 5 paragraph 4.6.1.
2.4.3.3 Currency risk
Overall, the Group is subject to two types of foreign exchange risk:
–
–
Outside the EUR and USD zones, it has production facilities
in a dozen countries, in which the majority of the sales of its
subsidiaries are denominated in EUR or in USD, whereas their
costs are mainly denominated in local currency, which is the
GBP, CAD, TRY, CZK and, to a lesser extent, the MAD, CNY, INR
and PLN, giving rise to a cash requirement in local currencies.
A strengthening of these currencies would affect the business
performance of the Group;
–
–
USD ranks second in terms of amount invoiced in that currency by
the Group, after the EUR, mainly in LISI AEROSPACE. Invoicing in
other currencies is not significant at the Group scale. A weakening
of the USD would affect the Group’s economic performance.
In order to protect its results, the Group is implementing a hedging
policy aimed at reducing the factors of uncertainty affecting its
operational profitability and at giving it the time necessary to adapt
its costs to any unfavorable monetary environment.
Hedging of the foreign exchange on risk local currencies
TheGrouphasverygoodvisibilityoverits localcurrencyrequirements.
Also, its hedging policy is based on managing a portfolio of financial
instruments to protect against a rise in local currencies. The hedging
horizon is 12 - 24 months.
Hedging of USD currency risk
As indicated above, the generation of USD arises mainly from
the Group’s Aerospace Division, which benefits from non-current
contracts providing for invoicing in this currency. The hedging policy
is based on the management of a portfolio of financial instruments to
secure a guaranteed average hedging rate. The hedging horizon may
extend over up to five years.
Portfolio of foreign exchange derivatives
The main hedging instruments used by the Group as part of its foreign
exchange risk management are forward sales, purchases and sales
of options and structured products.
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LISI 2017 FINANCIAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
3