LISI GROUP - 2018 Financial report

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2.4 IFinancial risk management
The Group is exposed to the main following risks arising from the use of
financial instruments:
−− credit risk;
−− liquidity risk;
−− market risk,
−− interest rate risk;
−− Currency risk;
−− rawmaterials risk.
Thisnotepresentsthe informationontheGroup’sexposuretoeachofthe
risks above, its objectives, policy and procedures for measuring and
managing risk, and for capital management. Quantitative information is
given in other sections of the consolidated financial statements.
The aim of the Group’s risk management policy is to identify and analyze
the risks towhich it is exposed, define the upper and lower risk limits and
the controls required to manage risk and ensure compliance with the
limits defined.
2.4.1 ICredit risk
Credit risk is theGroup’s risk of financial loss in the event that a customer
or other party in a financial instrument fails to meet their contractual
obligations.Thisriskderivesmainlyfromtradereceivablesandsecurities
held for sale.
Trade and other receivables
Group exposure to credit risk ismainly influenced by individual customer
profiles. TheGroup has a policy ofmonitoring 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.
At December 31, 2018 the amount of provisions for doubtful debts
amounted to €3.5 million, to be compared to total receivables of
€223.0million. The amount of the permanent losses recognized over the
year was €0.1 million.
Risk on investment securities
On December 31, 2018, the Group’s balance sheet showed cash and cash
equivalentsof€156.9million(see§2.6.2.3Cashandcashequivalents).The
cash equivalents are mainly made of marketable securities represented
bymonetarymutual funds, invested in very shortmaturity securities and
representing no risk in capital, in accordance with the Group’s cash
management policy. In accordance with accounting principles, these
investments are valued at their market price at year-end.
2.4.2 ILiquidity risk
The Group’s cash management is centralized: the vast majority of the
cash surpluses or financing requirements of its subsidiaries, where local
legislation permits, is invested or financed by the parent company on
normal market terms. The central cashmanagement teammanages the
financing of the Group, current and forecast, and ensures its capacity to
meet its financial commitments. For that purpose, it maintains a level of
the available cash and confirmed credit facilities compatiblewith its size
and thematurities of its debt.
As at December 31, 2018, the LISI Group had available unused bank
overdraft lines of €45 million, and net cash of €156.9 million, resulting in
a total operating cash flow of €201.9 million, making it insensitive to
liquidity risk.
The Groups financing contracts provide for compliance with two main
ratio restrictions:
−− Net debt/Consolidated shareholders’ equity < 1.2;
−− Net debt/Consolidated EBITDA < 3.5.
As at December 31, 2018, the former amounted to 0,362 and the latter to
1.1717, compared with 0.337 and 1.5052, respectively, as at December 31,
2017.TheGroupthereforehasacomfortablemarginofsafety,confirming
its low liquidity risk.
(in thousands of euros) 12/31/2018 12/31/2017
Cash and cash equivalents 156,879 197,576
Cash available [A] 156,879 197,576
Current banking facilities [B] 20,480 16,440
Net cash [A - B] 136,399 181,136
Credits 449,847 455,400
Other financial creditors 25,859 25,891
NET DEBT [C] 475,706 481,291
Net debt [D = C + B - A] 339,307 300,155
Group Equity [E] 937,010 890,001
Debt ratio (expressed as %) [D / E] 36.2% 33.7%
N. B.: Reminder - 2016 debt ratio expressed as a percentage: 25.4%
The cash table for all financial liabilities is as follows:
At 12/31/2018 Breakdown of contractual flows not discounted on due date
Financial liabilities recorded on balance sheet
(in thousands of euros)
Net value
accounting
Less than
1 year
Between 1 and
5 years
Over
5 years Total
Non-current borrowings 337,354 301,595 35,759 337,354
Other non-current liabilities (excluding deferred
income)
1,734 1,734 1,734
Current borrowings 158,831 158,831 158,831
Trade and other accounts payable 298,469 298,469 298,469
Total financial liabilities 796,388 457,300 303,329 35,759 796,388