Universal Registration Document 2019

67 LISI 2019 UNIVERSAL REGISTRATION DOCUMENT Consolidated financial statements 2 3.6.5  /  Financial and market instruments The main risks covered by the Group’s financial instruments are the foreign currency risk, raw materials risk and the interest rate risk. Derivatives that do not meet the hedge criteria are valued and recorded at their fair value through profit or loss. The profit or loss arising from the re-evaluation at fair value is immediately posted to the income statement. When a derivative is designated as a hedge for cash flow variations of a recognized asset or liability, or of a highly probable, expected transaction, the effective share of change in fair value of the derivative is recognized directly in shareholders’ equity. Accumulated, associated profits or losses are taken out of shareholders’ equity and included in the income statement of the period(s) duringwhich the covered transaction affects the profit or loss. The fair value as at December 31, 2019, of the derivatives used in the management of market risks is detailed below: (in thousands of euros) 12/31/2019 12/31/2018 On the assets side On the liabilities side On the assets side On the liabilities side INTEREST RATE RISK MANAGEMENT Variable rate payers swaps 1,128 1,189 CURRENCY RISK MANAGEMENT Foreign exchange derivatives 10 168 RAW MATERIALS RISK MANAGEMENT Raw materials derivatives 504 43 TOTAL 504 1,138 43 1,358 3.6.5.1 - Commodities price fluctuation risk At December 31, the Group hedged the risk on its future purchases of the raw materials nickel and aluminum. The fair value of the derivatives used (commodity swaps) was €+504 thousand at the close. Other rawmaterials cannot be hedged due to lack of available instruments. 3.6.5.2 - 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. 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. Aweakening of the USDwould 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 The Group has very good visibility over its local currency requirements. 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. 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. 3.6.5.3 - Currency risk - financial instrument sensitivity The sensitivity of financial instruments to a +/-10% change in the EUR/ USD exchange rate is as follows: 12/31/2019 Dollar/euro exchange rate at the closing date 1.1234 Euro/dollar exchange rate development assumptions ‑10% +10% Euro/dollar exchange rate used for the sensitivity analysis 1.01106 1.23574 Impact in € millions (before taxes) -12.5 9.4