BIC_REGISTRATION_DOCUMENT_2017

COMMENTS ON THE YEAR Management of currency and interest rate risks

4.3. Management of currency and interest rate risks

HEDGING FOREIGN EXCHANGE RISKS ON INTERNATIONAL MARKETS As BIC has a presence in more than 160 countries, business is subject to fluctuations in financial markets. Our foreign exchange (FOREX) risk management policy is to hedge transactions in foreign currencies through forward contracts and options. The Group does not hedge against FOREX conversion variations arising in the consolidation of foreign affiliates, except for intragroup dividends. Direct and equity investments are also usually carried out in local currencies. BIC manages foreign exchange risks only in order to protect profitability, enhance liquidity and security and does not engage in any speculative transactions. Group Treasury is not a profit center and reports the status of its FOREX hedges to the Leadership Team on a monthly basis, splitting the transactions matured and non-matured, and the related FOREX results. Since 2000, the Group has annualized FOREX hedging, permitting subsidiaries to bring their exposure close to zero while all risks are centralized at the parent Company level, except for non-convertible currencies. A regular reporting process common for all subsidiaries allows the identification of FOREX positions for each currency and their forward-looking evolution within the year. SOCIÉTÉ BIC consolidates subsidiaries’ FOREX risks and hedges the residual risk on financial markets. The Group’s main currency exposure is to the EUR-USD rate. In 2017, the yearly exposure for commercial flows was hedged at the average rate of 1 EUR = 1.1169 USD. Regarding the 2018 exposure, as of December 31, 2017, 90% of the identified exposure has been hedged at an average rate of 1 EUR = 1.13 USD. The main other currencies exposures in order of volume are the Canadian dollar, the British pound and the Australian dollar. These exposures are hedged between 80% and 100% for the full year 2018. As soon as a transaction is traded on the financial markets, Group Treasury categorizes the hedge in relation to its year of maturity and the nature of flows hedged, commercial or financial. All the hedging

products used comply with the Cash Flow Hedge qualification as defined by IAS 32/39. Thus, Group Treasury does not use any product with leveraging or deactivating effect that could create a position opposed to the intended direction of the Group exposure. This strict discipline in such levels of market volatility is fundamental for the financial security of the Group. The portfolio of financial instruments benefits from a specific real time monitoring by Group Treasury, which also provides a monthly mark-to-market valuation of each position, in compliance with IAS 32/39 requirements. All hedging contracts are set up with top-level banking institutions, making counterparty risk very low. Almost all our transactions are negotiated with the historical banks of the BIC Group, which are all “universal banks” with a good protective balance between their different activities that makes them less vulnerable to market risks. To date, the minimum Standard & Poor’s long-term rating of our main banking counterparties is A-, the range of ratings going from A+ to A-. Following the requirement of IFRS 13, the counterparty risk on our FX positions in portfolio as of December 31, 2017, has been calculated and the result is considered as not significant enough for a specific booking. In countries where it is not possible to centralize the risk effectively as described above, foreign exchange exposure is managed locally with continual monitoring by Group Treasury. Such exposure is mainly concentrated in Latin America and South Africa. These subsidiaries produce most of the products sold on their national market locally, but also import some components manufactured inside the Group. Local hedging is set up, after Group Treasury approval.

HEDGING INTEREST RATE RISK Exposure to interest rate fluctuations is very limited. All local funding needs are directly indexed on a short-term variable rate. Borrowers’ positions are insignificant at Group level, and are of too limited a timescale to require any relevant hedging.

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BIC GROUP - 2017 REGISTRATION DOCUMENT

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