QUADIENT - 2020 Universal Registration Document

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FINANCIAL STATEMENTS Consolidated financial statements

Risk management 12-4:

12-4-1: ACCOUNTING PRINCIPLES

Quadient uses derivative instruments to limit its exposure to the risk of fluctuations in interest rates and exchange rates. In accordance with IFRS 9, Quadient initially recognizes all derivative instruments on the balance sheet under financial instruments at fair value. This is estimated on the basis of market conditions. The fair value of the derivatives is then re-assessed at each accounting date thereafter. Accounting for hedging transactions On implementation of the hedge, the Group clearly identifies the hedging and hedged items. This hedging is formally documented by identifying the hedging strategy, the risk hedged and the method used to assess the effectiveness of the hedge. Tests are then carried out to demonstrate the effectiveness of the hedge. The treatment of derivative instruments identified as forming hedges varies in accordance with IFRS 9 definitions, according to whether they are: fair value hedge; ● future cash flow hedge; ● net investment hedge. ● Fair value hedge Changes in the fair value of derivative instruments are charged to the income statement. At the same time, the item hedged is also recognized at fair value up to the risk hedged. As a consequence, changes in the two items are recognized symmetrically under net financial expenses, so that only ineffective hedging impacts the income statement.

This approach is applied in particular to swaps of fixed to variable rate and to the corresponding hedged debt. Future cash flow hedge For changes in the fair value of derivative instruments, changes in the effective portion of the hedging relationship are charged to shareholders’ equity, while changes in the fair value of the ineffective portion are charged to the financial income. Profits and losses that are recognized through equity are posted to the income statement for the period during which the hedged transaction affects net income. This treatment is applied in particular to swaps of fixed to variable rate, as well as to the purchase and sale of currency futures or options. Net investment hedge The accounting principle is similar to future cash flow hedges. The gain or loss relating to the effective portion of the hedging instrument is charged directly to shareholders’ equity, while the ineffective portion is charged to the income statement. When the Group withdraws from a foreign business, the cumulative value of profits and losses that have been recognized directly in shareholders’ equity is recognized through the income statement. Recognition of derivatives not qualifying as hedging instruments For derivatives, which do not meet the criteria for recognition as hedging instruments as described above, any gain or loss resulting from changes in fair value is charged to the financial income. Quadient uses the services of an independent consultancy based in Paris. This consultancy helps Quadient in its exchange rate risk hedging policy, and values its portfolio of hedging instruments under IFRS. This ensures the consistency of methodologies used and provides a financial opinion independent of any financial institution. This company has the technical and human resources to monitor interest rate and exchange rate trends every day and alert the Group treasurer in light of the strategy in place. However, no guarantee can be given regarding the Group’s ability to hedge effectively against market risks.

12-4-2: MARKET RISKS

The Group is mainly exposed to currency exchange rate risks through its international activity and to interest rate risks through its debt. The Group treasurer, who reports to the Group Chief Financial Officer, monitors exchange rate and interest rate risks for all Quadient Group entities. A report showing the Group’s underlying position and hedges is sent each month to the Chief Financial Officer to provide complete visibility on the financial risks relating to hedging activities, and to measure the financial impact of unhedged positions.

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UNIVERSAL REGISTRATION DOCUMENT 2020