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RISK FACTORS
5
LIQUIDITY AND MARKET RISKS
5.3
LIQUIDITY AND MARKET RISKS
The Group has its own organisation enabling it to manage all market
risks in a centralised manner; interest rate risk, exchange rate risk,
counterparty risk and liquidity risks it is exposed to.
Within the Finance Department, Group Treasury operates on the
financial markets as the Group’s financial risk management body. This
unit is organised in a manner that ensures the segregation of tasks.
Every month, Group Treasury presents reports to the Deputy Chief
Executive Officer & Chief Financial Officer on the positions and results
of its management in compliance with the principles and policies put
in place by the Group’s senior management team. Most Group entities
use common software programs (Taïga, Kyriba or Swaps). These tools
help to secure flows and enable more reliable reporting, in accordance
with Group standards.
Type
Impact
Risk reduction measures
Risk of a failure to
effectively control finance
costs (interest rate risk).
Negative impact on
financial expenses.
To reduce this risk, whenever necessary the Group puts in place appropriate hedging measures, using
derivative financial instruments depending on market conditions, validated by the Deputy CEO & Chief
Financial Officer. In this case the financial instruments used are primarily swap
contracts
. On 31 December
2015 the Company reported cash flow that was considerably higher than its debt and therefore uses no
rate hedging.
At end-December 2015, the Group’s external debt essentially consisted of fixed-rate bonds (Ornane).
Odirnane bonds, themselves at a fixed rate, are considered to be equity instruments in the Group’s
consolidated financial statements.
Risk of a failure to
effectively control foreign-
currency flows and the
valuation of subsidiaries
outside the Eurozone
(exchange rate risk),
given the geographical
diversity of the Group’s
establishments and
operations.
Negative impact
on equity and/or
consolidated profit
due to exchange rate
volatility.
The Group monitors offerings and contracts in foreign currencies in order to safeguard operating margins
related to these contracts denominated in foreign currencies. The hedge mechanisms put in place when a
risk is identified mainly correspond to forward purchase or sale contracts, whose amounts and maturities
are matched with the underlying exposure.
To hedge currency operations within the Group, the Group makes use
of
cash swaps.
The Group’s balance sheet risk essentially relates to euro/sterling and euro/US dollar exchange rates
(or euro/Saudi Riyal, bearing in mind that when this document was released the US dollar/Saudi Riyal
exchange rate was virtually fixed).
Risk of default by a
financial counterparty.
Negative impact
on consolidated profit.
The Group undertakes counterparty review and monitoring procedures which are approved by
the management team. In 2014, it notably increased the number of front-running banking institutions it uses
for investments, hedges and borrowings.
Risk of inability to meet
financial commitments
(liquidity risk).
Negative impact on
the cost of debt and
on the Group’s image.
Assystem has put in place:
•
a liquidity optimisation process based on centralised cash management with monthly reports submitted
to the Deputy Chief Executive Officer & Chief Financial Officer;
•
a system for proactively managing its debt.
The Group has access to a €120 million credit facility (unused as at 31 December 2015) with a sufficient
maturity to finance its operating requirements.
Assystem has carried out a specific review of its liquidity risk and is in a position to deal with upcoming due
dates.
Risk of lack of control
over the number of shares
to be delivered on the
redemption of Ornane
and Odirnane bonds.
Dilutive effect
on capital.
Contractual provisions are in place giving the Group the possibility of only paying in the form of shares the
amount due in excess of the nominal amount of the bond issues. This limits the risk of the Company’s capital
being diluted. In view of the Assystem share price at 31 December 2015, no significant dilution is expected
in respect of these instruments.
Complexity of the
Ornane bonds.
Highly volatile
financial income.
Ornane bonds are an instrument with two components (a bond and a financial derivative). The change
in fair value of the derivative is recorded as a net financial result.
This accounting treatment has no cash effect and has an inverse impact as compared with changes in the
share price. Given the impact of the high volatility of this item in the income statement, Assystem has elected
to record changes in fair value of the Ornane’s derivative component in a separate line within financial
income and expenses. The Ornane debt was substantially reduced in 2014, with three partial redemptions
bringing the number of Ornane bonds outstanding to 1,234,858 as at 31 December 2015, thereby
reducing the impact this variation has on the net financial result on a like-for-like basis.
Risk of a breach of
a financial covenant
triggering early
repayment of borrowings.
Negative cash
impact.
The Group’s revolving credit facility includes a clause that requires compliance with a financial ratio
(covenant).
This ratio is consolidated net financial debt/consolidated EBITDA. It is calculated each half-year based
on the last twelve months. Non-compliance with the covenant entitles the lenders to require early repayment
of the outstanding amount under the facility. As at 31 December 2015, the ratio was below the ceiling
provided for in the covenant.
The Ornane and Odirnane bonds are not subject to any covenants.
66
ASSYSTEM
FINANCIAL REPORT
2015