Saint Gobain - Registration document 2016

7 RISKS AND CONTROL 1. Risk factors

1.3

FINANCIAL RISKS

1.3.1

Liquidity risk

b) Liquidity risk on investments fund units. To reduce liquidity and volatility risk, whenever Short-term investments consist of bank deposits and mutual funds. possible, the Group invests in money market and/or bond

a) Liquidity risk on financing

plans on the credit or capital markets, or to obtain such the financing or refinancing needed to cover its investment financing or refinancing on acceptable terms. In a crisis environment, the Group might be unable to raise managed by the Treasury and Financing Department of The Group’s overall exposure to liquidity risk on its net debt is Except in special cases, the subsidiaries enter into short- or Compagnie de Saint-Gobain, the Group’s parent company. percentage of overall debt. At the same time, the maturity Long-term debt therefore systematically represents a high be rolled over at maturity and to optimize borrowing costs. The Group’s policy is to ensure that the Group’s financing will schedules of long-term debt are set in such a way that replacement capital market issues are spread over time. The Group’s main source of long-term financing is bonds, program. Saint-Gobain also uses perpetual bonds, which are generally issued under the Medium Term Notes de Saint-Gobain or with the National Delegations’ cash pools. long-term financing arrangements with Compagnie bank borrowings and lease financing. participating securities, a long-term securitization program, occasionally Euro Commercial Paper and US Commercial Negotiable European Commercial Paper (NEU CP), and Short-term debt is composed of borrowings under Paper, but also includes receivables securitization programs securities and cash and cash equivalents. and bank financing. Financial assets comprise marketable two confirmed syndicated lines of credit (see chapter 9, Compagnie de Saint-Gobain’s liquidity position is secured by section 1). A breakdown of long-and short-term debt by type and Statements, which also details the main characteristics of the maturity is provided in Note 8.3 to the Consolidated Financial Group’s financing programs and confirmed credit lines. with a stable outlook by Standard & Poor’s since December 9, Saint-Gobain’s long-term debt issues have been rated BBB 2014. with a stable outlook by Moody’s since December 9, 2014. Saint-Gobain’s long-term debt issues have been rated Baa2 There is no guarantee that the Company will be in a position deterioration in the Group’s credit risk rating could limit its to maintain its credit risk ratings at current levels. Any interest on future borrowings. capacity to raise funds and could lead to higher rates of

Market risks 1.3.2 a) Interest rate risks

consolidated debt is managed by the Treasury and Financing The Group’s overall exposure to interest rate risk on Department of Compagnie de Saint-Gobain. Where Group’s parent company. counterparty is generally Compagnie de Saint-Gobain, the subsidiaries use derivatives to hedge interest rate risks, their The Group’s policy is aimed at fixing the cost of its borrowing costs. According to Group policy, the derivative medium-term debt against interest rate risk and optimizing interest rate swaps, cross-currency swaps, options – including financial instruments used to hedge these risks can include caps, floors and swaptions – and forward rate agreements. The table below shows the sensitivity at December 31, 2016 of pre-tax income and pre-tax equity to fluctuations in the interest rate on the Group’s net debt after hedging:

Impact on pre-tax income

pre-tax equity Impact on

(in € millions)

of 50 basis points Interest rate increase of 50 basis points Interest rate decrease

12

1

(12)

(1)

(fixed or variable) after hedging. risk hedging instruments and of gross debt by rate type chapter 9, section 1) provides a breakdown of interest rate Note 8.4 to the Consolidated Financial Statements (see b) Foreign exchange risk sharper than expected fluctuations in exchange rates insufficient to protect the Group against unexpected or resulting from economic and financial market conditions. The currency hedging policies described below could be transactions entered into by Group entities in currencies Foreign exchange risks are managed by hedging virtually all Compagnie de Saint-Gobain and its subsidiaries may use other than the functional currency of the particular entity. from current and forecast transactions. forward contracts and options to hedge exposures arising

7

169

SAINT-GOBAIN - REGISTRATION DOCUMENT 2016