Michelin couv courteGB

Risk Management
Michelin adopts a prudent and careful risk management policy.
Financial Risk
In a fast-moving global environment, where markets are volatile
and financial techniques changing constantly, the Group
treasury department’s mission is to:
• guarantee optimal Group financing both at parent and
subsidiary level,
• identify, assess and hedge all financial risks, in close
cooperation with Group operating entities.
Hedging activities are designed to provide the most cost effective
solutions to minimize the impact on Group earnings of changing
conditions in the financial markets. The aim is to reduce the
amount of capital required to manage these financial risks.
The Group does not carry out speculative transactions on the
financial markets.
Debt policy and Liquidity risk
The Corporate Finance Department is responsible for ensuring
that the Group’s liquidity position is satisfactory at all times, by
efficiently managing Group cash reserves and putting in place
financing for appropriate periods on legal terms that guarantee
the availability of the necessary funds when required.
The Corporate Finance Department also arranges confirmed
credit lines offering the Group the required flexibility in terms of
financing.
Based on available cash in hand and with a view to optimizing
interest expenses, the Group repaid in 2004 a number of loans
and reduced confirmed credit lines. These are now for the most
part mainly handled by Compagnie Financière Michelin (CFM),
the Group’s financial holding. Barring particular difficulties to do
with local financial market specificities, Michelin’s operational
subsidiaries have access to ample non confirmed credit lines
from banks to meet their day-to-day financing requirements,
as well as to CFM’s confirmed credit lines to deal with major
contingencies.
As a matter of policy, the Group does not include in the “longterm
debt” category any contract providing for ratio or “material
adverse change” clauses with respect to its own financial situation
or “rating” as that could affect its ability to mobilize loans
or affect their term. As at December 31, 2004 no such clauses
featured in any Group borrowings whatsoever.
At December 31, 2004 Standard & Poor’s and Moody’s ratings
for the Group remained unchanged on last year:
Strategy • Fundamentals • Businesses • Résultats Earnings
Risk Management
CGEM CFM MFPM
Short-term Standard & Poor’s A2 A2 A2
Moody’s P2 P2 P2
Long-term Standard & Poor’s BBB+ BBB+ BBB+
Moody’s Baa2 Baa1 Baa1
Outlook Standard & Poor’s Negative Negative Negative
Moody’s Stable Stable Stable
Analysis of the Group’s liquidity position
In € million Dec. 31, 2004 Dec. 31, 2003
Long and short-term debt 4,879 5,214
Long-term (1 year +) 2,874 3,240
Short-term (less than 1 year) 2,005 1,974
Realizable and available 1,655 1,774
Long-term undrawn confirmed credit
lines including subordinated credit lines 1,517 2,854
Schedule of long-term net debt and undrawn credit
lines (1 year +) (in € million)
1,500
1,000
500
Total short-term debt = €2,874 million
Total undrawn credit lines > 1 year = €1,517 million
0
2006 2007 2008 2009 2010 2011 2012 2013-33
Total long-term debt
Undrawn credit lines over 1 year
Market Risk
Transaction Currency Risk
Pursuant to Group policy, subsidiaries calculate several times
monthly their foreign exchange risk exposure arising from their
currency transactions and hedges it systematically. A number of
temporary exemptions can however be granted by the Financing
Department (Direction des Financements) where justified under
exceptional market conditions. Foreign currency receivables and
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