Michelin couv courteGB

Future cash flows from these long-term investments (dividends,
fees for R&D services and trade mark licenses and injections
of capital) are hedged on a selective basis according to the
probability of the cash flows occurring. Investments that are
intended to be sold are generally financed in the local currency
of the originating country.
Non-consolidated holdings (Apollo Tyres, Gajah Tunggal,
Hankook and Société Africaine de Plantations d’Hévéas) are not
hedged.
Strategic Currency Risk
The Group takes a long-term approach to its strategic foreign
exchange risk exposure and takes care when deploying its production
sites to review changes in the geographic breakdown of
its key markets. Beyond this underlying mid- to long-term
approach, such risk does not in general give rise to financial
hedging. However, as can be seen from the following charts,
sales and added costs are fairly evenly balanced by currency, providing
the Group with a relatively high level of protection against
strategic currency risk.
31.3%
28.1%
53.2%
45%
7.6% 8.3%
5.5% 6.7%
8.7%
5.6%
North Euro Other Asian Other
America european currencies currencies
(US$, CAN$) currencies
Interest rate exposure table to December 31, 2004
A 1 point (1%) change in short-term interest rates would translate
into a €12.4 million change in Group interest charges.
Commodity Risk
The Group is exposed to commodity risk during the period
in which price rises cannot be passed on in the sale price of
manufactured products. This lag is generally less than one year.
The net position corresponds to the number of days’ sales
represented by inventories and firm purchase commitments (long
position), less the number of days required to pass on the price
rises (short position). In order to keep earnings volatility
Interest Rate Risk
Strategy • Fundamentals • Businesses • Résultats Earnings
Risk Management
The rate management policy is coordinated and monitored at
Group level with a view to protecting future cash flows and
reducing financial volatility. Short-term positions are managed at
the level of the individual countries. The Group uses several
instruments available on the market, and in particular interest
rate swap or forward interest rate contracts. Firm contracts are
recorded in the balance sheet upon inception. They are not
revalued at market value. Premiums paid on options contracts
are immediately written in the consolidated statement of income.
As part of its interest rate risk management policy, Michelin
group has contracted commitments for derivative interest rate
products with long-term maturity amounting to €890 million as
at December 31, 2004. The methods used to establish the
relevant valuations are the standard actuarial methods and option
models used by market actors. These valuations are carried out
and monitored daily by the Group’s Corporate Finance
Department.
At December 31, 2004
Payroll and operating expenses
Net sales
In € million, by maturity date Within one year 1 to 5 years Beyond Total
Interest Liabilities 2,546.3 1,332.4 1,000.0 4,878.7
Financial Assets (1,655.4) – – (1,655.4)
Net exposure before management 890.9 1,332.4 1,000.0 3,223.3
Interest rate swap operations 528.5 (528.5) – –
Net exposure after management 1,419.5 803.8 1,000.0 3,223.3
to a minimum, hedges are put in place when all of the following
conditions are met: the decision has been made to hedge commodity
risk on a regular basis, an organized market exists for the relevant
commodity, the price increase lag can be determined
in a reasonably reliable and consistent manner.
As at December 31, 2004, no significant commodity risk hedges
were in place.
Equity Risk
The Group had fully liquidated its portfolio of treasury stocks at
December 31, 2004.
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