2007 Reference document (PDF) - Valeo

3 Consolidated
PAGE 126
fi nancial statements at December 31, 2007
Notes to consolidated financial statements
■ Fair value of c ommodity (metals) derivatives
At December 31
(In millions of euros)
2007 Reference document - VALEO
2007 2006 2005
Nominal Fair value Nominal Fair value Nominal Fair value
Swaps – Purchases 2 - 81 7 125 22
Swaps – Sales (8) 1 (2) - (2) -
Total assets (6) 1 79 7 123 22
Swaps – Purchases 146 (13) 36 (1) 1 -
Swaps – Sales - - (3) - (2) -
Total liabilities 146 (13) 33 (1) (1) -
Net impact (12) 6 22
The fair value of metals derivatives is computed using the following valuation method: future cash flows are calculated using forward commodity
prices and forward exchange rates at year-end and are then discounted using the interest rate of the functional currency.
■ Fair value of i nterest rate derivatives
At December 31
(In millions of euros)
2007 2006 2005
Nominal Fair value Nominal Fair value Nominal Fair value
Interest rate swaps 225 (6) 227 (9) 732 (5)
Total liabilities 225 (6) 227 (9) 732 (5)
The fair value of interest rate swaps is computed by discounting future cash flows at market interest rates at year-end.
5.3. Risk management policy
In the context of its industrial and sales activity, the Group operates
in an international environment in which it is confronted with market
risks, specifically foreign currency risk, price risk and interest rate risk.
It uses derivatives to manage and reduce its exposure to changes in
foreign exchange rates, commodity prices and interest rates.
In general, foreign currency risks, price risks in respect of base metals
and interest rate risks for all Group companies are managed centrally
by Valeo.
In addition to market risks, the Group is also exposed to liquidity
risk, financial instrument counterparty risk and credit risk in respect
of its accounts and notes receivable.
Each month, the Financial Control Department provides the Chairman
with a report on exposure to financial risks managed by the parent
company and an analysis of credit risk arising on accounts and notes
receivable. This information establishes the greater part of the Group’s
exposure to market, liquidity and counterparty risk to be identified.
Recommendations based on the findings of the reports are then
submitted to the Chairman by the Financial Affairs Department.
5.3.1. Market risk
■ Foreign currency risk
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Exposure to foreign currency risk
Group subsidiaries may be exposed to transaction risk in respect of
purchases or sales transacted in currencies other than their functional
currency, regardless of whether or not such transactions are already
recognized in the balance sheet or are simply forecast future
transactions. Hedges of subsidiaries’ current and future commercial
transactions and investments are generally for durations of less than
six months.
Subsidiaries principally hedge their transactions with Valeo, which
hedges net Group positions with external counterparties.
The principal hedging instruments used by the Group are forward
purchases and sales of foreign currencies, as well as swaps and
options. No foreign currency derivative is recognized as a hedging
instrument within the meaning of IAS 39. Exceptionally, the Group
applies hedge accounting to highly probable future cash flows from
the date the derivatives are contracted.
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