2007 Reference document (PDF) - Valeo

3 Consolidated
PAGE 128
fi nancial statements at December 31, 2007
Notes to consolidated financial statements
Net investment risk
The Group is also exposed to foreign currency risk through its
investments in its foreign subsidiaries, particularly risks of movements
in the exchange rate of the currency of the country in which a
subsidiary is located against the euro, which is the Group’s functional
currency. Such movements can impact Group stockholders’ equity.
The Group can thus decide, on a case-by-case basis, to hedge the net
investment. Any gain or loss resulting from such a hedge is deferred
and recognized through stockholders’ equity until such time as all
or part of the foreign investment is sold.
No derivative instrument hedging a net investment in
a foreign operation is recognized in the Group balance sheet
at December 31, 2007.
■ Metal price risk
Exposure to metal price risk
The Group is exposed to the risk of fluctuations in the price of
non-ferrous metals when its purchase contracts with suppliers are
indexed whereas the sale contracts entered into with customers
do not provide for any such price escalation clauses. In most cases,
the Group hedges its future purchases of base metals over a period
which is generally less than six months. The commodities currently
hedged (copper, zinc, aluminum, processed aluminum) are quoted
on organized markets.
The Group favors hedging instruments which do not involve physical
delivery of the underlying commodity, such as swaps and options
based on the average monthly price.
The volume of non-ferrous metals hedged at December 31, 2007,
2006 and 2005 was 63,000 tons, 53,000 tons, and 56,400 tons,
respectively.
Base metals derivatives used by the Group are designated as
cash flow hedges under IAS 39. An unrealized loss of 12 million
euros related to hedges in place at December 31, 2007 has been
recognized through Group stockholders’ equity.
2007 Reference document - VALEO
The unrealized gain of 6 million euros recognized in stockholders’
equity at December 31, 2006 arose on hedges of commodity
purchases in the second-half of 2006 and was fully taken to
operating income during the first half of 2007.
Analysis of the sensitivity of net equity to metal price risk
A 10% increase in metal futures prices at December 31, 2007 would
increase net equity by 9 million euros due to the recognition of
derivatives as cash flow hedges. The same calculation for the year
ending December 31, 2006 would also lead to a 9 million euro
increase in net equity.
A fall of 10% in metal futures prices would lead to a 9 million euro
decrease in net equity.
For the purposes of the sensitivity analysis, it is assumed that all
other variables remain unchanged over the period.
■ Interest rate risk
At year-end, the Group’s net interest rate position based on nominal values can be analyzed as follows:
At December 31, 2007
(In millions of euros)
Exposure to interest rate risk
The Group uses interest rate swaps to convert rates on its debt
into either a variable or a fixed rate, either as from origination or
during the term of the loan. Cash and cash equivalents are mainly
invested in variable-rate instruments. Long-term debt is essentially
at fixed rates.
The interest rate derivatives used by the Group to hedge against
changes in value of its fixed-rate debt are designated as fair value
hedges under IAS 39. These derivatives are recorded at fair value in
the balance sheet, with changes in fair value taken to income. For
the effective portion of the hedge, the impact on income is offset
by a symmetrical revaluation of the hedged item. The interest rate
derivatives used by the Group to hedge its variable-rate debt do not
qualify as hedging instruments within the meaning of IAS 39.
The Group’s financing rate was 4.6% in 2007 (4.7% in 2006 excluding
non-strategic activities).
Less than 1 year 1 to 5 years More than 5 years Total
Fixed
portion
Variable
portion
Fixed
portion
Variable
portion
Fixed
portion
Variable
portion
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Fixed
portion
Variable
portion
Financial liabilities 27 262 698 3 614 1 1,339 266 1,605
Cash and cash equivalents
Net position before
- (771) - (2) - - - (773) (773)
hedging 27 (509) 698 1 614 1 1,339 (507) 832
Derivative instruments - 225 (225) - - - (225) 225 -
Net position after hedging 27 (284) 473 1 614 1 1,114 (282) 832
Total
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