2007 Interactive Registration Document - Renault

02 RISK
MANAGEMENT REPORT
MANAGEMENT
FOREIGN EXCHANGE RISK
Automobile
Automobile is naturally exposed to foreign exchange risk in the course of its
industrial and commercial activities. Foreign exchange risk on these activities
is monitored through Renault’s Central Cash Management and Financing
Department.
Almost all foreign-exchange transactions are executed by Renault Finance.
Exchange rate fl uctuations may have an impact in fi ve areas:
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operating margin;
fi nancial results;
share in the net income of associated companies;
shareholders’ equity;
net fi nancial debt.
Impact on operating margin: Operating margin is subject to changes caused
by exchange rate fl uctuations. Currency hedges must be formally authorized by
the Finance Department or senior management. Once the hedges have been
put in place, reports must be submitted to senior management on the results.
No signifi cant hedges were put in place in 2007.
Based on the structure of its results and operating cash fl ows in 2007, the
Group estimates that a 1% appreciation of the euro against all other currencies
would have had a negative impact of €46 million (excluding hedges, if any).
In 2007 the Group was mainly exposed to the pound sterling and the Korean
won. Under the same assumptions, a 1% rise in the euro against sterling would
have a negative impact of €16 million on operating margin.
Impact on financial results: Investments by Automobile subsidiaries are mainly
fi nanced through equity contributions. In principle, other fi nancing requirements
are met in local currency by Renault SA. Financing fl ows in foreign currencies
handled by Renault SA are hedged in the same currencies, thereby ensuring
that exchange rate fl uctuations do not distort the fi nancial results.
If local circumstances preclude refi nancing by Renault SA, the subsidiary may
tap external funding sources. If external fi nancing in non-local currencies
is necessary, the parent company exercises strict supervision over the
transactions. Where cash surpluses are reported in weak-currency countries,
and not centralized at the parent company, deposits are usually made in the
local currency under the strict control of the Group’s Finance Department.
Renault Finance may engage in foreign-exchange transactions for its own
account within strictly defi ned risk limits. Foreign-exchange positions are
monitored and marked to market in real time. Such proprietary transactions
are intended chiefl y to maintain the Group’s expertise on the fi nancial markets
and are managed so as to avoid material impacts on Renault’s consolidated
fi nancial statements.
All of the Group’s foreign-exchange risk exposures are aggregated and are
included in a monthly report.
Impact on share in the net income of associated companies: On the
basis of their contribution to 2007 results, a 1% rise in the euro against the
Japanese yen or the Swedish krona would have lessened Nissan’s contribution
to Renault’s income by €13 million and Volvo’s contribution to Renault’s income
by €4 million, all other things being equal.
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Impact on shareholders’ equity: Equity investments in currencies other than
the euro are not usually hedged. This may lead to translation adjustments,
which are accounted for by the Group as shareholders’ equity. However, the
size of the Nissan investment was such that Renault’s share in yen of Nissan’s
net worth has been covered by a specifi c foreign exchange hedge, amounting
to ¥ 824 billion at December 31, 2007 with maturities out to 2014. The nature
and amount of each transaction are indicated in note 13-G of the notes to
the consolidated fi nancial statements.
Impact on net financial debt: As mentioned above, a portion of Renault
fi nancial debt is denominated in yen so as to cover part of the investment
in Nissan. A 1% increase in the euro against the yen would reduce Automobile’s
net debt by €49 million.
Sales Financing
The consolidated foreign exchange position of RCI Banque has always been
very small. No foreign-exchange positions are permitted in connection with
refi nancing activity: RCI Banque’s trading room systematically hedges all the
cash fl ows concerned.
Sales Financing subsidiaries are required to refinance in their domestic
currencies and therefore have no foreign exchange exposure.
However, there may be residual or temporary forex positions related to timing
differences in funds fl ows, which are inevitable when managing a multicurrency
cash position. Any such positions are monitored daily and hedged
systematically.
The foreign exchange position on December 31, 2007, was €2.3 million.
INTEREST-RATE RISK
Automobile
Interest rate risk can be assessed on the basis of debt and fi nancial investments
and the payment terms set out in the indenture (fi xed or variable rate). Detailed
information on these debts is indicated in note 24 of the notes to the c onsolidated
fi nancial s tatements.
For Automobile, the interest rate risk management policy is based on two
principles: long-term investments are fi nanced at fi xed interest rates while
liquidity reserves are built up at fl oating rates. Further, yen-denominated
fi nancing to hedge Nissan’s shareholders’ equity is taken out at fi xed rates for
periods ranging from 1 month to 7 years.
Automobile’s financial liabilities totaled €7,554 million on December 31,
2007. After stripping out derivatives, €4,996 million of that debt is yen-based
(¥824 billion), consisting either of yen-denominated paper (samurai bonds,
EMTNs) or synthetic debt (euro loans swapped for yen).
As far as possible, Renault SA centralizes the free cash fl ow of Automobile,
investing it exclusively in euro. Under its cash investment policy, Automobile
held €3,697 million in cash and cash equivalents (mutual funds and other
securities) at December 31, 2007. These assets meet strict investment safety
standards (no equity risk during the investment period, zero foreign exchange
risk and liquidity risk).
72 Registration Document Renault 2007
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