2010 annual report - touax group

Annual report 2010
❙ Hedging of Interest Rate Risk
The Group uses both variable and fixed-rate refinancing, and
uses interest rate derivatives in order to reduce its net exposure
to interest rate risk. These derivatives are never held for speculation.
Those instruments are mainly interest rate swap agreements,
but the Group may occasionally use interest rate options (by
purchasing caps or tunnels). These instruments are traded
over-the-counter with first-rate bank counterparties.
Off balance sheet financial instruments had the following characteristics
on December 31, 2010:
(€ thousands) Par value Par value by maturity date Valuation at
< 1 year 1 - 5 years > 5 years 31/12/2010
Interest rate swaps borrower fixed rate / lender variable rate
EUR Euribor / fixed rate 5,018 963 3,242 813
USD Libor / fixed rate
PLN Wibor / fixed rate 7,093 1,599 5,150 344
TOTAL INTEREST RATE HEDGING 12,111 2,562 8,392 1,157 48
All the interest rate derivatives meet the accounting criteria for hedges (hedging of cash flows) insofar as they are traded in order
to perfectly reflect the maturity dates of the variable rate debts they hedge.
The impacts of derivative instruments on the gross debt broken down by currency are presented below:
(€ thousands) Amounts at 31 December 2010
before hedging impact of derivatives after hedging
Euro at fixed rate 131,833 5,018 136,851
Euro at floating rate 159,225 -5,018 154,207
Dollar at fixed rate 17,908 17,908
Dollar at floating rate 7,310 7,310
Zloty at fixed rate 5,066 7,093 12,159
Zloty at floating rate 10,119 -7,093 3,026
Other currencies at fixed rate 285 285
Other currencies at floating rate
Total debt at fixed rate 155,091 12,110 167,201
Total debt at floating rate 176,655 -12,110 164,545
TOTAL DEBT 331,746 331,746
❙ Sensitivity to changes in interest rates
A 100 basis point increase in short-term rates would have a
direct impact on the Group's financial charges of almost €1.2
million on December 31, 2010, around 8% of theoretical interest
expenses.
This theoretical calculation, which takes into account cash and
cash equivalents as well as derivatives, is based on the assumption
that net debt remains stable and that fixed-rate debt
reaching maturity is replaced by variable-rate debt.
➜ Currency risk
Due to its international presence, the TOUAX Group is exposed
to currency rate fluctuations. Certain years almost 50% of the
Group's revenue are in US dollars, and a significant share of its
revenues is generated in Czech crowns or Polish zlotys.
Nevertheless, the Group believes it has relatively little exposure
to operational currency risk as income and expenses are generated
in the same currency, and because the Group finances its
assets in the same currency as its revenues.
However, the Group may need to set up hedges for its budget or
for orders when operational currency risks are identified. In this
case, the hedging instruments used are forward sales or purchases,
or plain vanilla options).
The Group's main identified operational currency risks are related
to:
• the structure of overhead for the Shipping Containers business,
which is mostly in euros while revenues are in US
dollars,
• the production of modular buildings, where the Czech crown
is the main currency but sales are in euros.
There was no hedging of operational currency risks on December
31, 2010.
The Group's objective is to minimize financial currency risks, i.e.
risks related to financial assets in foreign currency whose fluctuations
would affect net financial income. Balance sheet
positions in foreign currency are tracked monthly and reported
to the Executive Committee. On December 31, 2010, those positions
were not significant.
Due to its presence in various countries, the Group is subject to
currency risks related to its investments in foreign subsidiaries.
This risk arises in the changes in the Group's equity (net investment
rule) and in the conversion of the subsidiary's results into
euros for the parent company.
The Group does not hedge the currency risk concerning its
equity. However, on several occasions in the past it has hedged
88